MoneyWeek's ETF portfolio has completed its annual rebalancing, a process that began in April amid escalating tensions in the Middle East. The fund's managers cut a 'stale and superfluous' bond position and held the cash back to reinvest once the outlook became clearer. This week's update comes as the regional conflict has intensified again, but the team argues that holding excessive cash for too long risks sacrificing long-term returns.
The most defensive component of the portfolio now sits in very short-dated US government bonds, hedged back to sterling, offering a low-risk yield of nearly 4%. Alongside this, short-dated inflation-linked bonds have been added, reflecting a growing concern that inflation could pick up again over a one-year horizon. The team noted that equivalent UK bond ETFs do not exist, hence the US exposure.
On equities, the portfolio has deliberately reduced its concentration in US tech mega-caps by switching to an equal-weighted version of the S&P 500 last year. The move has proved timely as the market has recently begun rotating away from the largest tech names. Performance in Japan and emerging markets has been strong, though the team warns that non-US markets remain heavily geared to the AI trade, creating a hidden concentration risk.
To address this, the portfolio has allocated 5% of its cash to the WisdomTree True Emerging Markets ETF, which excludes China, Korea and Taiwan. This is intended to balance the tech and East Asia bias that dominates conventional emerging market indices. The remaining 5% in excess cash will be reviewed next month alongside the portfolio's real estate position.
Gold has underperformed relative to many investor expectations during the current crisis. The rebalancing in April automatically took some profits from gold's earlier strong run. The team's view is that gold often falters in the immediate phase of a crisis, and its longer-term appeal depends on whether fears about inflation and the dollar's reserve currency status persist. Oil stocks have benefited from the conflict and remain attractive, but the team would consider trimming them if a durable peace emerges.