I am attempting to construct a portfolio using the step by step Black-Litterman model. My idea is to have a portfolio of, say 10 ETF's (equity based) in one sector and then add some uncorrelated asset such as bonds, real estate ETF.

I am finding it difficult to approach how to calculate my portfolio weights for my equity ETFs and uncorrelated ETF.

My following approuch to start was to do this:

  1. obtain market caps of ETFs
  2. calculate the weight of each ETF depending on its index bench mark

I have attempted this but stuck on how to add uncorrelated assets aswell.

Is this the correct approach? Also, any other considerations i need to take into account to obtain my equilibrium weighted portfolio ready for optimization.

Any guidance to weight calculation would be appreciated.


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