Most ETF portfolios shared on Reddit follow a familiar template: buy a global market-cap weighted ETF (VWCE, WEBN, IMIE etc.), hold it for decades, and let the market do the work. The underlying assumption is straightforward: global equities have historically compounded positively over the long run, and staying invested is more important than trying to outsmart the market. You buy high, you buy low and over decades you will hopefully sell higher when you retire or otherwise need the money.

This portfolio takes a different approach. Rather than buying the global market regardless of valuation or market regime, I allocate new capital mechanically to whichever return driver is currently furthest below its target allocation. The objective is not to predict markets, but to systematically buy temporarily underweighted exposures while letting long-term factor premiums work over time.

Rather than relying primarily on broad market beta, it combines several academically documented factor premiums and alternative risk premia that have historically generated excess returns across different market environments. The goal is not to predict the next winning asset class, but to diversify across independent return drivers and over decades there will be many different market conditions that allow different drivers to shine at different moments.

That also means this portfolio is not designed to closely track global equity markets. There will inevitably be periods (potentially lasting several years) where it underperforms a simple global index fund because you continue buying temporarily underweight exposures while waiting for them to outperform again. Understanding why each position exists is therefore just as important as the positions themselves.

The Portfolio

25% Xtrackers MSCI World Momentum (XDEM)
20% Avantis Global Small Cap Value (AVWS)
20% L&G Global Quality Dividends (LDGA)
15% iMGP DBi Managed Futures (DBMF)
10% UBS CMCI ex-Agriculture SF (UEQU)
5% UBS CMCI Commodity Carry SF (UEQC)
5% 21Shares Crypto Basket Equal Weight (HODLV)

So this equals 65% equities, 15% Managed Futures, 15% commodities and 5% crypto.

Why each position exists

XDEM: Momentum (25%)

Momentum is one of the most extensively documented factor premiums across markets and asset classes. The basic idea is simple: securities that have outperformed over the previous 6–12 months have historically tended to continue outperforming over intermediate horizons.

Momentum performs best during sustained market trends, where leadership remains relatively stable. It tends to struggle during sharp market reversals, when previous winners rapidly become losers. Historically, momentum has generated attractive excess returns but has also experienced occasional severe crashes, making position sizing and portfolio diversification particularly important.

AVWS: Small Cap Value (20%)

Small cap value combines two of the oldest documented equity factors: size and value (cfr. Fama-French). It focuses on companies that are relatively small, attractively valued, and often underrepresented in broad market-cap weighted indices.

Value and momentum have historically exhibited relatively low (and at times negative) correlation. During prolonged growth-led markets, value often lags, while momentum thrives. During major style rotations, the opposite frequently occurs. As a result, AVWS complements XDEM by providing exposure to a different source of expected return within equities.

Unlike traditional index-based factor ETFs, Avantis uses a systematic implementation that seeks to minimize unnecessary turnover and trading costs while maintaining consistent exposure to its target characteristics.

LDGA: Quality / Dividend Growth (20%)

LDGA serves as the portfolio’s quality allocation. Unlike traditional quality indices that primarily screen for high return on equity and low leverage, LDGA focuses on companies with sustainable dividend growth supported by healthy balance sheets and disciplined capital allocation. This produces a portfolio that often resembles a quality-value blend rather than a pure growth-oriented quality strategy.

Two characteristics make LDGA particularly attractive here.

First, its equal-weight construction naturally increases exposure to mid-sized companies, counterbalancing the large caps of XDEM.

Second, its regional allocation (~38% Europe, ~34% United States and ~24% Asia) provides meaningful diversification relative to XDEM, which is heavily tilted toward the US market at the moment.

Quality has historically behaved differently from both value and momentum during market stress and higher interest rates, making it a useful third pillar within the equity allocation.

DBMF: Managed Futures (15%) (Ticker DBMFE is traded in Euro)

Managed futures strategies systematically follow price trends across equities, government bonds, commodities and currencies, taking both long and short positions depending on prevailing market trends. For the prevailing market trends, DBi uses statistical replication techniques to estimate the aggregate exposures of other large managed futures managers rather than running their own CTA program.

My portfolio’s largest allocation XDEM is a long-only momentum strategy and can suffer significant losses during abrupt market reversals. Managed futures, by contrast, have historically tended to perform well during major macroeconomic shocks, prolonged bear markets and inflation-driven crises precisely because they are able to profit from sustained downward trends as well as upward ones.

Although the expense ratio is relatively high, managed futures remain one of the few genuinely differentiated return sources available in a European ETF.

UEQU: Commodity Beta (10%)

UEQU provides diversified commodity exposure across energy, industrial metals and precious metals while excluding agriculture and livestock. This places greater emphasis on commodity sectors that have historically exhibited more favorable roll characteristics than agricultural futures, which have often experienced persistent negative roll yield.

The CMCI methodology differs from traditional front-month commodity indices by spreading futures exposure across multiple maturities (constant maturity). Historically, this approach has reduced the roll-cost drag associated with conventional front month rolling commodity ETF.

Because commodities often respond positively to unexpected inflation shocks, UEQU provides diversification during market environments where both equities and bonds may struggle simultaneously (looking at you 2022!).

UEQC: Commodity Carry (5%)

Where UEQU provides broad commodity exposure, UEQC focuses specifically on the commodity carry premium. Think of it this way: imagine you want exposure to the oil price but you have no storage tank to actually take delivery of physical barrels. You buy a futures contract instead. As that contract approaches its expiry date, you have to sell it and buy the one for next month to keep the exposure without having to take delivery of the oil. Depending on market conditions, that roll can cost you money or make you money.

UEQC systematically targets the commodities where that roll is most likely to make money, so where the market structure rewards you just for holding the position. It is a return that exists independently of whether commodity prices go up or down.

Together, UEQU and UEQC give the portfolio two distinct commodity return sources: one that profits when commodity prices rise, and one that earns a structural premium simply from the way futures markets are priced. This creates broader diversification than a single traditional commodity ETF.

HODLV: Crypto Basket Equal Weight (5%)

HODLV is intentionally the portfolio’s highest-volatility allocation. Rather than making a directional bet on a single cryptocurrency, it maintains an equal-weight basket of leading crypto assets and periodically rebalances between them. Crypto markets show extremely high volatility over shorter horizons and periodic rebalancing within such an environment may generate a meaningful rebalancing premium over time compared with a simple buy-and-hold allocation like the HODL ETP (= the same 5 crypto but in a market cap weight ETP).

At only 5% of the portfolio, even a severe crypto drawdown has a limited effect on total portfolio value, while exceptionally strong crypto performance has the potential to contribute meaningfully before systematic rebalancing trims the position back toward target weight.

Rebalancing Rules

The rebalancing framework is intentionally asymmetric. Frequent mechanical rebalancing can put a drag on the momentum ETF by systematically trimming winners too early while equity bull markets typically last multiple years. The portfolio therefore treats momentum differently from the remaining allocations.

A: Monthly contributions

All new capital is invested into whichever position is furthest below its target allocation. This continuously directs fresh capital toward temporarily underweighted assets without generating taxable sales.

B: Threshold rebalancing

All positions except XDEM are monitored using allocation thresholds. If a holding deviates sufficiently from its target allocation (and at least six months have passed since the previous rebalance) the position is rebalanced back toward target. This limits unnecessary turnover while maintaining disciplined risk control.

C: Momentum ETF

XDEM is rebalanced only once per year. Allowing momentum winners to continue running preserves the very premium the strategy is designed to capture while still preventing excessive concentration over longer time horizons.

Alternative setups

I expect some criticism about only having 65% equities in a long-term portfolio. A solution for those people would be to take 5% off each equities holding and adding that 15% to a 3x leverage S&P500 or Nasdaq ETF. This would upgrade the equities exposure to 50% + 45% while it would only buy leveraged shares in a dip when they are underperforming the factor portfolio. Of course this would reduce the factor exposure of this factor portfolio, but I think it would be a good synergy.

Some people will probably say that 5% allocations will not have meaningful impact on the result. They may be right but I like to go really broadly diversified with independent return drivers and it doesn’t really matter to me if my Excel tracks 4 or 7 positions. In most months I think I will only buy 1 to 3 ETFs that have underperformed that month. However if I had to limit myself to only four factors, I would probably only take the strongest and most researched momentum, small cap value, managed futures and commodities (or just gold).

Conclusion

This is not a traditional passive index portfolio. It requires conviction, because factor premiums can underperform broad market indices for many years before recovering. Investors who are uncomfortable trailing a simple global equity ETF for extended periods are unlikely to stick with this approach. It is also not optimized for simplicity: managing seven positions with asymmetric rebalancing rules requires discipline and a systematic process. I built a simple Excel to track the asset the lowest under target allocation and I’ll need to build it further to get the rebalancing rules incorporated.

Ultimately, the goal of this portfolio isn’t to beat the S&P 500 every year. It’s to diversify across multiple independent sources of expected return while using a systematic allocation process that removes as much emotion as possible from investment decisions. Whether that ultimately outperforms broad market indexing remains to be seen, but I believe the framework is internally consistent and worth testing over the coming decades. I’d be interested to hear where you think the weak spots are. With this post I also want to show that you can make a framework that diversifies beyond IMIE and maybe inspire people to think further outside the box. Although I’m convinced this may work well in the long run, I’m also not going to do only this factor portfolio. I’m considering of doing a 50% WEBN portfolio and 50% this factor portfolio.

Some factors I considered but didn’t make it to my 7 ETF choice:

LDGA ETF has global exposure but effectively in the bigger part EU. I considered LGGE which is similar (with some more sector exclusions) but pure EU exposure. However, I went with LDGA because the ETF is accumulating dividends.

Pure gold ETC or even a basket of precious metals PHPM. Most research is focused around gold as hedge, and gold is part of the commodities beta ETF UEQU so I went with the more diversified option. As alternative for UEQU I considered UIQK that includes the agriculture, but UEQU looks stronger long term while slightly higher volatility, which fits well with my threshold based rebalancing process. You can also look at XSVT or IS39 as alternatives.

For AVWS there is an alternative DEGT. Both funds are active funds so yields will differ between them. I went with AVWS because of its implementation and competitive costs.

For DBMF there is also an alternative that excludes commodity futures with ticker MFA8 but it has higher TER, lower AUM / lower liquidity and only USD ticker so I went with DBMF.

I didn’t look into bonds or money market ETFs, they certainly can be beneficial in this strategy but I have a high risk tolerance and I hope my commodities and managed futures give the counterbalance that bonds usually give.