Even though over the 10-year period, there was a 137 basis points difference in annualized return between the two portfolios, depending on your sector outlook going forward, you may have a preference for one portfolio over the other, given the differences in sector risk exposure. Another consideration may be more personal. For example, if you work in the materials sector - meaning that your human capital is significantly correlated with the fortunes of that sector - you may want your financial capital to be less concentrated in materials sector risk. In this case, you would prefer Portfolio 1.

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The same considerations apply if you look at the macroeconomic risk exposures of the two portfolios in Figure 2. Portfolio 1 is exposed to fluctuations in the price of oil, and it has a bigger exposure to the US dollar. Portfolio 2, meanwhile, has a much larger exposure to interest rates, but no statistically significant exposure to oil. Note that while both portfolios have 10% in the GSCI Commodity Index fund (ticker: GSG), the risk exposure to oil is diversified away in Portfolio 2 by the inclusion of Information Technology stocks (ticker: XIT). In Portfolio 1, however, the exposure to oil is reinforced by the presence of Canadian dividend stocks (ticker: CDZ), which has 19% of its holdings in the energy sector. So again, depending on your macroeconomic outlook and personal circumstance, you will likely have a preference for one portfolio over the other.