This portfolio has been quietly tracking the S&P 500 for over a decade. From 2013 through 2024, it delivered 14.63% annualized returns compared to the index's 14.73%. Basically identical performance, but with more volatility along the way.

Then 2025 happened. The portfolio gained 29.84% while the S&P 500 returned 17.71%. That's a 12-percentage-point outperformance driven by a single thesis - that physical infrastructure would eventually matter again.

The strategy is straightforward. Load up on sectors tied to physical asset buildouts, semiconductors, metals, defense, power infrastructure. Bet that after a decade of underinvestment in tangible stuff, supply constraints would create pricing power and sustained demand.

2025 proved the thesis correct. Let me show you exactly what's in this portfolio and why it's working in 2026.

This portfolio holds 12 sector ETFs with heavy concentration in three themes: technology infrastructure, commodity reflation, and industrial buildouts. Here's the complete breakdown.

Semiconductors & Technology (40%)

The semiconductor position delivered exactly what it was designed for. XSD now trades at $349.85, up from a $156.78 low last year. The driver is AI infrastructure demand that's reshaping the entire chip market. Global semiconductor revenues are projected to exceed $1 trillion in 2026, up over 40% from 2024 levels.

Microsoft, Amazon, Google, and Meta collectively guided to $500 billion in capital expenditures for 2025. Every AI data center requires thousands of advanced chips, and fabrication capacity takes years to build. XSD captures this across the supply chain - chip designers, equipment makers, and foundries all benefit.

Metals & Commodities (26%)

XME's 83% return was the portfolio's star performer. It currently trades at $130.69 - nearly triple its $45.89 low from early 2025. This isn't speculation, but reflects the rotation we have been seeing and the trends that are powering this portfolio higher. Silver hit $85.88/oz in January 2026 driven by genuine industrial demand, particularly from solar panel production which consumes over 200 million ounces annually.

Copper demand is projected to grow 53% to 39 million metric tons by 2040. The problem here is that mine production has been declining since 2012. Capital expenditure in mining peaked that year and never recovered.

Gold's 64% gain reflects a different dynamic. Central banks, particularly in emerging markets, are diversifying away from dollar reserves. This creates structural buying pressure independent of interest rates or inflation fears.

Industrials & Defense (20%)

Defense spending is rising globally as the post-Cold War peace dividend ends. XAR's 46% return captures multi-year government contracts with inflation-adjusted pricing across NATO, Asia-Pacific, and Middle Eastern nations.

Infrastructure & Power (10%)

Power infrastructure is the sleeper position here. Up only 11% in 2025, but this will become critical as AI data centers strain grid capacity. Each hyperscale AI facility can consume as much power as a small city.

Defensive Positions (4%)

These small defensive allocations provide minimal downside protection. They're essentially cash alternatives rather than meaningful hedges.

The strategy bets on a commodity supercycle, with a multi-year period where demand for physical materials outpaces supply. The world spent 2010-2020 massively underinvesting in mining, chip fabrication, power generation, and defense manufacturing while pouring trillions into software and intangible assets.

That created structural shortages in everything you can't download. Semiconductors, copper, silver, power capacity, defense systems - all entered the 2020s with supply-demand imbalances that take years to resolve.

2025 was the year these shortages became undeniable. AI infrastructure buildouts, electrification trends, deglobalization of supply chains, and rising geopolitical tensions all accelerated demand for physical assets faster than supply could respond.

Over 13 years (2013-2025), the portfolio has delivered nearly identical returns to the S&P 500 but with higher volatility:

The portfolio captures 100.50% of market upside but also 101.42% of downside. It's not a free lunch - you take on more volatility for roughly equivalent long-term returns. But 2025 showed what happens when the underlying themes align.

This portfolio is not appropriate for conservative investors. Maximum historical drawdown on XME specifically is -67.45%. In 2022, it dropped 30.92% even though the commodity thesis was fundamentally correct. Timing matters, and commodity cycles turn violently.

The portfolio is highly concentrated. Top 10 holdings represent 30.6% of assets. Three sectors dominate the allocation. There's no diversification cushion if the supercycle thesis fails or gets delayed another few years.

Volatility will test your discipline. The 25.22% drawdown in Q1 2020 felt brutal even though recovery came within five months. Most investors can't stomach that kind of pain without selling at exactly the wrong time.

This allocation makes sense for investors who can handle 20-30% drawdowns and have 5+ year time horizons. It's designed for wealth accumulation, not capital preservation. If you're prioritizing stability or need the money within 2-3 years, this isn't the right strategy.

The ideal holder believes we're in the early stages of a multi-year infrastructure buildout and commodity supercycle. They're willing to endure volatility for concentrated exposure to physical asset themes. Position sizing should reflect this risk - maybe 20-30% of total portfolio, with the remainder in traditional diversified holdings.

The fundamental drivers remain intact for the time being. AI infrastructure spending shows no signs of slowing, but if the story on the AI buildout stumbles or it becomes clear that the revenue that these companies are counting on will not be enough to justify the capex, this portfolio gets hit very hard.

Regarding the other bets inherently being made here, I feel relatively comfortable. Commodity supply constraints won't resolve quickly. Defense budgets continue rising and will for several years. Power infrastructure needs are accelerating.

One adjustment worth considering is to trim XME from 10% to 7% after an 83% gain and increase POWR from 10% to 13%. Take some profit on the explosive winner and rotate into the infrastructure component that's lagging despite strong fundamentals.

The 13-year track record suggests this strategy captures something real, not just lucky timing. But 2025's outperformance was exceptional. Expect continued volatility and position size accordingly.

Download the full portfolio breakdown for free here!

The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.