ETFPortfolios

ETFPortfolios is a method of constructing investment portfolios primarily from exchange-traded funds (ETFs). They aim to provide diversified exposure to asset classes such as equities, bonds, commodities, and real assets while offering intraday liquidity and transparent pricing. The term covers both do-it-yourself constructions and portfolios built by advisors, robo-advisors, or asset managers.

ETFs used in ETFPortfolios can be broadly categorized by asset class and region. Core holdings often include broad-market equity and broad-bond ETFs, while satellite positions may employ sector, country, factor, or thematic ETFs. Some portfolios incorporate commodities or real estate via commodity ETFs or REIT ETFs.

Construction methods: Common approaches include core-satellite and strategic asset allocation. Selection criteria for ETFs typically emphasize liquidity, AUM, expense ratios, tracking error, replication method, and index methodology. Managers assess dividend treatment, tax efficiency, and counterparty exposure in synthetic replication.

Management and maintenance: Portfolios are periodically rebalanced to target allocations, accounting for changes in risk tolerance and market conditions. Costs include expense ratios and trading costs; tax considerations are relevant in taxable accounts. Robo-advisors and advisory platforms often automate ETF portfolio design and rebalancing.

Advantages and limitations: ETFPortfolios offer diversification, low costs, transparency, and ease of trading. Limitations include potential tracking errors, exposure concentration in popular ETFs, liquidity risk for niche markets, and sensitivity to overall market conditions. Proper design and ongoing monitoring help mitigate these risks.