Q3 Portfolio Plan

As discussed before, I am in the progress of reallocating my assets throughout the region/product type.

Just as a reminder, below is my key asset allocation strategy in the stock market

  1. overweight Emerging market (India and south Asia including Indonesia) and peripheral Europe
  2. underweight the U.S. (less than 60%), but overweight small-cap
  3. slightly overweight Europe

investment

The main change of my portfolio structure will be focusing on core funds (with huge AUM, low fee, and high trading volume) and add small variance by adding regional/style ETFs. The purpose of this reallocation is maintaining consistent and stable core funds’ portfolio weight (60%), thus I can lock in long-term capital gains and enjoy lower fee, while being agile to the rapid change in the market theme (thus maximizing the short-term gains).

Details:

  • The core funds are: IVV (large cap S&P 500, 4 bps fee), IJR (small cap, 7 bps fee), IEUR (europe, 10 bps of fee), IEFA (europe and developed Asia, 8 bps of fee), and IEMG (emerging market, 14 bps of fee).

 

  • within the U.S. market, main variations would be IWN (Russell 2000 value, 25 bps of fee), DGRO (dividend growth, 8 bps of fee), and possibly biotech or tech ETFs (probably non-iShares suite). It’s because the small caps have historically outperformed due to the less coverage by analysts, delaying timely price discovery, with better potential to grow compared to large companies. Also, the U.S. economy is solid with more reasonable valuation; small cap companies’ exposure to the U.S. market is greater than larger cap companies (i.e. S&P 500), benefiting more from the domestic market growth.

expected weight in the U.S. region:

IVV: 15(20)%, DGRO: 10(5)%, IJR: 15(20)%, IWN: 5(10)%.

Total: 50(70)%

  • within ex-US. market, main variations are more diverse. I will over-weigh India (especially small cap), Indonesia and potentially Korea/Taiwan.
  • In terms of regional distribution, Japan is too much over-weighed. Also, the recent election results suggest that Japanese are angry on their current government regime. It seems mainly due to its too conservative, militaristic diplomacy that caused conflicts with its neighbors. Although it outperformed S&P 500, due to its relatively pessimistic outlook, I will liquidate the entire position of the ETF, and increase weight on IEUR (+2.5%), IEFA (+.5%) and the rest (6.4%). This is also expected to increase dividend on a marginal level.
  • I won’t touch India (small cap) until there is a major price adjustment – the valuation is just crazy high for a developing country, and the P/E ratio (22.93) doesn’t make sense for small caps to me.

expected weight in the ex-U.S. region:

IEUR: 11(9)%, IEFA: 9%, IEMG: 15(10)%,

INDA: 4(0)%, EIDO: 4(3)%, EWP: 0%, Taiwan or Korea: 2(4)%

Total: 40(30)%

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