Why the MoneyWeek ETF portfolio won't need to change

Silver metallic dice showing the alphabets ETF

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published 11 November 2024

When Donald Trump was first elected in 2016, I said that whatever else he did, he would surely build things. His background in real estate and his fondness for grandiose plans seemed to make it a certainty. History shows that he did not: it was only under Joe Biden that America began a major infrastructure programme. Whether many of these projects carry on under Trump or get cancelled for other priorities will soon be seen but, in any case, it was a lesson in the difficulty of predicting what governments will achieve.

That’s why there are no changes to make to the MoneyWeek strategic ETF portfolio, just as there would have been none had Kamala Harris won. The aim of the portfolio is to do okay in all likely scenarios, rather than take big bets on any one outcome. That doesn’t mean that it will look the same in a year’s time, but we are not rushing to change our bond holdings on the basis that Trump will bring bigger deficits and higher yields.

What's in the MoneyWeek ETF portfolio today

Still, this is a good time to recap what ETFs we hold and why. We use Invesco US Treasury Bond 0-1 Years GBP Hedged as a proxy for risk-free cash, although in practice, anybody following this portfolio probably uses anything from cash savings accounts to money market funds. Ideally, we would use a very short-term UK government bond fund, but no such ETF exists, so we use US bonds and hedge the currency exposure.

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Conversely, the use of iShares $ Treasury Bond GBP Hedged is a deliberate choice over similar ETFs for UK government bonds – US government bonds are the global safe-haven asset in times of trouble. We hedge because we do not want to complicate this position with short-term currency volatility. We hold iShares $ TIPS for US inflation-linked bonds, rather than UK inflation-linked bonds, because the UK market is distorted by heavy buying from pension funds and US yields are more attractive. We do not hedge the currency here, because this is intended to protect against long-term inflation risks. If UK inflation is especially bad we’d expect sterling to continue its long-term decline against the dollar.

We hold an equal amount in each of our core equity positions: Vanguard S&P 500, Vanguard FTSE Developed Europe, Vanguard FTSE Japan and iShares Core MSCI Emerging Markets. This is a long way from their global weights (the US is 65% of the MSCI ACWI) and reflects their valuations: the US deserves to be more expensive than most other markets, but the gap remains very wide and the reliance on the tech sector to keep the bull market going increases the risks.

Real-estate stocks struggled after the pandemic, but iShares Developed Markets Property Yield has started to perform a bit better this year, largely due to the prospect for interest-rate cuts. Last, SPDR MSCI World Energy and iShares Physical Gold are here to buffer the portfolio against inflation and shocks. The latter has been doing that job well as the gold price hits new highs. The oil price has softened, but the unloved oil majors are still profitable at these levels, while offering some protection against an energy crisis in an increasingly volatile and dangerous world.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.