British consumer goods giant Unilever (NYSE:UN, NYSE:UL) has a section in its website that answers frequently asked questions about its stock. One of them discusses total shareholder return (capital gains plus dividends) of Unilever stock in comparison with 20 other global competitors like Kraft (NYSE:KFT), Coca-Cola (NYSE:KO) and Procter & Gamble (NYSE:PG) as well as not-so-familiar names such as KAO, Orkla and Reckitt Benckiser. In 2006, Unilver ranked 13th on the list. One year later, it jumped to seventh position. Individual investors could invest in all 21 companies, using exchange-traded funds. We'll call it the Unilever portfolio.

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A Majority Trade In America
All 21 companies are global participants in the consumer goods sector with 13 of them trading principally on an American exchange with the rest split between Europe and Japan. The eight that trade overseas make available American Depositary Receipts (ADRs) so that Americans can buy their shares over-the-counter.

That's easier said than done because trading volume is often non-existent due to the fact most institutions buy the shares directly on the home exchange rather than through ADRs. Therefore, an easier way to own the European and Japanese companies is through an ETF that holds some or all of them.

Mix and Match
It's not likely that we'll be able to pick up all eight companies trading outside North America in one fund so we'll split them up into three funds. My first choice is the iShares S&P Global Consumer Staples Fund (NYSE:KXI), which holds 99 companies including most of the 21 on Unilever's list. Of the eight that trade overseas, six are in the fund: Nestle, Danone, Reckitt Benckiser, Beiersdorf, Kao and Shiseido.

The only two remaining are the Norwegian company Orkla and Japan's Lion. We'll need two more funds to make this happen. Somewhat overlapping the consumer staples fund is the iShares S&P Europe 350 Fund (NYSE:IEV), which most importantly claims Orkla among its holdings with several of the other European stocks already included in the earlier fund.

Now, all we need to do is find a Japanese ETF holding Lion and our mission is accomplished. It just so happens that iShares' MSCI Japan Small Cap Index Fund (NYSE:SCJ) owns Lion as well as 567 other Japanese small caps. We're done.

Interesting Diversification
What was intended as an exercise in portfolio construction using Unilever's peers as the holdings has turned into an extremely intriguing combination. On the surface, one might think this portfolio of three ETFs isn't properly diversified. However, if you look deeper you'll see there's plenty of sectors represented in this portfolio. In fact, there's a total of seven: consumer goods, consumer services, industrial materials, financial services, energy, healthcare and business services. If you were to invest $5,000 in the iShares S&P Global Consumer Staples Fund and $2,500 each in the other two funds and simply rebalance every year, you'd do just fine in my opinion. In fact, the pros would have a hard time beating this combination. (Learn more about rebalancing in Rebalance Your Portfolio To Stay On Track.)

The Bottom Line
Exercises like the one remind us how creativity does wonders for a portfolio. You could do a lot worse than owning the Unilever portfolio.

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