STRATxAI
September 2023 · 5 min readChoosing a portfolio size is an important part of building a strategy. Within the Xplore ETF tool, users can create a portfolio with between 1-5 ETFs. ETFs are themselves diversified and so it is not necessary to choose a large number of assets to create a performant and diversified portfolio with this tool.
Let's investigate this idea with an example. We'll build a concentrated ETF strategy using the Xplore ETF tool:
The result of this strategy is outstanding, returning almost 16% per year since 2010 with a Sharpe ratio of 0.85.
Let's test the same strategy with a larger portfolio size of 5, leaving all else equal.
As expected, setting the portfolio size to 5 reduced the volatility, however, the risk-return performance of both is quite similar.
Our Xplore tool is designed to be very dynamic and robust enough to investigate all sorts of investment strategy design decisions. Please let us know any feedback and enjoy building your own strategies!
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Xplore ETFs - build your own ETF strategy