Market Musings 070226: My ETF Model Portfolio
Market Musings 070226:
My ETF Model Portfolio
Podcast: After the correction, is gold still a safe haven? (click on link to listen)
In this podcast, Edmund Shing, Global Chief Investment Officer, reviews the recent performance and volatility of gold and gives his outlook.
My ETF Model Portfolio
How have I gone about creating an ETF model portfolio?
First, some basic principles.
I have deliberately taken a relatively high risk approach at the moment, as I judge that we are in a sweet spot for financial market risk.
You will thus not find any defensive choices in the 8 ETFs I have chosen for this model portfolio - no bond ETFs, for instance.
This will change over time, as my assessment of market risk changes.
I have adopted a dual momentum approach, selecting the 8 ETFs according to:
- Do they have strong absolute positive price momentum over the last 6 months?
- Do they have strong relative price momentum (versus the broad global stock market) over the last 6 months?
- Do they give some measure of regional and sector diversification from other ETFs in the selection?
Is the global stock market trending higher? Yes
All major stock markets are trending higher over the last 6 months - but it is clear that the US is now lagging behind other regions such as Emerging Markets and Europe.
This should be unsurprising, as we have an positive environment of:
- Solid/accelerating economic growth
- Falling or low inflation
- Abundant global macro liquidity
- Low or falling central bank interest rates
- Earnings growth projected to be 10%+ for each region's stock market in 2026
- Valuations that are pretty reasonable outside of US mega-cap tech stocks
In recent months, the MSCI All Country World ex US index (in blue) has shown much stronger performance than US large-caps (in green), a continuation of the 2025 outperformance trend.
This has been helped by a renewed bout of US dollar weakness against most major and emerging market currencies.
Which regional stock markets are outperforming the global stock index?
Emerging markets have been strong, led by Asian markets such as the tech-heavy Korean KOSPI index and cheap commodity-linked Latin American markets such as Brazil and Mexico.
In Europe, leading countries include Sweden, Greece and Belgium, with an honourable mention for the UK.
Which sectors are outperforming the global stock index?
In terms of specific sectors, I would concentrate on the following themes with strong momentum:
- Commodity exposure: still strong despite the pullback in metals prices since 28 January. This includes both mining and oil & gas stocks. The latter are rallying despite low global oil prices, which is perhaps surprising. Oil & Gas remains a good cyclical value sector with attractive dividends and shareholder returns.
- European banks: the strong momentum from last year has carried over into this year, driven by strong results, robust balance sheets allowing for share buybacks and growing earnings and dividends. Despite last year's strong sector performance, European bank valuations remain relatively cheap and could rerate further.
- US industrial sector: thanks to a combination of huge and growing investment spending on AI/data centres by US hyperscalers, and efforts by the Trump administration to encourage repatriation of manufacturing to the US via:
a) import tariffs,
b) domestic tax credits, and
c) a weaker US dollar,
the industrial sector is seeing a resurgence in activity.
European, US and Canadian Oil & Gas sectors hit new highs
Global miners, copper miners are still strong despite the recent correction in metals prices
European banks continue to outshine US banks
AIRR US Industrial Renaissance ETF (in blue): a good way to play the resurgence in US manufacturing and investment
(S&P 500 in green)
The Final ETF Selection: 8 equally-weighted ETFs (in GBP)
So I have selected 8 GBP-based ETFs (euro-based versions are also available), allocating £125,000 to each ETF for a notional £1 million portfolio.
I will give periodic updates on the performance and any changes to this ETF portfolio in the coming weeks.
As you can see, there is a strong bias to commodities (Europe energy, global mining, copper miners, uranium miners). There is also a strong bias to emerging markets (Latin America, Pol;and) and to value sectors and regions (Latin America, Poland, Europe Banks, Europe Energy). These remain my strongest convictions for the next few months.
Have a great week,
Edmund
Disclaimer
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42 comments
I got started buying ETFs to diversify out of the UK on Trumps Liberation Day. My current list is below, (with quite a bit of Edmund overlap).
All have graphs that go up left to right, and all but one (a World Value ETF I brought this week) are in profit:
Hi iwright7, thanks for showing us your ETF portfolio. Would you mind sharing how you selected those ETFs?
pka,
They all exibit recent "Trend Clarity" (a steady upward climb) which you can select by "eyeballing" a 12M graph and were at or near a 52Wk High when purchased.
Alternatively you can apply the last 90 days regression techniques of "Stocks on the Move" by Andreas Clenow.
Also I try to pick ETF themes that are, "of their time".
Hi iwright7, thanks. You seem to be using a momentum approach for selecting ETFs. Which website do you use to "eyeball" their 12M graphs?
Stockopedia or justETF websites
Thanks iwright7. That paper is interesting. I suspect that its 13% per annum historic return would have been higher if it had included an 'absolute momentum' filter in its selection rules. An example of such a filter is the one Edmund Shing describes in this post, which is to only include an ETF in the portfolio if it has had positive price momentum over the last 6 months. This additional filter would change the strategy into a 'dual momentum' one. The main benefit of this filter is to keep the portfolio out of a candidate country's ETF during a long bear market in that country's equities.
pka,
Yes I am sure you are correct that the Lazy Momentum ETF Strategy can be improved upon using the likes of Dual Momentum etc.
Indeed Gary Antonacci has "evolved" his Dual Momentum Strategy of 10 years ago into wider assett classes (inc Bitcoin), additional technical indicators and differnet timeframes. It depends on how deep you want to go to try to push up the excess return%.
pka,
One other thing that alerted me to country index ETFs like Poland and Spain is a new wonderfully simple 6 month rebalence strategy. Its called "The Lazy Man's Momentum Strategy".
It wont shoot the lights out, but it has produced about +3% excess return historically (13%/annum), for next to no input...
https://papers.ssrn.com/sol3/p...
Sounds perfect less time on research more time chilling 13% per annum is more than adequate doubling your money every five and a half years on average.
13% per annum in the future is not guaranteed!
Never said it was pka just pointing out with that kind of historic return is impressive and you did say it could possibly have been improved upon if certain filters were included.
Thank you for this. CB5 has higher charges than X7PP, which has identical performance over the years, 0.20 TER.
Thanks Edmund another great insight. I followed your Market Musings 301125: Ideas for H1 2026 post by creating a mini portfolio of the ideas. My only issue is I didn't put much in!
I hold #WENS as an alternative to #ENGE
Saltash Bob
"I've never invested in ETF funds owing to their lack of transparency and
therefore my inability to be sure what I am actually invested in,"
I think that this point has been covered in the responses below. A more nuanced concern is the counter party risk, particularly with synthetic ETF's where the security of the underlying positions can be difficult to establish. This has been discussed a few times on Stockopedia and many ETF investors will only invest in physical ETF's to try and mitigate this risk.
If you are interested in researching further, the link below gives an European perspective on ETF risk. As usual, there is no investment which gives 100% security so you have to weigh up the risks to your own personal circumstances.
I'vuropa.eu/press/financial-stability-publications/fsr/special/html/ecb.fsrart201811_3.en.html
For my own part, I am a very long term rather cautious investor, however, as part of a portfolio I have held a gold ETC for over 10 years in addition to mining stocks and trusts. It is something I am fairly comfortable with.
I would agree with other posters here that a combination of indivdual stocks, investment trusts and ETF,s give a very useful spread of investment options and allow very good diversification. I find the articles by Edmund and Jamesalastair very interesting and also hope that they continue as a regular feature on Stockopedia.
Great post Edmund. Really enjoyed reading it this morning over my coffee.
I've never invested in ETF funds owing to their lack of transparency and therefore my inability to be sure what I am actually invested in, other than hopefully a sufficiently broad number of companies to smooth out market volatility in a particular sector and capture enough winners to provide growth and momentum greater than market averages. I reasoned when investigating them that my whole reason for subscribing to Stockopedia was to identify best performing stocks for myself and not bother with and discard any found falling short and losing value and momentum. Investing in an ETF might be good for the faint hearted, or those tempted too often, to hang on to their gains too long, or perhaps lacking the inclination, or spare time to research for themselves the wealth of information provided by the constantly updated stock ranks, but for now with such question marks hanging over whole classes of shares in Technology, AI. Oil and Gas not to mention geographic uncertainties, I'll be happy enough to stick with Naps based on a selection of UK best picks. Good luck to you with your ETF selection I'll certainly be ready to think again.
Hi Saltash Bob
I don't think that investing in ETF's is an alternative to investing in individual stocks - but rather they complement each other. Same goes for investment trusts. My portfolio contains all three classes of instrument:- individual company shares, investment trusts, ETF's.
Last year Ed Shing wrote about SPOL as a way of gaining exposure to the Polish market. I did a modest amount of due diligence and bought in. It's doing very well.
I can't remember where I heard about FEML - an investment trust investing in emerging market stocks - it might have been Ed, or possibly just the result of trawling. But that's doing OK too.
Bottom line the inclusion of SPOL and FEML - (and other ETF's and IT's) has provided my portfolio with diversification and has helped reduce correlation. All of which is good.
Also the fact that the above are not individual companies lessens the risk and reduces volatility. That means I'm more comfortable building to a significant position size relatively quickly.
Basically it's not my objective to prove to myself or others that I am a stock picking genius. It's not my objective to achieve maximum return - (in part by accepting excess risk). What I want is a solid performance with a manageable risk and an achievable workload. ETF's and IT's are helping me do that. And Edmund is a great source of ideas.....
I should add that in an ideal world I'd manage my investments so that at the point when I shuffle off this mortal coil I leave behind a portfolio of collective investments - IT's and ETF's which combine low risk with reasonable return and which can be held by my widow in perpetuity without her having to do much if anything to the portfolio. Chat GPT has helpfully advised me of the life expectancy of someone in my circumstances and with my history so I have set myself a deadline to achieve the above. I've still got a few years to go......
ETFs are the low maintenance element of my equity portfolio. Thanks to Eds excellent insights I use ETFs for specific sector coverage such as defence, copper miners, uranium etc
Completely agree ... we are here to maximise the comfort of our dotage!
From what you and posts from several subscribers following have been quick to point out and outline to my gratitude , ETFs serve a very valuable function in complementing personal investment in individual stocks, both smoothing out the risk of individual companies suffering some misfortune and also casting a wide enough net to ensure the higher earning are captured and let go of at an appropriate time as market leaders change within a given sector. Certainly the returns mentioned by Alistair Kendall for his sub sector accounts holding ETFs have been exceptional over the last period and persuade me to use a mixture of both styles of investing in future.
ETFs list all their holdings and position sizes, so I am not sure what you mean by lack of transparency?
There are other reasons for holding ETFs:
1] Your platform does not give you access to a market of interest, or individual stocks of interest because they do not have a CREST certificate. For this reason, I own the Polish market through iShares MSCI Poland UCITS ETF USD (Acc) (LON:IPOL) .
2] You do not have sufficient time but want greater diversification in your portfolio.
3] It is a short term tactical trading decision. I own silver bullion through Wisdomtree Metal Securities (LON:PHSP) and I doubt it will be in my portfolio in 6 months because it is time to rotate into the silver miners. Similarly I have been in and out of iShares Oil & Gas Exploratn & Prod UCITS ETF USD A (LON:SPOG) as a 6 to 9 month trading vehicle (currently not owned).
4] Risk management. You would rather hold Global X Copper Miners UCITS ETF USD Acc (LON:COPG) than individual miners. I get this, but have the expertise, interest and time to pick individual copper miners.The Copper Deficit: Why the Timelines Diverge and Why Friedland Is Still the Outlier Who Might Be Right
5] The benefit of ETFs over individual shares is that you only have to get the theme and direction right. It saves a bunch of time. You create alpha by being right on the theme.
Have a look at this ETF portfolio (located at the bottom of the page): About - Alastair Kendall. It is up 89% for the past 12 months, even after the metal market correction. I use a mix of ETFs and shares in my own portfolio. This is my actual portfolio weighted for a £100k start point, (not showing my UK and European small caps), and it is up 47% for the 12 months: Portfolio - Alastair Kendall. The point is it is a mix of ETFs and shares.
I would not be so quick to write off ETFs. We all have jobs and ETFs are a huge time saver and risk diversifier.
Best wishes
Alastair
I hold ETF's and individual NAP's style stocks as I beleive they complement each other. ETF's gives you the opportunity to invest in non-UK companies that could be costly to invest in given FX costs etc and at the same time you spread your risk across multiple companies.
Is Stockopedia planning to do an ETF ranking similar to stockranks? That would help to identify those with increasing momentum and adjust the portfolio if we need to make adjustments. Also what would you think about applying NAPS principles to ETFs to create a portfolio of ETFs? Or would that just result in something very similar to a global ETF?
Hi Edmund, An interesting article thanks. What do you think of the iShares Latin America ETF (LTAM) rather than going with Amundi (ALAG) which, with an estimated fund size of £82million, is relatively small?
LTAM is fine too
S&P 500 ETF, boring but predictable returns
Thank you Edmund. Great article. AIRR isn't available on Hargreaves Lansdown. Do you have an alternative? Thank you.
N’ont quite the same, but PAVG the Global X US Energy Infrastructure ETF would be a substitute for AIRR.
Edmund
Thank you Ed. I've become a big fan of ETFs over the last 2 years (it seem so much easier than analysing loads of stocks). I have 4 of these, your work is much appreciated. John
ES "These remain my strongest convictions for the next few months".
I'd have expected 'years' - but with November mid-terms that's about as far out as anyone will guess. The administration will want 4th July to be a 'big bang' (250 years, World Cup, Trump Birthday etc), but suspect when the fireworks are being picked up off the White House lawn and new Ballroom roof the 'debt collectors' come calling.
By then we have internet in space, facial recognition everywhere, all transactions in crypto, learning Chinease and still driving a car (lol) - so agree - 'few months' is appropriate.
Thank you so much for this Edmund, it was just what I was looking for / needed! I am chuffed to bits that I had actually managed to come up with 3 of your recommendations by myself. I feel there is so much volatility and high valuations / all time highs that I sometimes wonder which way is up. I have been a Stocko subscriber for a while, but my first post. Jo
There seem to be more ETFs than bitcons.
As Mr Shing suggests look for those that 'differentiate' - hold in the 'popular' sector picks but also look at those who have the more riskier assets in their portfolio - the mid-small caps. At least 50 holdings. Top five will be 'everyones' picks (and therefore held by everyone lol). Duplication risk but as generally diversify themselves then not an issue.
Most of the information on miners is in their boardroom - so makes sense diversify across a sector by holding the lot and let them do the research (well hopefully). Management seems key to the sector. You could fly to Peru, go through dirt roads for two days and find a timber shack in the jungle which is Unicorn Gold Prospects (it exists but not a miner) - so perhaps let others do that.
My problem is settling on two or three providers. Sprott and VanEck seem go to for minerals.
I like Global X - have an ETF for everything - except fridges.
Amundi / Aberdeen (abrdn whatever) / Invesco. SPDR (sounds like a Roman Legion).
........... head hurts. But concept sound. Someone said "you can't swing a bat at all the balls".
Hi HH, for my understanding why do you want to settle on 2-3 providers? My view is I choose the best ETF for the theme/sector and then buy that, I don’t really see the need to restrict myself to etf providers, am I missing something?
Btw, great article Edmund, keep up the good work
You always broaden my perspective
Excellent piece as always Edmund. Any views on the outlook for Silver?
$150
Once accepted as 'money' ie. wealth because gold is too expensive for many billions of peoples (India/Indonesia etc) then don't worry. Add all this space junk collecting solar power then a perfect market. And for those that say 'ok just ramp up and pay a bit of overtime on the production line' - er you understand that a tiny piece of a large rock has silver in it. But AI and tech has improved discovery from just drilling lots of deep holes around the place - but they will keep that in the boardroom.
Energy is key - when that starts to go up because renewables are a shibboleth then the AISC (cost of production) goes up significantly. Plus when they become successful then the 'tax' royalty grift whatever goes up as well. Mining is tough and not a safe investment. Risk on.
Still waiting for our UK mineral (atoms) mines to restore our Sovereign Wealth Fund (sic). Apparently there is a tin mine somewhere, likely Cornwall where existed since medieval times. We probably have good bronze, copper, coal, oil, gas, limestone, portland cement minerals in-house but the green (sic) lobby has put us into penury.
Don't hold your breath Harry. Continue buying Var Energi ASA (STO:VARo) because Millibrain will ensure they have no competition for gas in the UK market, and any profits the likes of Serica Energy (LON:SQZ) make will be grabbed by Rachel from accounts. So much self harm ... it really is tragic.
Tricky question. I think ultimately silver goes higher and even potentially exceeds the recent USD120/ounce high , but may take some time and will likely consolidate first.
Agree ... 1 to 2 months of consolidation, and possibly even further retrenchment to solid support at US$65.53 on COMEX prices (if they even have any meaning), but silver will ultimately go much higher. The large silver miners are valued on US$45 silver; if the silver price holds then we can expect large earnings surprises for the likes of Wheaton Precious Metals (TSE:WPM) which has 30% exposure to silver; Pan American Silver (TSE:PAAS) , Fresnillo (LON:FRES) , Hochschild Mining (LON:HOC) , First Majestic Silver (TSE:AG) and others.
To make money on silver bullion, we need silver to go higher (obviously!)
To make money on silver miners, we just need silver to hold its ground. Anything about 60USD will have a large impact on cashflow as the 20USD will just drop straight down.
Take one example: Pan American Silver (TSE:PAAS), where profits and NPV are modelled by analysts on $45 silver:
Sales: $45.00
AISC: $15.43 (last reported figure)
"Profit": $29.59
With silver at $60:
Sales: $60.00
AISC: $15.43
"Profit" $44.57
Percent increase = 51%
Latest COMEX feed I have from Friday is $77.69. I wonder what that will do for the SP? Seems a no brainer to me.