Top Tier ETF Provider Playoffs

10/19/2010 0 comments

ETF’s continue to broaden their appeal both in terms of flexibility and low cost. With commission free ETF’s, more money stays in the investors pocket rather than disappearing in fees. In addition, while many of these ETF’s have a 30 day minimum hold, this is ideal for long term investing when making changes more often than that can be counter productive.
 
Four companies offer commission free ETF’s and we are going to compare the offerings in detail to determine which is likely to offer the best value to the investor. 

In this article we are going to compare Schwab and TD Ameritrade.

Schwab (Ticker SCHW) is a relative late comer to the ETF party. They offer the fewest ETF’s and the ETF’s have the shortest history. They only provide their own ETF's commission free. However, Schwab has a huge network and powerful brand so we expect Schwab to be a significant player in the market.
 

Schwab ETF
NEW Bond ETFs
Schwab U.S. TIPS ETF™
Schwab Short-Term U.S. Treasury ETF™
Schwab Intermediate-Term U.S. Treasury ETF™
Domestic Equity ETFs
Schwab U.S. Broad Market ETF™
Schwab U.S. Large-Cap ETF™
Schwab U.S. Large-Cap Growth ETF™
Schwab U.S. Large-Cap Value ETF™
Schwab U.S. Small-Cap ETF™
International Equity ETFs
Schwab International Equity ETF™
Schwab International Small-Cap Equity ETF™ 
Schwab Emerging Markets Equity ETF™ 

 
Notable properties about the Schwab offering
  • The expense ratios are low
  • There are four asset classes with a good choice of funds
  • We would have liked to have seen more choices with other providers
  • We would have liked to have seen funds with a longer history
  • We would expect real estate to be added before long
  • We would expect more choices in the international and emerging market segments before long
As most of the funds are very new, it’s impossible to do real back testing with the funds. So we have selected a commission efficient portfolio that includes:

Asset ClassTickerName
LARGE VALUE SCHV Schwab U.S. Large-Cap Value ETF
LARGE BLEND SCHX Schwab U.S. Large-Cap ETF
LARGE BLEND SCHB Schwab U.S. Broad Market ETF
LARGE GROWTH SCHG Schwab U.S. Large-Cap Growth ETF
LARGE GROWTH IWF iShares Russell 1000 Growth Index
SMALL VALUE IJS iShares S&P SmallCap 600 Value Index
SMALL BLEND SCHA Schwab U.S. Small-Cap ETF
Small Growth IJT iShares S&P SmallCap 600 Growth
Foreign Large Blend SCHF Schwab International Equity ETF
FOREIGN SMALL/MID GROWTH SCHC Schwab International Small-Cap Eq ETF
DIVERSIFIED EMERGING MKTS SCHE Schwab Emerging Markets Equity ETF
Inflation-Protected Bond TIP iShares Barclays TIPS Bond
Intermediate Government IEI iShares Barclays 3-7 Year Treasury Bond
SHORT GOVERNMENT SHY iShares Barclays 1-3 Year Treasury Bond
Inflation-Protected Bond SCHP Schwab U.S. TIPS ETF
SHORT GOVERNMENT SCHO Schwab Short-Term U.S. Treasury ETF
Intermediate Government SCHR Schwab Intermediate-Term U.S. Trsy ETF
LARGE VALUE VTV Vanguard Value Index
LARGE BLEND VTI Vanguard Total Stock Market ETF
LARGE VALUE VTV Vanguard Value ETF
DIVERSIFIED EMERGING MKTS VWO Vanguard Emerging Markets Stock ETF
Foreign Small/Mid Value SCZ iShares MSCI EAFE Small Cap Index
Foreign Large Blend EFA iShares MSCI EAFE Index


As of Oct 15, 2010, the Schwab ETF investment choice is rated asaverage based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

Diversification
 -- Rated as below average (19%) 
Fund Quality -- Rated as average (59%) 
Portfolio Building -- Rated as average (41%) 
Overall Rating: average (40%)

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies ( SAA and TAA , both provided by MyPlanIQ). 

For comparison purpose, we also include the moderate model portfolios of a typical five asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:
Fixed Income:( AGG or BND ) 
Foreign Equity:( EFA or VEU ) 
Emerging Market Equity:( EEM or VWO ) 
US Equity:( SPY or VTI ) 

Performance chart (as of Oct 15, 2010)

 
 
Performance table (as of Oct 15, 2010)

Portfolio Name
1Yr AR
1Yr Sharpe
3Yr AR
3Yr Sharpe
5Yr AR
5Yr Sharpe
2%
17%
6%
44%
14%
88%
1%
10%
5%
38%
12%
88%
10%
71%
1%
2%
9%
40%
10%
76%
1%
4%
8%
37%


The Schwab Funds perform adequately against the SIB’s.
 
TD Ameritrade (Ticker: AMTD) are also newcomers to the ETF space offering 100+ commission free ETFs. The main restriction is that customers have to hold these ETFs for more than 30 days to make such trades ecommission free.

This is an almost ideal platform for retirement investing with a 30 day redemption period. With a web based application to monitor all of the funds in the plan, it should be possible to put together a very solid portfolio and deliver excellent results.

These funds provide exposure to 6 major assets: Emerging Market Equity , Foreign Equity , Fixed Income , US Equity , Commodity , Real estate. 

The list of minor asset classes covered:
COMMODITIES BROAD BASKET: GSG , DBC 
Conservative Allocation: AOK 
DIVERSIFIED EMERGING MKTS: EEM , GMM , PXH , DEM , SCHE 
Emerging Markets Bond: PCY 
EQUITY: VTI,VT 
EUROPE STOCK: IEV , VGK , PEF , DEB 
Foreign Large Blend: EFA , VEU , GWL , PFA 
Foreign Large Growth: EFG 
Foreign Large Value: EFV , PID , DWM 
FOREIGN SMALL/MID GROWTH: IFSM , VSS , SCHC 
Foreign Small/Mid Value: SCZ 
Global Real Estate: IFGL , RWX 
High Yield Bond: HYG , JNK , PHB 
Inflation-Protected Bond: TIP 
Intermediate Government: IEI , VGIT , ITE 
Intermediate-Term Bond: AGG,CIU , BIV,BND 
JAPAN STOCK: EWJ , JPP , PJO , DXJ 
LARGE BLEND: IVV,IYY,IWV , VTI,VV , SPY , DLN , RSP , SCHX 
LARGE GROWTH: IVW,IWZ,JKE , VUG , ELG , QQQQ , RPG , SCHG 
LARGE VALUE: IVE,IWW,JKF , VTV , ELV , PWV , RPV , SCHV 
Latin America Stock: ILF , GML 
LONG GOVERNMENT: TLT,TLH,IEF , EDV,VGLT , TLO , PLW 
Long-Term Bond: CLY,LQD , BLV,VCLT 
MID-CAP BLEND: IJH,IWR,JKG , VO , MDY,EMM , PJG , DON,EZM , MVV 
Mid-Cap Growth: IJK,IWP , VOT , EMG , PWJ , RFG , UKW 
MID-CAP VALUE: IJJ,IWS,JKI , VOE , EMV , PWP , RFV , UVU 
Moderate Allocation: AOM 
Multisector Bond: AGG,GBF , BND , LAG 
Muni National Interm: ITM 
Muni National Long: MUB , TFI , PZA , MLN 
Muni National Short: SUB , SHM , PVI , SMB 
PACIFIC/ASIA EX-JAPAN STK: EPP,AAXJ , GMF , PAF , DND 
REAL ESTATE: IYR,ICF , VNQ 
SHORT GOVERNMENT: SHY,SHV , VGSH , PLK , USY 
Short-Term Bond: CSJ , BSV,VCSH 
SMALL BLEND: IJR,IWM,JKJ , VB , DSC , PJM , DES , SAA,UWM , SCHA 
Small Growth: IJT,IWO,JKK , VBK , DSG , PWT , RZG , UKK 
SMALL VALUE: IJS,IWN,JKL , VBR , DSV , PWY , RZV , UVT 
SPECIALTY-REAL ESTATE: RWR , PSR , URE 
World Allocation: AOR , AOA 
WORLD BOND: IGOV , BWX,WIP 
WORLD STOCK: IOO , VT
 
As of Oct 15, 2010, this plan investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:

Diversification
 -- Rated as great (97%) 
Fund Quality -- Rated as below average (28%) 
Portfolio Building -- Rated as great (90%) 
Overall Rating: above average (73%)

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies ( SAA and TAA , both provided by MyPlanIQ). 

For comparison purpose, we also include the moderate model portfolios of a typical five asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

REITs:( IYR or VNQ or ICF ) 
Fixed Income:( AGG or BND ) 
Commodity:(DBC) 
Foreign Equity:( EFA or VEU ) 
Emerging Market Equity:( EEM or VWO ) 
US Equity:( SPY or VTI ) 

Performance chart (as of Oct 15, 2010)
 



Performance table (as of Oct 15, 2010)

Portfolio Name
1Yr AR
1Yr Sharpe
3Yr AR
3Yr Sharpe
5Yr AR
5Yr Sharpe
13%
87%
13%
86%
20%
128%
10%
83%
-1%
-6%
9%
46%
10%
65%
9%
66%
17%
114%
11%
84%
2%
9%
9%
42%


Currently, asset classes in REITs( IYR , VNQ , ICF ) , Fixed Income( AGG , BND ) and Emerging Market Equity( EEM , VWO ) are doing relatively well. These asset classes are available to TD Ameritrade Commission Free ETFs participants.

Comparing the two

 
Portfolio Performance Comparison

Portfolio Name
1Yr AR
1Yr Sharpe
3Yr AR
3Yr Sharpe
5Yr AR
5Yr Sharpe
13%
87%
13%
86%
20%
128%
1%
10%
5%
38%
12%
88%
10%
83%
-1%
-6%
9%
46%
10%
71%
1%
2%
9%
40%

 
 
In this round, TD Ameritrade is the clear winner with tactical asset allocation while the Schwab SAA pretty much matches its counterpart.

TD Ameritrade's two key advantages are:
  • A large number of ETF’s in six asset classes to allow the construction of high performance portfolios
  • Providing ETF’s with history from industry leading suppliers
 TD Ameritrade is the clear winner and moves on to the final round.

 

labels:investment,

Symbols:SUB,SHM,PVI,SMB,EPP,AAXJ,GMF,PAF,DND,SHY,SHV,VGSH,PLK,USY,CSJ,BSV,VCSH,AOR,AOA,IGOV,BWX,WIP,IOO,VT,RWR,PSR,URE,IJS,IWN,JKL,VBR,DSV,PWY,RZV,UVT,IJT,IWO,JKK,VBK,DSG,PWT,RZG,UKK,IJR,IWM,JKJ,VB,DSC,PJM,DES,SAA,UWM,SCHA,ITM,MUB,TFI,PZA,MLN,AGG,GBF,BND,LAG,IJJ,ETFs,Portfolio,Building,Asset,Allocation,Commission,Free,

 



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