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The SPDR Quadfecta ETF Portfolio

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Four palm trees representing the quadfecta

In November 2024, I introduced a “quadfecta” portfolio of four ETFs from Charles Schwab, featuring one U.S. equity ETF, one U.S. fixed-income ETF, one U.S. TIPS ETF, and one U.S. REIT ETF.

While it lacked international diversification, the allocations to fixed income, inflation-protected securities, and REITs provided a solid foundation to offset the risks of a U.S.-only portfolio.

Since not all my readers use Schwab ETFs, I’ve decided to turn this into a series featuring quadfecta portfolios built using ETFs from all the major providers.

Today’s lineup comes from State Street Global Advisors (SSGA), the firm behind the SPDR ETF series. These were the pioneers of the first U.S.-listed ETF, and their offerings today span a wide range. As always, I’ve focused on their cheapest and most broadly diversified options to construct this portfolio.

SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)

Allocating a substantial 60% of our Quadfecta portfolio to U.S. equities, the goal here is to harness the equity risk premium in the most cost-effective and diversified way possible.

This involves capturing the entire spectrum of the market—from small-cap to large-cap stocks across all 11 sectors—using a market-cap weighted approach for broad exposure.

Sector Allocation chart showing Fund and Index Sector Breakdown as of January 10, 2025. Key sectors include Information Technology (30.55% for the Fund and 30.58% for the Index), Financials (18.79% for the Index), Consumer Discretionary (15.1% for the Fund), and others like Health Care, Consumer Staples, Industrials, and Communication Services.

SPTM perfectly aligns with this strategy by tracking the S&P Composite 1500 Index. This index combines the S&P 500 (large caps), S&P 400 (mid caps), and S&P 600 (small caps), giving you exposure to 90% of U.S. equity market capitalization.

Its market-cap weighting ensures low turnover, keeping the strategy highly tax-efficient. With $9.6 billion in AUM, SPTM is well-established and highly liquid, boasting a 0.01% 30-day median bid-ask spread.

What really stands out is its rock-bottom expense ratio of 0.03%. It doesn’t get cheaper than this, making SPTM an ideal cornerstone for our SPDR Quadfecta portfolio.

SPDR Portfolio Aggregate Bond ETF (SPAB)

The Quadfecta is meant to be a balanced portfolio, so I’m not using a 100% equity allocation. Instead, the aim is to create a more nuanced blend of risk and return with a 20% bond allocation.

Bonds play a crucial role here, offering the potential for uncorrelated returns to equities by tapping into different risk premiums—namely credit and maturity.

To achieve this, SPAB is an excellent choice for its affordability and broad exposure. This ETF tracks the Bloomberg U.S. Aggregate Bond Index, which includes a diverse range of over 7,800 holdings, such as U.S. Treasuries, mortgage-backed securities (MBS), agency bonds, and investment-grade corporate bonds across multiple maturities.

Quality Breakdown comparison between Fund and Index as of January 10, 2025. Key data includes different ratings like A1, A2, BAA1, and their respective percentage distributions within the Fund and Index portfolios.

SPAB boasts an average duration of 6.04 years and a yield to maturity of 5.08%, striking a balance between income generation and interest rate sensitivity. It distributes income monthly, making it an attractive option for income-focused investors.

Its rock-bottom expense ratio of 0.03% is among the lowest in its category, making it a cost-effective way to gain exposure to the broad U.S. bond market. For investors seeking a reliable bond allocation within a diversified portfolio, SPAB checks all the right boxes.

SPDR Portfolio TIPS ETF (SPIP)

Despite the strengths of SPAB, it has a notable weakness: inflation vulnerability. Nominal bonds generally underperform during inflationary periods because their fixed interest payments lose purchasing power as prices rise. This makes them less appealing when inflation is high.

To hedge against this risk, I’m allocating 10% to TIPS (Treasury Inflation-Protected Securities) in the Quadfecta. Unlike regular bonds, TIPS are indexed to the Consumer Price Index (CPI), meaning both their principal and interest payments adjust in line with inflation, offering built-in protection.

For investors seeking inflation-protected exposure, SPIP is an excellent option. This ETF tracks the Bloomberg U.S. Government Inflation-Linked Bond Index, providing broad exposure to U.S. inflation-protected bonds.

Top Holdings comparison for Fund and Index as of January 10, 2025. Detailed breakdown includes Treasury Inflation-Protected Securities (TIPS) with ISINs, weights, and market values for holdings like TSY INFL IX N/B 0.625% maturing in 2026 and others across varying maturity dates

SPIP comes with a 6.56-year duration and an average yield to maturity of 4.73%. It also offers monthly distributions, making it appealing for income-focused portfolios. While its 0.12% expense ratio is higher than SPAB, it’s still very competitive for its category.

Real Estate Select Sector SPDR Fund (XLRE)

The final component of the Quadfecta portfolio is a 10% allocation to real estate, valued for its potential to deliver returns that are not perfectly correlated with the stock market.

Real estate is influenced by different economic drivers, such as interest rates, demographics, and consumer behavior, making it a useful diversification tool. However, directly investing in real estate comes with significant challenges—illiquidity, maintenance costs, property taxes, and potential mortgage expenses can be a headache for individual investors.

An efficient way to gain real estate exposure without these drawbacks is through Real Estate Investment Trusts (REITs). XLRE is an excellent ETF for this purpose.

This fund tracks the Real Estate Select Sector Index, drawing exclusively from S&P 500-listed equity REITs. As a result, it benefits from the S&P 500’s earnings quality screen, ensuring exposure to larger, more financially stable companies.

Importantly, mortgage REITs are excluded, which is a positive since they’re often more volatile and sensitive to interest rate changes than equity REITs.

XLRE is market-cap weighted, offering exposure to some of the largest real estate sectors, including residential, healthcare, data centers, warehouses, self-storage, office, retail, and hospitality.

Real Estate Investment Trust (REIT) Breakdown as of January 10, 2025. Specialized REITs constitute 43.20%, Residential REITs 12.78%, Health Care REITs 12.58%, and Industrial REITs 9.55%. Data is presented in a comparative format with identical percentages across similar categories.

With an expense ratio of 0.09%, XLRE is both affordable and efficient. It also provides an above-average 3.5% 30-day SEC yield, making it attractive for income-seeking investors.

However, note that its distributions are often taxed as ordinary income (up to 37%), so it’s best held in a tax-advantaged account like an IRA for U.S. investors.

Putting it all together

A balanced allocation of 60% SPTM, 20% SPAB, 10% SPIP, and 10% XLRE gives you a diversified portfolio composed of 60% U.S. equities, 20% aggregate bonds, 10% TIPS, and 10% real estate.

When we compare this “Quadfecta” setup with a more conventional 60/40 U.S. stock and bond portfolio, the results are impressive.

Performance statistics for 60/40 and Quadfecta portfolios as of January 2025. Metrics include CAGR, MWRR, Max Drawdown, Volatility, Sharpe Ratio, Sortino Ratio, Ulcer Index, and Beta. A performance chart from 2016 to 2025 displays portfolio growth from $8,000 to over $23,000.

From October 2015 through January 2025, the Quadfecta portfolio (rebalanced quarterly) delivered a 9.77% annualized return (CAGR), outpacing the traditional 60/40 allocation, which returned 8.88% over the same period.

Risk-adjusted returns are also comparable: the Quadfecta portfolio has a Sharpe ratio of 0.66 versus 0.65 for the 60/40 portfolio. The Quadfecta did exhibit somewhat higher volatility, showing a higher maximum drawdown and standard deviation due to its 10% lower bond allocation and real estate exposure.

However, I still prefer the Quadfecta for its simplicity, easy rebalancing, and, above all, low costs. For this allocation, the weighted average expense ratio is a mere 0.042%, allowing you to keep more of your investment returns over the long term.

Disclaimer: The information provided by ETF Portfolio Blueprint is for general informational purposes only. All information on the site is provided in good faith, however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information on the site. Past performance is not indicative of future results. ETF Portfolio Blueprint does not offer investment advice, and readers are encouraged to do their own research (DYOR) before making any investment decisions.

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