AAII Model ETF Portfolio FAQs
When was the Model ETF Portfolio created?
The Model ETF Portfolio was created in April 2006.
When are changes to the Model ETF Portfolio posted on the website?
The actual portfolio is updated twice per year and any changes are reflected in the Actual Portfolio list by the middle of the month in May and November. Changes are reported in the May and November issues of the AAII Journal. See the Transaction History for a full list of the ETFs that have been held in the portfolio.
If the portfolio is only reviewed twice per year for changes, what is updated on a monthly basis at the site?
The performance data for each fund listed is updated online each month in the middle of the month.
How do you choose the ETFs?
While we do not have specific fixed criteria for selecting ETFs, we do have objectives as shown in the Selection Rationale. Our selections are based on an attempt to achieve risk reduction through diversification with minimum reduction in the rate of return.
What is the portfolio’s composition related to asset class, market cap and style?
The initial portfolio composition consists of 80% U.S. and 20% foreign ETFs. The domestic ETFs are diversified across equities, real estate and master limited partnerships. Style diversification puts a greater emphasis on value and capitalization weightings will place more emphasis on small-capitalization stocks. Foreign ETFs will be diversified across equities and real estate as well as by style. The portfolio emphasizes value and places a heavier weighting on small-cap ETFs.
Does the Model ETF Portfolio hold bond ETFs?
Short-term bond ETFs will be included as an option for investors who need further risk reduction; however, we will not hold any in the actual Model ETF Portfolio. In addition, the portfolio will not hold foreign bonds.
How is the portfolio managed?
No trades are made solely for the purpose of rebalancing, except under unusual conditions. When we make trades for other reasons, we will do so in a way that repositions the portfolio back toward the initial weighting.
How should I weight individual holdings?
The current recommended initial weighting is to give each domestic holding an equal weight (for a total of 80% in domestic ETFs) and each foreign issue an equal weight (for a total of 20% in foreign stock ETFs). If you choose not to hold a particular ETF, maintain the equal weightings in each of the domestic and foreign areas, and keep the balance of 80% domestic stock ETFs and 20% foreign stock ETFs.
The Actual Portfolio lists the current holdings and performance data and the ETF Holdings describes the specific ETFs and their respective weightings. In general, we recommend that all of the domestic ETFs make up a larger portion of the entire portfolio. Our portfolio has equal weights in each the domestic equity ETFs (13.33% in each). The weighting of the U.S. real estate holding can vary based on your exposure to other real estate holdings. Because our Model ETF Portfolio has no other real estate holdings, it was initially weighted similarly to the domestic equity holdings.
The international ETFs make up a smaller portfolio of the entire portfolio and should be equally weighted amongst each other (i.e. 5% in each international ETF). Finally, a medium-term Treasury bond fund should be considered if you are looking for a slight hedge against risk. Since the Model ETF Portfolio is very long-term, we do not hold this type of ETF.
