I did this exercise a few months ago (7th January to be precise). The goal was to put together a cross asset class, low risk, portfolio that could then be leveraged. So there are no leveraged ETF's, but the portfolio itself should be leverage friendly for margin traders.
It's very UK centric I'm afraid.
Whilst I've seen these portfolios posted before the allocations don't normally account for the different risk across particular assets. For example if you had a 50:50 equity bond portfolio in practice about 70% of your risk will actually be coming from equities.
To make things more interesting I used real money. The total cost of the portfolio is £221,600 and the target risk is 8% a year (about half what you'd get on equities). Although I don't run this leveraged it sits in a seperate IB account on which IB tell me I could easily take £110K out of the account so it could run with 100% leverage.
Here is what I bought originally.
Columns are: ticker, Asset class, Geography, Normalised weight accounting for risk - so this is the risk allocation, quantity bought, cost in sterling total and cost per share, and then weight in cash terms. Notice that the least volatile assets such as European government bonds have a much higher 'cash' weight than their 'real' risk allocation.
Sorry about the formatting.
Norm weight Quantity Cost GBP cps Weight
CORP Bonds Corp IG Developed 4.4% 240 £15,840 66.0 7.1%
HYLD Bonds Corp high yield Developed 4.4% 200 £13,200 66.0 6.0%
IBTM Bonds Govt US 3.5% 100 £13,188 131.9 5.9%
IGLT Bonds Govt UK 3.5% 738 £9,434 12.8 4.3%
IEGA Bonds Govt Euro 3.5% 150 £14,178 94.5 6.4%
SEMB Bonds Govt $ EM 2.2% 75 £5,403 72.0 2.4%
SEML Bonds Govt local EM 2.2% 150 £7,176 47.8 3.2%
EMCP Bonds Corp IG EM 3.8% 140 £9,011 64.4 4.1%
IGIL Bonds Inflation Developed 7.4% 200 £19,686 98.4 8.9%
VUKE Equity Large cap UK 2.8% 175 £5,062 28.9 2.3%
VEUR Equity Large cap Euro 2.8% 300 £6,269 20.9 2.8%
VUSA Equity Large cap USA 2.8% 300 £7,601 25.3 3.4%
IJPA Equity Large cap Japan 2.8% 250 £4,970 19.9 2.2%
VAPX Equity Large cap Asia ex JP 2.8% 500 £7,509 15.0 3.4%
SEDY Equity High yield EM 6.5% 550 £8,251 15.0 3.7%
EMIM Equity Large cap EM 6.5% 550 £8,421 15.3 3.8%
IWSZ Equity Small cap Developed 6.5% 585 £9,058 15.5 4.1%
VHYL Equity High yield Developed 6.5% 360 £11,900 33.1 5.4%
SGLN Alternative Gold 12.1% 1400 £22,336 16.0 10.1%
INFR Alternative Infrastructure 6.5% 690 £11,544 16.7 5.2%
IWDP Alternative Property 6.5% 690 £11,626 16.8 5.2%
Commission costs were just under £139, with no stamp duty, and are included in the above.
Risk weighted weight to bonds is 35%, to equities 40%, with 25% to alternatives. Within each asset I've grouped things that are related, and then allocated equally within them.
I then estimated the asset volatility to decide how much of each product to buy.
Charges: As low as possible! The highest fee is SEDY at 65bp, with the likes of VUSA coming in at 7bp. I haven’t worked out the average, but its probably around 30bp. Generally I’ve used vanguard, then if nothing available in that category, ishares.
I know the ishares ETF’s very well, they have the biggest range and the best website. Vanguard have a smaller range, but until recently these were much cheaper. But Ishares have recently introduced a set of ‘vanguard killers’ – core ETF’s with very low charges (just slightly below the vanguard ones). However I had trouble getting interactive brokers to recognise the tickers, and so decided to stick with Vanguard when available. This also gives some diversification across ETF providers.
The yield, which comes in at a lowly 1.9%. Quite a few of the ETF's are non distributing, including obviously Gold. I estimate the risk of this portfolio to be about 40% of my UK only high yield shares, once that is factored in the yield looks more reasonable. This is definitely a highly defensive portfolio whose capital value should hopefully hold up quite well.
