The BFIA ETF portfolio as of July 2026

Our ETF portfolio is being updated, and while the Middle East's future is still uncertain, it is rarely profitable to wait around

As the Middle East crisis raged, the BFIA ETF portfolio underwent its yearly rebalancing at the start of April. We sold a stale and unnecessary bond position and kept the money to reinvest when the situation improved. I had planned to write that promised update this week, but instead I saw the conflict worsen for at least a month.

Still, it's time to make a choice. Sharing our top-down perspectives on markets is undoubtedly the goal of the ETF portfolio, but it also serves as a method for investing. Long-term returns can be negatively impacted by holding large amounts of cash for extended periods of time due to anxiety about potential outcomes.

Very short-dated government bonds (basically a cash proxy with a low-risk yield of about 4%) and short-dated inflation-linked bonds (we believe there is an increasing risk of inflation picking up on a one-year view) make up the most protective portion of our portfolio. These are hedged back to sterling but invest in US bonds. For simplicity's sake, we would hold UK bonds instead, but there are no comparable ETFs.

Oil stocks have helped us during this crisis and are still fairly appealing, but if peace returns, we would think about reducing them.

In retrospect, we can be thankful that rebalancing in April automatically took some profits from a strong run-up, as gold has not performed as well as many investors had anticipated. In my opinion, the question of whether concerns about inflation and the dollar's status as the world's reserve currency continue to boost gold's appeal over time is crucial because gold frequently doesn't shine during the initial stages of a crisis.

Balancing our ETF portfolio's exposure to technology.

In contrast to the global index, we are significantly less concentrated in the US when considering all of our equity holdings. Although it was an early move, our decision to move from the tech mega-caps to the equal-weighted version of the S&P 500 last year hasn't hurt us too much because the market has recently shown signs of rotating away from them. We've performed well in emerging markets and Japan. The degree to which non-US markets are geared toward the AI trade, however, must be closely monitored.

I've talked about this a few times lately in relation to emerging markets, and this leads us to a clear conclusion. I recommended using the new WisdomTree True Emerging Markets (LSE: WEMP), which excludes China, Korea, and Taiwan, last week (issue 1319) to counteract some of the East Asia and tech bias that is predominating in the emerging-market index. Since this is not a well-established core index, it is a little more difficult to know what performance we can expect in various scenarios. However, using some of the cash to add 5% to this should give us more diversification. That still leaves 5% in extra cash, which I will consider the next time along with the one real estate position I haven't yet talked about.

True EM ETF by WisdomTree.