Simplifying Some More
Yesterday, I analyzed my portfolio, and it was a case of good news and bad news.
The good news is that my returns YTD (and in the past 12 months) seem to match the returns of the S&P 500 pretty well. I am less than 1% below the return of the US market, and so I have not missed any of the positive returns. I expect I am matching even previous years.
The bad news is that I own 24 ETFs to achieve the same performance as if I owned one.
When I examine some of the individual ETFs and mutual funds, their returns have been disappointing. So I could have done better if I had avoided some of these mistakes.
For instance, earlier this year, I read a convincing blog post talking about the diversification into small caps as a way to increase overall returns. My investment in the Russell 2000 has been a disaster. That index is still lower than it was in 2021.
It had an incredible run-up after the COVID pandemic, but it has been trading sideways for the last few years.
I read yesterday that small caps are “highly dependent on low interest rates”. We won’t be getting low interest rates for a while. So I cut my Russell 2000 exposure by 50%. I was overinvested in small-caps.
Additionally, I had an idea earlier this year that a “wide moat” was a desirable attribute. VanEck has a fund that invests in companies with a wide moat (also with an ESG focus). It also avoids the largest companies in this. So it would not invest in Nvidia (which has a wide moat), but would invest in Clorox. The fund has been falling. On days when the broad market is up, the fund might fall that day.
I think the idea of a wide moat is good, but this fund has a bad strategy. These are not the top companies in their field. I also reduced my exposure to this fund by 50%. I was overinvested in this strategy.
I mentioned this yesterday, but I also had invested in an Indian fund, which has been down. India is heavily affected by tariffs, and I don’t think they have great leaders. On the other hand, I also have a Middle East fund. The Middle East is probably less affected by tariffs (since oil/gas can be sold anywhere in the world, not just the USA), but I don’t see it being a great place to invest. I sold both of these funds completely.
I have not redeployed that money yet.
