ETF Model Portfolios: High Asset, Low Obsolescence (HALO)

The Five HALO Sector ETFs

In no particular order, the five ETFs I've selected for this HALO model portfolio are the Vanguard Utilities ETF

Utilities are among the most straightforward examples of the HALO concept. Electricity, water and natural gas distribution require extensive physical infrastructure, much of which operates within regulated service territories with high barriers to entry. Electric transmission is particularly attractive because building high-voltage transmission lines requires substantial capital, regulatory approvals and rights-of-way that competitors cannot easily replicate. AI may change how electricity networks are managed, but the physical grid remains essential, especially as data center power demand increases.

Energy infrastructure is another natural fit, particularly midstream businesses operating pipelines, storage terminals and processing facilities. These assets are expensive to construct, difficult to duplicate and often benefit from long-term contracts or volume-based transportation fees. A pipeline connecting major production basins to refineries or export terminals can retain considerable economic value regardless of advances in AI. VDE also holds oil and gas producers, refiners and integrated energy companies, so investors should recognize that commodity prices remain an important driver of returns.

Industrials offer several compelling HALO business models, especially railroads and waste management companies. Rail networks benefit from enormous replacement costs, established rights-of-way and limited direct competition along many routes. Waste management businesses have similarly durable advantages through landfill ownership, collection routes, transfer stations and municipal contracts. Landfill permitting can be particularly difficult, creating barriers to entry for new competitors. VIS also includes aerospace, machinery and transportation businesses, although these can be more cyclical and exposed to technological change than railroads or waste collection.

Materials companies control the physical inputs required for construction, manufacturing and infrastructure development. Mining businesses are an obvious example, since mineral deposits are geographically fixed and cannot be replicated by software. However, aggregates producers may be an even cleaner HALO example. Crushed stone, sand and gravel are essential for roads, buildings and concrete, while their low value relative to transportation costs makes nearby quarries particularly advantageous. Permitting new extraction sites can also be difficult, helping established operators maintain local competitive positions. VAW provides exposure to these businesses alongside chemicals, metals and other materials producers.

Real estate is the most literal interpretation of the high-asset component of HALO. Buildings and land are tangible assets that remain necessary regardless of how advanced AI becomes. Within the sector, residential REITs are particularly interesting because housing fulfills a recurring, essential need. Apartment communities, manufactured housing and other residential properties can benefit from persistent demand, while desirable locations and development restrictions may limit competing supply. VNQ also holds industrial, retail, healthcare, and specialized REITs, introducing additional diversification, although property valuations and financing costs remain sensitive to changes in interest rates.

Putting the Portfolio Together

For simplicity, I'm assigning an equal 20% weight to each of the five ETFs: VPU, VDE, VIS, VAW, and VNQ. I'll also assume annual rebalancing rather than quarterly or monthly adjustments, which helps reduce turnover and the potential for realizing capital gains in taxable accounts.

Using ETF Central's Model Portfolio Builder, I backtested this allocation from mid-2021 through the present against the S&P 500 Total Return Index. Over the full period, the HALO portfolio underperformed on both an absolute and risk-adjusted basis.

However, the portfolio demonstrated its potential resilience during the inflationary environment of 2022. While the S&P 500 suffered a double-digit decline, this real-asset-heavy allocation actually finished the year with a positive return. Exposure to energy, utilities and other physical-asset-intensive businesses helped offset weakness elsewhere in the portfolio.

The following years were considerably less favorable. The HALO allocation lagged the S&P 500 substantially as mega-cap growth stocks drove much of the market's gains. That's understandable given the portfolio's construction. It excludes information technology and communication services entirely, along with consumer discretionary companies, leaving it with little direct exposure to the major beneficiaries of the AI investment boom.

I actually see that as a potential advantage for investors who already maintain a substantial core allocation to U.S. large-cap equities. Rather than replacing an S&P 500 ETF, this HALO portfolio could serve as a satellite allocation, providing exposure to sectors and business models that are relatively underrepresented in today's technology-heavy benchmark.

It's also worth noting that year-to-date in 2026, the HALO portfolio has kept pace with the S&P 500 reasonably well despite having little exposure to the market's most prominent AI winners.

If the AI trade eventually loses momentum and market leadership broadens toward more traditional industries, this allocation could benefit. The same applies if inflation remains elevated, given the portfolio's exposure to energy, materials, infrastructure and other businesses with substantial tangible assets. Neither outcome is guaranteed, and the portfolio would still face risks from economic slowdowns, commodity cycles and higher financing costs.

Finally, implementation is inexpensive. With all five ETFs charging 0.09%, the portfolio's weighted-average expense ratio is also just 0.09%, substantially below the fees charged by dedicated HALO ETFs.

And because each underlying ETF is market-cap weighted, successful companies can naturally grow into larger positions within their respective sector allocations. Annual rebalancing maintains the intended balance across the five sectors without requiring investors to constantly adjust individual holdings.

For investors looking to complement a growth-heavy core portfolio with exposure to established, asset-intensive businesses, I think this is a straightforward and cost-effective way to express the HALO thesis.

Please note that this article reflects the author’s personal views and does not represent the opinions of the publication or its affiliates. It is for informational purposes only and does not constitute investment advice. It is essential to seek guidance from a registered financial professional before making any investment decisions.