There’s been a quote from Ron Lieber (not pictured here) in a NY Times article making the rounds that I think is very constructive.

He says: Index (mostly). Save a ton. Reallocate infrequently.

So this got me to thinking a little bit about constructing a portfolio with ETFs that while I think is far from lazy does not require stock picking, country picking or selecting style. The mix for the most part includes newer funds or funds that don’t seem to get a lot of attention. No percentages as we think this is a no-no for the blog.

Domestic Large Cap

Claymore Ocean Tomo Patent ETF (OTP) TTM it beat SPX by 7% with a touch higher yield

Developed Foreign Large Cap

PowerShares DWA Developed Market Technical Leaders (PIZ) It beat EFA by 7% since inception which appears to be in January

Domestic Small Cap

First Trust Small Cap Core AlphaDEX (FYX) TTM lagged IWM by 3%

Developed Foreign Small Cap

iShares MSCI EAFE Small Cap (SCZ) about even with IWM since inception in December

Emerging Market Large Cap

WT Emerging Market High Yield (DEM) beaten EEM by roughly 5% since inception in July

Emerging Market Small Cap

SPDR S&P Emerging Market Small Cap (EWX) this fund just listed so no performance info

Domestic REIT

Vanguard REIT ETF (VNQ) has had a slightly better TTM than iShares REIT Fund (IYR)

Foreign REIT

iShares Global Real Estate Ex-US (IFGL) it has lagged the much larger RWX since inception

Broad-Based Commodity

Rogers Intl Commodity ETN (RJI) beat DJP by roughly 5% since October

Currency

PowerShares Dollar Bearish Fund (UDN) US dollar hedge without picking a country

Intermediate Treasury

SPDR Intermediate Term Treasury ETF (ITE) actually looks inferior to the seemingly similar but much larger iShares 7-10 year (IEF)

High Yield Debt

SPDR High Yield Bond ETF (JNK) stands up very well versus PHB and HUG since its very recent inception

Inflation Bonds

SPDR Barclays Capital TIPS ETF (IPE) the lesser know product

Emerging Market Fixed Income

iShares Emerging Market Bond Fund (EMB) one fund in a category of two

I’m sure there are a couple of segments I forgot (I chose not to include mid-cap but there are quite few choices for domestic, a few for foreign developed but I don’t think any for emerging).

The mix seems like it has too much going on to be lazy but if any proponents of lazy portfolios want to weigh in please do.

Lately there has been a theme going around (both here and elsewhere) about whether US markets will provide enough returns for financial plans to work. Depending on how something like the list above was implemented I think it could go a long way toward mitigating the consequence of 6% average annual returns in the US but probably not do much for people looking to reduce volatility.

That point makes for a good side tangent that if you do allocate more to developed, emerging and frontier you may increase your volatility longer term. It might be what you need to do depending on where you are in relation to your number…just something to keep in mind.

A generic mix like this provides the 30,000 foot exposure but I think giving up sector and country selection, although these things can be difficult to get right, puts the portfolio at a disadvantage in my opinion. Underweighting financials for the last year or so versus domestic indexes and underweighting Japan versus foreign indexes for the last 18 years were not that impossible to do but should have added value for anyone who did it.

The intellectual debate over this is always interesting. The comments from readers saying stock picking and sector picking in not ideal for most people is valid, my comments saying it is not as black box as some would have you believe are also valid and there can never be one right answer only what is right for you.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009