This is the first of a series of 6 posts explaining which trading instruments I used to construct my portfolio. All portfolio holdings are ETFs.
To construct the US equity asset class, I selected SPY and IJR.
SPY tracks the SP500 large capitalization stock index and is comprises many enormous US based multinational companies. This feature is what makes it unsuitable to use as a lone proxy for US equities. For many of the member companies a considerable percentage of their revenue and operations are located outside of the US. Thus the index and its associated ETF provide a mixture of US and international equity exposure.
IJR tracks the SP600 small capitalization stock index. Although some of these companies have the same type of international exposure as SP500 companies, many are predominantly US-centric.
I combined the two with a 2:1 dollar weighting of SPY:IJR.
Clearly, there are other ways to construct a proxy for US equities and I don’t claim that my method is optimal. However, I do think that I have captured the essence of US equity exposure. Additionally, both SPY and IJR are liquid, and their holdings do not overlap (SPY ∩ IJR = Ø :-)).
The Cybernetic Trader 