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Summary I searched through all ETFs and found five for building a quality growth portfolio given the current environment. The five ETFs I found cover: U.S. Mega-Cap growth, biotechnology, International Growth, High Yield Bonds and Cash. The portfolio is weighted 70% stocks, 20% bonds, 10% cash. In this article, I will be creating a simple growth oriented portfolio for millennial investors. The goal of the portfolio is to hold five ETFs to gain exposure to high quality growth stocks as well as targeting specific high growth areas. U.S Equity: Vanguard Mega Cap Growth ETF (NYSEARCA: MGK ) I chose MGK because it only holds the largest market-cap growth stocks. I wanted to be more conservative with my main growth selection because the second part of my U.S. equity allocation consists of a high growth/high risk segment of the market, therefore for balance, I chose MGK. When looking for large-cap growth ETFs, I narrowed my search down to MGK and the iShares Russell Top 200 Growth ETF (NYSEARCA: IWY ). I chose MGK over IWY because of the lower cost and exposure to health care. MGK charges 0.11% and IWY charges 0.20%, which is not a huge difference, however when taken in combination with the data table below MGK stood out as the superior choice. My second ETF selection is a health care ETF, therefore, I did not want a lot of exposure to health care from my main selection. I looked at the health care allocations of IWY and MGK and found that MGK has a lower allocation to health care. Health Care Allocation MGK 14.00% IWY 17.95% [Table Data from IWY & MGK websites] Targeted Sector Growth Equity: ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) I chose SBIO because of its exposure to small & mid cap high growth biotechnology companies. SBIO only holds companies with a market cap between $200 million and $5 billion. Most importantly, SBIO only holds those stocks with a sustainable cash burn rate and companies with at least one product in phase 2 or phase 3 of development. This distinguishes SBIO from other biotech ETF offerings because it is targeting companies that have moved passed the initial stage of development and have the cash available to be able to fund continued clinical trials. It is widely know that many biotechs with promising drugs build hype when they are in phase 2 or phase 3 because of the potential to go from zero or very little revenues to a significant amount. A complete picture of the selection process can be seen in the image below. (click to enlarge) [Chart from SBIO Fund page ] International Equity: iShares MSCI EAFE Growth ETF (NYSEARCA: EFG ) I chose EFG because it holds mainly large cap companies in developed markets excluding the United States and then selects those companies whose earnings are expected to grow at an above-average rate relative to the market. The following chart shows that growth oriented stocks in the EAFE have significantly outperformed the broad iShares MSCI EAFE ETF (NYSEARCA: EFA ) and value oriented stocks of the iShares MSCI EAFE Value ETF (NYSEARCA: EFV ). (click to enlarge) [Chart from Google Finance] Short-Term High-Yield Corporate Bonds: First Trust Tactical High Yield ETF (NASDAQ: HYLS ) I chose HYLS because of its high-yield and superior performance during the most recent run up in interest rates. I believe all investors; even millennials should have an allocation to fixed income even though it is not growth oriented. With the potential for rising rates aggressive bond ETFs will most likely suffer, which is why when I searched through all the high-yield ETFs available, HYLS stood out among its competitors. HYLS stood out because of its structure, 6%+ dividend yield and its performance. HYLS is actively managed and uses a fundamental process to select long positions and has the ability to short treasury bonds or corporate bonds. According to the HYLS fact sheet: The team uses a combination of a rigorous fundamental credit selection process with relative value analysis and believes that an evolving investment environment offers varying degrees of investment risk opportunities in the high-yield, senior loan, derivative and fixed-income instrument markets. The second reason I chose HYLS was because it performed very well during the most recent rising rate period from February 2nd 2015 until June 10th 2015. As you can see HYLS [Yellow Line] outperformed both major broad high yield bond ETFs including the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) and the SPDR Barclays Capital High Yield Bond ETF (NYSEARCA: JNK ). In addition, HYLS also outperformed short-duration high yield bond funds including the iShares 0-5 Year High Yield Corporate Bond ETF (NYSEARCA: SHYG ), the SPDR Barclays Capital Short Term High Yield Bond ETF (NYSEARCA: SJNK ) and the PIMCO 0-5 Year High Yield Corporate Bond Index ETF (NYSEARCA: HYS ). (click to enlarge) [Chart from Google Finance] Cash: PIMCO Enhanced Short Maturity Strategy ETF (NYSEARCA: MINT ) My final selection was MINT because I believe all portfolios either should have cash for safety or available to use for strategic purchases of quality growth stocks/ETFs. Millennials have a long-term horizon and if there is an opportunity to pick up a quality growth ETF or stock that is trading unjustly lower, having the cash available to do so is desirable. Portfolio Overview I have provided an example of what the portfolio would look like. As you can see, I allocated 30% to each main equity selection and 10% to SBIO, which made the total equity allocation to be 70%. Allocation MGK 30% SBIO 10% EFG 30% HYLS 20% MINT 10% Portfolio Composition Stocks 70% Bonds 20% “Cash” 10% Closing Thoughts The portfolio I created has exposure to quality growth companies in the U.S. and internationally. With the added allocation to target biotechnology, the portfolios growth should be enhanced by this high growth area of the market. In addition, by moving out on the credit risk spectrum for fixed income, the portfolio would generate some income, which instead of being reinvested into more HYLS, could be used to purchase more growth stocks/ETFs. Disclaimer : See here . Scalper1 News
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