Practicing What I Preach – A Peek Into ETF Monkey’s Personal Portfolio

After writing for Seeking Alpha for a little over a year, I for the first time offered readers a peek into my personal portfolio. Why did I select the title I did? Here’s how I explained it.

I have seen other authors offer glimpses into their personal portfolios. I appreciate the sentiments they have shared; that it is a good thing to offer readers a sense of transparency, the ability to evaluate to what extent the author “practices what they preach.”

Following that article, I presented a YE-2016 edition as well. Since that time, I haven’t published any further updates. Given the fact that I have made some rather significant updates since that time, I thought it was about time for another update. I will also share some detail regarding how my portfolio has performed so far in 2018.

A Dividend Portfolio Built From The World’s Best Dividend ETFs

In February, 2017, I published what, for me, was a landmark article on Seeking Alpha. Bearing the same title as the heading of this section, as of this writing, the article has garnered 31,691 page views, my second-highest of all time. The question I posed was this. Might it possible to build a top-quality dividend producing portfolio from a manageable number of individual stocks, using the world’s best dividend ETFs to help me find them?

In summary, I selected 5 world-class dividend ETFs, each with their own fairly stringent criteria for stock selection. I then combined the results to find stocks that had commonality; that scored well when run through each of the criteria. From that effort, I proposed 12 stocks for consideration. I added 3 more, for a total of 15, for investors desiring slightly higher diversification. Both sets were back-tested over various time periods, for evaluation.

As the year progressed, I started to ponder an additional question. I wondered if, by perhaps expanding the number of stock to somewhere in the range of 20, I could obtain the added benefit of bringing in at least some dividend income each and every month? On July, 26, 2017, I published a follow-up article entitled 20 Top Stocks For A Monthly Dividend Portfolio.

This article has proven even more popular, generating some 40,256 page views to-date, my best ever on Seeking Alpha. The surprise I shared with readers at the end of that article was that it was more than theoretical. Specifically, that on July 20, 2017, I sold my positions in the 4 dividend-specific ETFs currently in my retirement account, and replaced that portion of the portfolio with the 20 stocks in the article, as well as two “bonus” surprises.

Not to fear, I assured my readers. I had not abandoned my status as ‘ETF Monkey.’ I rounded out my portfolio using ETFs to diversify further into U.S. stocks, as well as to hold positions in international stocks, bonds, REITs, and utilities.

The Big Picture

Here is the summary section from the Excel sheet I use to track my portfolio.

Mechanically, the sheet is fairly easy to build. As a Fidelity brokerage client, I am able to get an Excel-based file dump of my portfolio positions at any time I wish. In my summary sheet, I tag each position with an asset class. For example, I tag my position in the Vanguard Total Stock Market ETF to Domestic Stocks and my position in the Vanguard Total Bond Market ETF to Bonds. From there, it is simply a matter of summing and presenting each asset class, and evaluating its weighting relative to the total portfolio.

Here is how the portfolio stood as of the end of Q3. Have a look, and then I will offer a few comments.

ETF Monkey Personal Portfolio - Summary Weightings

You will immediately notice that I have ‘snapshots’ at two different levels. You might think of these as “the big picture” and “the really big picture.”

The initial summary tracks seven asset classes. In addition to the ‘Big 4’ (Cash, Bonds, Domestic Stocks and Foreign Stocks), you will notice that I maintain and track a discreet weighting in REITs, TIPs and Utilities. While REITs and Utilities ultimately fall under the broader heading of ‘stocks’ and TIPs the broader heading of ‘bonds,’ I view these asset classes as unique enough that I monitor their weighting separately, such that I can rebalance in and out as needed to maintain those target weights.

In the ‘% Diff’ column you will notice that certain cells are red and yellow in color. This is based on conditional formulas that turn the cell either yellow, red, or green if an asset class is either over or under its target weight by 5% or 10%. So, for example, at a weighting of 16.78%, cash is currently 16.52% above my target weight of 14.40% (16.78/14.40 = 1.1652). I simply use this as a visual aid to let me quickly identify where each asset class stands such that I can ponder the question of whether I want to do anything about it.

The ‘Difference’ column features the adjustments I have made in various weightings between 12/31/17 and 9/28/18. Any difference less than .50% is in yellow (immaterial), any difference greater than .50% is either green (higher) or red (lower).

In total, you will notice that I have slightly increased my cash position during the year. The offset basically comes from bonds. While I argue that bonds deserve a place in any portfolio, due to the Fed’s interest rate increases the return on simple cash holdings has increased to the point where I am happy to minimize interest-rate risk.

While, overall, my weighting in stocks is flat over the period, you will notice that a couple of sub-categories have shifted slightly. Essentially, I cut my dedicated weighting in utilities almost in half, in favor of more diversified U.S. stocks. I will discuss the reason for this later, when reviewing the YTD performance of my portfolio.

The Devil’s In the Details

Now that I have shared the big picture summary, here are the details. The spreadsheet below lists each of my positions in descending order by weight.

ETF Monkey Personal Portfolio - Detailed Holdings

Here are just a few comments on specific items.

Cash and Short Term Bonds – My two largest positions are in cash (FDRXX and SPAXX in my retirement and investment accounts, respectively) and BSV. I recently wrote about BSV here. (NOTE: Certain of my Seeking Alpha articles are now paywalled, and available to subscribers only.) This reflects my relatively defensive mindset in the current environment.

General Electric and Jamba Juice – You will notice that both of these positions were closed out during the year. General Electric was one of my 22 original selections of dividend-paying stocks. I held on to GE even through the dividend cut in late 2017. However, when news broke in early 2018 concerning a $15 billion shortfall in their insurance reserves, I decided to move on. Prior to that point, while I knew GE had issues, I believed management had a handle on them and that new CEO John Flannery would be able to turn things around. This shock caused me to very quickly rethink that view. Ultimately, I replaced GE with CVS in the portfolio. Jamba Juice was a small speculative holding for me. On August 2, it was announced that Jamba was being acquired for $13 per share by Focus Brands. I tendered my shares as part of that offering.

My 22 Dividend Stocks – You will quickly see that Apple and AT&T are my two largest single-stock holdings. Apple because, well, they’re Apple. And AT&T largely for their (roughly 6%) dividend. Moving down the list to Johnson & Johnson, you will see the rest in descending order from there. When I initiated this group in July, 2017, I weighted the 22 stocks more or less evenly. Many ETFs utilize market-cap weighting, which can cause you to be heavily weighted in one or two securities. I wanted to diverge from that. However, over the course of 2018, I have made minor adjustments to the weightings of the various companies to ensure that those I truly consider “core” are weighted at least slightly higher than those with, shall we say, a slightly higher level of uncertainty. In short, that’s why JNJ is now weighted roughly 150% of IBM and WFC.

International Stocks – ETFs completely hold down the fort for this part of the portfolio. IXUS is my largest holding in this area, with smaller positions in VEU, IEFA and VWO. Check out this article for my latest thoughts with respect to emerging markets.

TIPS – Early on, I decided that I wanted at least a portion of my overall bond holdings in this specific class, for a little inflation protection. TIP is my ETF of choice here.

YTD Performance Of The Portfolio

Long story short, my portfolio has underperformed the U.S. market thus far in 2018. YTD, my overall return is 3.08%. As a couple of reference points, the Dow is up 7.04% YTD and the S&P 500 8.99%. A couple of things have contributed to this underperformance. First, U.S. stocks have continued to outperform everything else. At some level, it’s that simple. Basically, any portfolio diversified into asset classes other than U.S. stocks is likely to have underperformed.

To convincingly document that point, take a look at the following YTD graph, developed from Yahoo Finance. In the graphic, VTI, an ETF proxy for the total U.S. market, is the red line. VEU, BND, VNQ, and VPU are proxies for foreign stocks, bonds, REITs, and utilities, respectively. You’ll see all four clustered in the yellow box, with their returns dramatically underperforming VTI. Of the four, only VPU has even managed a positive YTD return.

20180928_YTDResultsByAssetClass

Secondly, in my caution, I found myself overweighted in asset classes that were interest-rate sensitive. Long story short, that’s the reason for dropping my target weight in utilities to 3% of the portfolio vs. 5%, in favor of the broader U.S. market.

However, I don’t consider my YTD underperformance a total failure. I remain a huge believer in diversification as one of the solid anchors of a good portfolio. In fact, I recently sold a small amount of ITOT in favor of IXUS for that very reason. Additionally, I continue to be concerned about multiple headwinds that I perceive as problematic, including rising household and government debt in an environment of rising interest rates. Combined with the fact that I am closer to the end of my working life than the beginning, I currently lean in favor of caution.

Final Thoughts

I hope this review of my portfolio has proved of some use. If you wish to follow my progress, click on my social media links and you’ll always be abreast of my latest commentary. You might also consider following me on Seeking Alpha. Articles I write on that site are available to all for at least a period of time, with some disappearing behind a paywall in 10 days, accessible to subscribers only.

Until next time, I wish you.

Happy investing!

 

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3 thoughts on “Practicing What I Preach – A Peek Into ETF Monkey’s Personal Portfolio

  1. While you have spent a lot of effort in diversifying your portfolio, perhaps you should follow the Bogle theory of investing. That follows the “kiss” theory.

    Thanks for sharing

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