How to build an All-world ex-Financials (Banks) ETF Portfolio?

#1

Hi Mustachians

I‘ve been thinking long and hard about the portfolio allocation that I would feel comfortable. Having played around with different portfolio allocation options, consisting about half a dozen ETFs, I‘ve currently gone back to „keeping it simple“ and allocate the biggest equity part to an All-world equity fund as sort of a starting point.

I would then make a few additions, to adjust for my personal preferences and convictions (for example overweighing Emerging Markets).

Vanguard All-World (VWRL) would be a good starting point, I thought.

However, its biggest sector exposure currently is Financials (at 21%) - something that I don‘t feel comfortable about at all. I‘m less concerned about „Financials“ like Berkshire Hathaway but rather about the banks.

Why? Historic underperformance, combined with higher volatility - and a political and monetary „climate“ that I don‘t think bodes well for the foreseeable future.

I‘m not sure now what would be the „best“ way to offset the exposure to Financals (and especially banks)?

Options, warrants? Short-selling ETFs or CFDs?
Do I understand correctly, that I can do this at Interactive Brokers?

Any opinions, tips, experiences?

#2

Some ex-financial ETFs are available, but AUM is low, TER and spread are high:

#3

Another possibility would be to invest in a standard total world ETF (For example VT) and short the financial sectors with one of the following ETFs:

This is a more complex strategy. I strongly advised to do a simulation to see the effect of the levarage and find the right % to invest.

#4

Thanks wapiti, I‘ve already had these on my „watchlist“.

Piecing it together with multiple long ETFs is one possibility - however, there do not seem to be many available. And I‘m unaware of any (All) World Ex-Financials ETFs. So that would need multiple regional ETFs, possibly rebalancing - and more „exotic“ and less cost-efficient ETFs. And then maybe leave out some markets without suitable ETFs. Seems a bit cumbersome.

I did take a look into them. The problem with these short ETFs is the daily calculation and the compounding effect at work. That almost guarantees mid- to long-term losses, even in sideways markets. Rather than trying to explain it myself, I just found (by googling) a relatively good explanation here:

https://monevator.com/short-etf-maths/