The Right Lazy?

A reader left a comment professing a lack of comfort with country selection and wonders about the following lazy portfolio; 55% Vanguard FTSE All World Ex-US (VEU) 45% iShares Russell 3000 Index Fund (IWV) The chart compares both funds with the S&P 500 since VEU’s inception. In its short life VEU, the foreign fund, has had a 0.876 correlation to the S&P 500. In the same time period but less surprising IWV has had a 0.975 correlation to the S&P 500. Further, VEU and IWV have had 0.863 to each other. This is something I have written about many times in the past, all of the diversification benefits of the component countries gets blended away in a broad based product like VEU. I think it is clear that VEU quacks a lot like EFA. During the last slow decline, at the start of this decade, EFA offered no protection and during the next slow decline I doubt it or VEU will offer protection either. VEU will likely do better than the US market if the dollar stays weak or gets weaker but the diversification benefits seem non existent to me. IWV yields about the same as the S&P 500 and while the Vanguard website does not provide the yield for IWV it can’t be much different than EFA which ETFconnect lists at 1.8%. I am not opposed to the concept of a lazy portfolio but I don’t think all the bases can be covered with four funds, let alone two. I am not sure what the optimal number is but two ain’t it. Another reader asked if buying foreign...

Sunday Morning Coffee

No real post this morning, we had a long day down south with some friends and did not get home until late. The first picture was our destination for the day. I used to work with Anitra (on the right). She and her husband Trond (he is from Norway) own an eco resort called Lova Lava Land that they have been working on getting up and running. At the same time we visited, they were hosting their first guests, a threesome doing something very interesting. They are on a 50 states in 52 weeks trip to seek out and createawareness of green/eco issues. Hawaii is state number 18. You can check out their site at Yert.com to see what their are doing and check out their weekly videos. As I understood it Mark was the catalyst, he got in touch with Ben through the Stanford alumni network and Ben’s wife Julie wanted to participate too. Good luck guys. On our way to visit with everyone we stopped at Punalu’u Black Sand Beach. We hung out for a couple of hours and saw four turtles in all. Check back tomorrow for normal stock market...

Sunday Morning Coffee

No real post this morning, we had a long day down south with some friends and did not get home until late. The first picture was our destination for the day. I used to work with Anitra (on the right). She and her husband Trond (he is from Norway) own an eco resort called Lova Lava Land that they have been working on getting up and running. At the same time we visited, they were hosting their first guests, a threesome doing something very interesting. They are on a 50 states in 52 weeks trip to seek out and createawareness of green/eco issues. Hawaii is state number 18. You can check out their site at Yert.com to see what their are doing and check out their weekly videos. As I understood it Mark was the catalyst, he got in touch with Ben through the Stanford alumni network and Ben’s wife Julie wanted to participate too. Good luck guys. On our way to visit with everyone we stopped at Punalu’u Black Sand Beach. We hung out for a couple of hours and saw four turtles in all. Check back tomorrow for normal stock market...

The Big Picture For The Week Of October 28, 2007

A good question came in asking about how I weight foreign equities into accounts, how to choose what to own and where US multinationals fit in. Before I figure where I want to be domestic/foreign I first assess what weighting I want to give to each of the big ten S&P 500 sectors. This is usually based on my perception of where we are in the stock market cycle and the economic cycle. Our point in these cycles contributes to how much foreign I want to own. The first number derived for foreign is sort of fuzzy. As I start to fill out each of the sectors, knowing I want roughly 1/3 or roughly 1/2 or whatever in foreign. As I go along I fine tune the number. On another sheet of metaphoric paper I assess the merits of other investment destinations, think about how much to weight to these countries and what is the best way to work them into the portfolio. Most of the foreign countries I own only have a 2-3% weight but England as an example is a little heavier. I was asked about this on a panel I participated in last June in NYC. One of the other panelists owned iShares Sweden (EWD). I specifically mentioned preferring a Swedish industrial stock over the ETF. I have liked Sweden for several macro reasons for a long time but the problem that I see with EWD is its heavy weighting in Ericsson (ERIC). It’s weighting now is 16% but I believe it was closer to 20% before ERIC got recently crushed. I did not like ERIC,...

The Big Picture For The Week Of October 28, 2007

A good question came in asking about how I weight foreign equities into accounts, how to choose what to own and where US multinationals fit in. Before I figure where I want to be domestic/foreign I first assess what weighting I want to give to each of the big ten S&P 500 sectors. This is usually based on my perception of where we are in the stock market cycle and the economic cycle. Our point in these cycles contributes to how much foreign I want to own. The first number derived for foreign is sort of fuzzy. As I start to fill out each of the sectors, knowing I want roughly 1/3 or roughly 1/2 or whatever in foreign. As I go along I fine tune the number. On another sheet of metaphoric paper I assess the merits of other investment destinations, think about how much to weight to these countries and what is the best way to work them into the portfolio. Most of the foreign countries I own only have a 2-3% weight but England as an example is a little heavier. I was asked about this on a panel I participated in last June in NYC. One of the other panelists owned iShares Sweden (EWD). I specifically mentioned preferring a Swedish industrial stock over the ETF. I have liked Sweden for several macro reasons for a long time but the problem that I see with EWD is its heavy weighting in Ericsson (ERIC). It’s weighting now is 16% but I believe it was closer to 20% before ERIC got recently crushed. I did not like ERIC,...