E-Trade ETF Plan Hits Most of the High Notes

02/16/2011 Share 0 comments

ETrade All-Star ETF plan has recently been announced as no/low cost ETF plans become increasingly widespread. The company has attempted to make their selection on criteria such as low expense ratio, tracking error, liquidity, style purity, underlying holdings, and how well the ETF represents the index it seeks to replicate. In addition, ETFs chosen are passively managed, have at least 6-months trading history and are sponsored by a well balanced investment firm.

The growth in number of ETFs are such that many of them are still new. In our analysis, we ignore ETF's that have less than one year's history which may negatively impact returns in the short term but, over time, they will come on-line and provide greater diversification.

The plan consists of 40 funds giving exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.

This is a good selection of funds which hit the main notes -- good choices in fixed income and the US and choices for international and domestic real estate as well as multiple selections in Foreign and emerging market classes.

The US selections have one in the top ten performance ranking and so US there is room for improvement there.

NRV means not ranked because the trading volume was below our cutoff

There is no commodity alternative. This may have been less important in the past, but with inflation almost inevitable, a commodities option such as DBC would make sense.

As of Feb 15, 2011, this plan investment choice is rated as average based on MyPlanIQ's 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 (89%)

Fund Quality -- Rated as below average (17%)
Portfolio Building -- Rated as average (42%)
Overall Rating: average (49%)

It is important to note that the fund quality rating is lower because of the lack of history -- as time marches on and the ETFs create more of a trail, we expect that rating to increase.

Portfolio Discussions

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 5 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

US Equity: SPY or VTI
Foreign Equity: EFA or VEU
REITs: IYR or VNQ or ICF
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND
Performance chart (as of Feb 15, 2011)

Performance table (as of Feb 15, 2011)

Currently Real Estate, US Equity and Commodities are doing well. US Equity and Real Estate available to Etrade All Star ETFs participants.

The plan runs neck and neck with the benchmark but we would expect it to pull away as more of the funds establish history and can be used in the portfolio.

To summarize, Etrade All Star ETF plan ticks most of the boxes but would be strengthened by adding commodity choices.

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Symbols:SPY,VTI,EFA,VEU,EEM,VWO,IYR,VNQ,ICF,AGG,BND,HYG,JNK,PHB,CIU,BIV,GWL,PFA,IVE,IWW,JKF,VTV,ELV,PWV,RPV,SCHV,SCZ,EFV,PID,DWM,IFGL,RWX,IGOV,BWX,WIP,IVV,IYY,IWV,VV,DLN,RSP,SCHX,SHY,SHV,VGSH,PLK,USY,TLT,TLH,IEF,EDV,VGLT,TLO,PLW,IVW,IWZ,JKE,VUG,ELG,QQQQ,RPG,SCHG,IJJ,IWS,JKI,VOE,EMV,PWP,RFV,UVU,IJH,IWR,JKG,VO,MDY,EMM,PJG,DON,EZM,MVV,IJS,IWN,JKL,VBR,DSV,PWY,RZV,UVT,IJR,IWM,JKJ,VB,DSC,PJM,DES,SAA,UWM,SCHA,GMM,PXH,DEM,SCHE,CLY,LQD,BLV,VCLT,PCY,CSJ,BSV,VCSH,IEI,VGIT,ITE,IJK,IWP,VOT,EMG,PWJ,RFG,UKW,IJT,IWO,JKK,VBK,DSG,PWT,RZG,UKK,TIP,DBC

labels:IRA,Retirement,Investment,ETF,Portfolio,construction,