We made it to the second half of the year already, which means it’s time for a midyear portfolio review! Let’s analyze my seven exchange-traded fund (ETF) holdings and determine if any of them will get the guillotine.
My review process involves looking at my portfolio holdings’ performance, expense ratios (how much investing in the ETF will cost me per year) and their As You Sow grades on fossil fuels, deforestation, gender equality, sales of guns and military weapons, the prison industrial complex and tobacco. I have potentially four holdings that could be deleted, but will I be replacing all of them?
All of my holdings are looking good on expense ratios and their grades; they’re all below 0.60% and have grades of A or B. However, three of my ETFs are having “Gender Trouble” (Judith Butler, 1990) with gender equality grades of F. One ETF’s fossil fuels grade slipped to C. These grade changes are all grounds for deletion in my investing strategy. When evaluating my ETFs on their performance, the four with unsatisfactory As You Sow grades were also the worst performers since being added to my portfolio:
I had a lot of trouble finding replacements for these ETFs that fit my stringent criteria for addition. Possibilities included the Fidelity MSCI Information Technology Index ETF (FTEC), with a prison industrial complex grade of C dragging it down, and the Nuveen Winslow Large-Cap Growth ESG ETF (NWLG), with all A’s and B’s on As You Sow but an expense ratio of 0.64% (grade of D).
Many of AAII’s model portfolios have a rule that if there are no suitable replacements for a stock, the stock should remain in the portfolio until one with better prospects is found. I’ve been thinking about implementing a similar rule for my own portfolio, but with a twist. Since I don’t have a certain number of ETFs that I am required to hold in my portfolio, I could delete an ETF without replacing it. My only rule is that I shouldn’t hold more than seven ETFs at once (for diversification purposes), but what if I held five instead?
Based on their poor performance and gender equality grades of F, I will be removing the Global X Hydrogen ETF (HYDR) and the Global X Solar ETF (RAYS) from my portfolio. I won’t be replacing them with anything new at this time, but hopefully when my next portfolio review rolls around at year-end, I can find something worthy. The other two underperformers with grade slippage will be reevaluated at my next portfolio review as well. Maybe they can get those grades up before then!
With my midyear lump-sum investment of $2,000 added to my brokerage account, I will buy more shares of my current holdings and make sure the money is as evenly distributed as possible among the ETFs.
Using AAII’s My Portfolio tool, I checked how my portfolio would be diversified after removing these two ETFs. I found that my allocations to domestic and foreign stock moved closer to the recommendation from the AAII Aggressive Allocation Model:
Recently, AAII’s lead editor of the Stock Superstars Report (SSR) Matt Markowski wrote about the benchmark used for the SSR portfolio. Choosing a benchmark for my own portfolio has been on my mind for a while. According to the article, “A portfolio benchmark allows individual investors to gauge the relative performance of their portfolios.” Especially in the current investment environment with a lot of red, I thought it would be important to see how my portfolio is doing compared to the majority of environmental, social and governance (ESG) investments.
Most of the ESG indexes I initially found had companies in their top 10 holdings that I wouldn’t touch with a 10-foot pole (Amazon, Apple, Tesla, Microsoft). Many of the indexes I found had more of a domestic focus, but since I have a sizable allocation to foreign stock, I knew my benchmark index would need a global view. Finally, I stumbled on Morningstar’s Global Markets Sustainability index. Morningstar’s transparency made it easy to see exactly what the index holds and how it’s constructed:
Year to date through June 30, 2023, the Morningstar Global Sustainability index is up 14.3%. My own portfolio’s performance isn’t in positive territory, but it’s good to know that it’s possible to outperform while sustainably investing.