The Mega Millions ETF Portfolio (XOP, VTV, IAU)
Those not living in a cave have by now heard the the Mega Millions jackpot for Friday's drawing has reached an estimated $500 million. That's the largest prize in the game's history. Exciting stuff to be sure, but the reality is one stands a better chance of being struck by lightening.
The odds of winning the Mega Millions jackpot are an unfavorable one in 176 million. Working on the assumption that someone reading this article has the good fortune to win the jackpot, that lucky soul will have the option of taking a $359 million cash payout. That's still a tidy sum.
A lot of investing and trading can be done with $360 million and that sum would certainly be good enough to gain entry into more than a few hedge funds. For those that want to manage that lofty sum on their own, the following ETFs are worth a look.
Consumer Staples Select Sector SPDR (NYSE: XLP) The Consumer Staples Select Sector SPDR is of course low-beta and almost downright boring in the world of sector ETFs, but just because one has $360 million to play with doesn't mean that they should be taking on excessive risk. At least one of your new ETF positions should be something for the long-term and something that won't cause lost sleep at night.
A stake in XLP would make your grandad and Warren Buffett proud. Rounding up a bit, 1 million shares of XLP would run about $34 million, leaving the Mega Millions winner with $325 million, some of which can be devoted to the...
WisdomTree Emerging Markets Equity Income Fund (NYSE: DEM) Of course some of the winnings should go to an emerging markets fund, but we can do better than standard fare such s the Vanguard MSCI Emerging Markets ETF (NYSE: VWO). There's a lot to like with DEM, including a yield approaching 4% and that the fund is up 12% year-to-date, just be advised Brazil and Taiwan account for over 43% of the fund's country allocation.
Let's say that DEM finds its way down to $56, and it looks like it will, 1 million shares costs $56 million and that leaves $269 million, some of which can be invested in the...
Technology Select Sector SPDR (NYSE: XLK) With $269 million left at this point, one could still afford plenty of shares of Apple (Nasdaq: AAPL) directly, but if that's not your cup of tea, XLK will work. As has been documented countless times this year, Apple is XLK's largest holding. As of Wednesday, it accounted for 19.17% of the fund's weight. Dow components International Business Machines (NYSE: IBM) and Microsoft (Nasdaq: MSFT) combine for another 16%.
The tech sector has been leading the market higher this year and with Apple being a runaway train let's allocate 2 million shares to XLK, which costs $60 million. That leaves $209 million for other funds such as the...
Vanguard Value ETF (NYSE: VTV) We considered the Vanguard Dividend Appreciation ETF (NYSE: VIG) for this spot, but VTV has a much lower allocation to staples stocks and is cheaper than VIG. This is another conservative, sleep at night ETF and the meager 0.12% expense ratio means you won't be getting decked just for the privilege of stashing some of your mega millions winnings here. Financials and health care combine for over 36% of VTV's weight. One million shares will cost about $57 million, leaving $152 million for ETFs such as the...
iShares Gold Trust (NYSE: IAU) Yes, gold has lost some of its luster over the past month, but if we get more quantitative easing investors won't want to be caught without some gold exposure. Some experts would argue investors should have 5%-10% of their portfolios in precious metals. Buying 2 million shares of IAU for about $32 million of your $369 million Mega Millions winnings covers a proper gold allocation and leaves you with $120 million.
EGShares Emerging Markets Consumer ETF (NYSE: ECON) Given the size of the jackpot and the mostly conservative nature of the portfolio to this point, one can afford to take some risks. The EGShares Emerging Markets Consumer ETF isn't overly risky because it does feature a decent weight to staples names and as the emerging markets consumer is validated as an investment theme this ETF will benefit. One million shares should cost $24 million in a day or two.
SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) At the moment, it's hard to get excited about oil and gas stocks because they're leading the market lower, but our Mega Millions portfolio is lacking for energy exposure and XOP will certainly add some beta without excessive weights to the likes of Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). Wait for XOP to fall to its 200-day line at $55 and see if holds support there. Then throw in for a million shares, costing $55 million.
That means $41 million is left over and advisable destinations for that money would include yield plays such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD) or the Vanguard REIT Index ETF (NYSE: VNQ).
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