Before I answer your question about what I believe, I think it would be useful for you to share which of the above statements you don't believe.
Sure thing - let me lead off by saying that I only buy index funds if forced to - in 401Ks, etc. Otherwise I'm a dirty stock picker - growth at a reasonable price, Philip Fisher and all that jazz - mostly consumer staples, healthcare, and energy sectors - lately I have picked up some Disney and Home Depot which falls under consumer discretionary. That said, to your 7 points
1. International diversification decreases country specific risk.
I disagree here, but perhaps owing more to definition of risk. As others have mentioned already, 33%+ of the SP500 and therefore VTI (maybe a smaller percentage? 30%?) revenues already come from overseas, so if one is defining risk as the probability that foreign economies will grow at a greater rate than the US, I don't think there's much risk at all in investing in VTI, as in doing so, you are capturing the growth of foreign economies anyways, as US companies continue to grow sales. Are there foreign companies that are fantastic? Sure! I am long Nestle and hope to accumulate so much in my lifetime that it will be one of my biggest holdings by the time I'm dead. There are some others such as Unilever, Shell, etc. that would boost risk adjusted returns wonderfully. But these companies obtain much of their revenue from the US as well. Nestle's 2014 report states that 23.5b of the 91.6b, or 26%, in total revenues were generated in the US alone. The one risk I do see in investing only in one country's capital markets is the risk of currency fluctuations. But if you wanted to hedge against that, you would have to buy your foreign companies in foreign currency, leaving it to compound by itself. Since most investors do not undertake such actions, I think there's not much to this statement.
2. Exposure to price momentum increases returns.
I think there's been enough coverage in the dual momentum thread on this - momentum increases returns until it doesn't, you have to have a indicator to know when to stop/get out. Over the long term, you'll probably come out ahead following a momentum strategy if you have a reliable indicator. Whether you can find such an indicator that worked in the past and will also be reliable in the future is debatable. Moving on.
3. Exposure to value increases returns.
100% agree.
4. Exposure to the quality factor increases returns.
100% agree. But here, how do you define quality? What index do you/Betterment use that screens based on quality? Is it operating margin? Return on invested capital? The percentage of net income that's true free cash flow? EPS growth? Brand awareness? I have trouble with this all the time as an individual security investor - this will be a topic I'm learning on until the very end.
5. Exposure to the size factor increases returns
I assume you're talking about exposure to smaller firms here. I agree, but with a caveat. I think it takes an inordinate amount of time to know which small firms will be able to succeed and grab and hold market share in the future. The smart thing to do is to buy a basket and wait and see. However, it does worry me a little that the majority of the returns by small cap companies occurred in five giant spurts. Below is copied from
http://theconservativeincomeinvestor.com/2014/10/06/small-cap-index-funds-are-good-investments-but-with-a-caveat/"
There were five years that were highly, highly important for you to be invested in small-cap stocks if you sought to benefit from significant outperformance. You had to be invested from October 1990-October 1991, when small-cap stocks delivered returns of 51%. You had to be invested October 2002-October 2003, when small-cap stocks returned a little over 60%. You had to be invested October 1966-October 1967, when small-caps delivered returns of 75%. You had to be there March 2009-March 2010, when returns were over 90%. And then there is April 1942 through April 1943, when small-cap returned just shy of 150%. And then the big cahuna: From June 1932 through June 1933, when the small-caps returned 315%.
The years 1990, 2002, 1966, 2009, 1942, and 1933 had a tremendously outsized impact on the performance of small-cap companies. If you missed those six years and were around for the other 87, you saw your 12% annual returns become less than 7%."
6. A small exposure to commodities/precious medals improves portfolio efficiency/risk adjusted return. (Controversial)
I begrudgingly agree. A result of rebalancing bonus - this is more of a play on investor behavior than anything else. If you are meticulous and disciplined about rebalancing, you get a boost because of buy low/sell high that has historically worked out because of the low correlation between these asset "investments" and stocks
7. Exposure to REITS increase portfolio efficiency.
Disagree - REITS act too much like stocks, and efficiency wise unless its in a tax advantaged account you're getting hit by the payouts
I pulled up an example Betterment portfolio, and it has massive amounts of overlap in domestic equity selections (VTI, VTV, VBR) - after all of the bells and whistles, you're approximating a normal domestic equity/international equity/total bond allocation anyways. Why make it complicated? If you insist that holding just total market is not the best way to behave as an investor, then why index?