Portfolio IQ: All Equity ETFs All the Time

When Tom Graff thinks about his investment portfolio, he is mostly looking a few decades down the road, which helps explain his comfort being 100% in equities.

Graff, 47, is the chief investment officer at Facet in Phoenix, Md.

Perhaps the most interesting part of his all-stock portfolio is that prior to joining Facet in 2022 he was running the fixed income department at Brown Advisory. His portfolio has been all ETFs since he joined Facet.

"I think, over time, I’m very confident that stocks will beat bonds,” he said. “My advice has always been to minimize the bond portfolio based on your liquidity needs."

US, International ETF Allocation

Graff said he is in a unique position of having most of his short-term cash needs covered, including covering the cost of one child in college and another headed that way within a few years.

"My goals are pretty amorphous," he said. "I have college figured out and I’m not retiring for a long time."

Graff keeps about 10% of his total investable assets in cash, but the general theme of his portfolio is long term with minimal turnover

Top Holdings Include QUAL, SPYV

The top four holdings include the iShares MSCI USA Quality Factor ETF (QUAL) at 16.7%, the SPDR Portfolio S&P 500 Value ETF (SPYV) at 16.6%, the Vanguard Total Stock Market Index Fund ETF (VTI) at 14.3%, and the iShares Core S&P Total U.S. Stock Market ETF (ITOT) at 10%.

On the QUAL position, Graff explained the appeal as "buying companies with more earnings stability, less leverage and higher profits."

He describes his overall portfolio as "sector balanced and not too value oriented."

"I’m a believer that ultimately there’s value in overweighting value companies that have higher profits, are more established and have low debt burdens," he said. "In a downturn, they will go down, but they may hold on better."

Graff further explains his value investing strategy as, "I’m trying to be roughly sector neutral but will twist it the way I want to twist it, and I try to keep value and growth equal, otherwise you’re chasing performance."

Overweight International ETFs

In addition to being unique with his heavy equity weighting, Graff also stands out from the crowd by having nearly 27% allocated to international markets.

That exposure is spread across four ETFs: the iShares Core MSCI EAFE ETF (IEFA) at 9.3%, the Vanguard FTSE Developed Markets Index Fund ETF (VEA) at 8.5%, the iShares MSCI EAFE Growth ETF (EFG) at 5.7%, and the Vanguard Emerging Markets Stock Index Fund ETF (VWO) at 3.2%.

Because his portfolio is in a taxable account, Graff said tax management is always front and center, but he doesn’t make taxes the main driver of investment decisions.

"I’m pretty active in tax management," he said. "I’ll do tax-loss harvesting, but those opportunities come and go, and I know I’m going to pay taxes on this at some point. And I’d rather have a portfolio I want then get frozen by taxes."

Even though Graff checks his portfolio every day, "because it’s part of my job to watch this stuff," he recognizes that a 100% equity portfolio is not for everyone.

"You have to train yourself to be able to compartmentalize," he said. "When I start on day one, I know down days are coming, and I don’t enjoy those days any more than anyone else."

The volatility that comes with an all-equity portfolio, Graff said, should be paired with a long-term perspective.

"I like working and I don’t know what it will feel like 20 years from now, but I see myself working for a long time," he said. "That should influence how you think about it, but if the psychology of it gets in the way of your decision making, maybe put a little more in bonds."