May 29
AAII’s High Risk ETF Portfolio
The screen shot below is an analysis of the AAII ETF Portfolio. As readers can see, this is a high risk portfolio and one I would not recommend for the average investor. While the projected 13.5% return is to be applauded, this portfolio carries a projected standard deviation of 25.7% a very high value – particularly when we are trying to keep the SD value under 15%.
Another drawback of this portfolio is the Diversification Metric (DM) value of 20%. That is one-half of the diversification goal we seek when developing an asset allocation for a portfolio.
Note: Some of these ETFs do not have a three-year record. This required me to run the analysis using 25 months of data so as to not run into calculation (short record) problems. This is not ideal and may have compounded the high SD problem.
It is possible to create solid portfolios with acceptable returns while pulling down the risk and increasing the diversification of the portfolio. Such portfolios are discussed and in operation over on the Premium Content side of the blog.
Lowell Herr
Photograph:
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