ETF Model Portfolios: The Cockroach Portfolio

The 60% stock allocation

Instead of broad market exposure, the equity sleeve is split evenly across three defensive sectors: the Health Care Select Sector SPDR Fund

Each of these ETFs draws from the S&P 500, which means you are still getting exposure to large, liquid, profitable companies. But the sector tilt matters. These are businesses tied to inelastic demand.

Healthcare companies provide essential treatments and services. Utilities supply electricity, water, and gas. Consumer staples cover everyday goods like food, hygiene products, and household items. Demand for these does not fall off a cliff during recessions.

These sectors tend to have lower beta than the broader market, meaning they move less during both rallies and selloffs. The goal here is not to chase maximum upside, but to avoid the kind of deep drawdowns that take years to recover from.

The 20% bond allocation

The bond sleeve is allocated to the iShares U.S. Treasury Bond ETF

Its role is diversification. Treasury bonds are driven by interest rates and macro conditions, not corporate earnings. That makes them a different return stream from equities, and historically, they have often moved in the opposite direction during periods of market stress.

By focusing on Treasurys instead of corporate bonds, the portfolio avoids credit risk and leans into the traditional “flight to safety” behavior. This is meant to act as a stabilizer when equities sell off.

The 20% gold allocation

The final piece is gold, held through the iShares Gold Trust Micro

Gold brings something different to the table. It has low correlation to both stocks and bonds and tends to perform well in environments where traditional assets struggle together, such as inflation shocks or currency concerns.

It does not produce income, and it does not rely on earnings growth. But that is precisely why it works here. It adds a third, distinct source of return that can help offset periods when both equities and bonds are under pressure.

Using an ETF structure avoids the logistical issues of holding physical gold, such as storage and transaction costs, while still providing direct exposure to the underlying metal.

Putting it all together

Implementation is straightforward. Allocate 20% to each of the five ETFs and rebalance quarterly. That brings the weighted average expense ratio to just 0.076%.

Against the S&P 500 total return index, this portfolio has lagged over the past five years, which is expected in a strong equity bull market. But the tradeoff shows up clearly in the Sharpe ratio, which increases to 1.08 from 0.67. In other words, you are getting more return per unit of risk taken.

Volatility drops materially, from 17.1% for the S&P 500 down to 9% for this portfolio. Downside volatility is cut nearly in half as well, falling from 10.44% to 5.4%. Correlation to the S&P 500 also declines to 0.56. Skewness and kurtosis, which measure the asymmetry of returns and the likelihood of extreme tail events, are both reduced.

Maximum drawdown length is nearly cut in half, and the number of days spent in drawdown is also lower, pointing to faster recoveries.

Across multiple value-at-risk measures, including historical, Gaussian, Cornish-Fisher, and conditional VaR, the Cockroach Portfolio consistently comes out with lower downside risk than the S&P 500.

This is not a portfolio designed to shoot the lights out. It is designed to endure. For investors looking for a more balanced, cost-efficient alternative to complex and expensive all-weather strategies, this is a practical way to get there using just a handful of low-cost index ETFs.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.