Three themes, sixty percent. You can only really have conviction on a few things, so build
the portfolio around them, and make sure they are genuinely different bets. The other 40% sits in the
MSCI All Country World Index. Enter 3 to 5 themes, each as an ETF that represents it, with a conviction
score; the optimizer picks the three that diversify best, then sizes them so each theme earns its weight
by adding risk that does not overlap with the others or with the index. Higher conviction earns more,
and no theme gets more than 25%.
Subscribers only
Enter the email address of your YWR subscription and we'll send you a 6-digit code.
Your themes
Theme: type a name and pick an ETF (or type any ETF / index ticker)
Conviction
Your 3-60 portfolio
Drag the sliders to try your own weights; MSCI ACWI takes the remainder.
How it would have behaved
Every way of choosing three
Score = average conviction / 5 minus average correlation. Diversification
is allowed to beat conviction: all your themes are high conviction already, and the usual mistake is
holding several themes that are really one bet. Click a row to load it.
Correlations
Method. Weights maximise diversification scaled by conviction:
the sum of each theme's conviction × weight × volatility, divided by portfolio volatility. When judging
overlap the 40% core is counted at half weight, since a mix of stocks behaves partly, not exactly, like the
index. Each theme is held between 10% and 25%.
Illustrative only, not investment advice. Weights use five years of weekly returns, and the history shown
uses those same years, so it describes the method rather than predicting results. MSCI ACWI is represented
by the iShares MSCI ACWI ETF.