Advisors Turning to Alternative Investments: What ETFs Can You Use?
08/30/2011
Indexuniverse.com reports the following:
"Alternative investments, including hedge fund strategies, are becoming more popular, as many advisors turn to off-the-beaten-path vehicles for everything from portfolio diversification to risk management to generate returns, a study from Cambridge, Mass.-based Cogent Research showed.
To date, nearly 80 percent of all retail advisors interviewed in the survey rely on alternative strategies within client portfolios, allocating on average 11 percent of their book to such strategies. Apart from hedge funds, alternative investment strategies include venture capital, private equity, limited partnerships and structured products and notes.
Of all those making use of alternative investment strategies, more than 40 percent of them will increase their use of ETFs in the next 12 months. Comparative data weren’t available, as this is the first time Cogent addressed the use of alternatives."
Read more on
Advisors Turning To Alternative Investments
www.indexuniverse.com
For investors who have IRAs and taxable accounts, they can access to ETFs easily these days. While we certainly do not suggest average investors to venture into venture capital, private equity and other illiquid asset classes, some of hedge fund style ETFs can be useful for asset allocation purpose. Furthermore, our Tactical Asset Allocation(TAA) strategy can be classified as an alternative investment strategy (it depends on whether one would throw anything non-conventional Tactical Asset Allocation(TAA) into the 'alternative' bucket).
We should also point out that many people consider Real Estate Investment Trusts (REITs such as IYR, VNQ), Gold (GLD, IAU), Silver (SLV) or commodities (DBC, GSG) as alternative investments.
Considering recent market and economic environments, these ETFs or strategies are playing an important roles in retirement investing for diversification and risk management purposes. In fact, many of these strategies or portfolios have done a good job to hedge against general stock market (S&P 500 SPX, Nasdaq COMP) downturns.
We have published several research articles on alternative ETFs:
5 Hedge Fund ETFs to Watch
Managed Futures ETFs Are Useful Portfolio Diversifiers
6 Hedge Fund ETFs for Average Investors
Commodity Investing: Long/Short (S&P Commodity Trend Indicators) vs. Long-Only
Or these portfolios:
Permanent Global Portfolio ETF Plan
MyPlanIQ Diversified Core Allocation ETF Plan
Symbols: SPX, COMP, IYR, VNQ, GLD, IAU, SLV, DBC, GSG, Portfolio Strategy & Asset Allocation
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Schwab ETF Select List Plan Offers Diversification and High Quality Fund Selection
03/16/2011
by Kevin Carr, A MyPlanIQ Expert User
On March 9, 2011, Charles Schwab announced the release of the ETF Select List. The quarterly Schwab ETF Select List was created by Charles Schwab Investment Advisory, Inc. and is a filtered list of all of the ETFs in the marketplace, highlighting pre-screened, low-cost ETFs. Schwab used quantitative and qualitative screens to filter each ETF and build the list, covering 6 major asset categories and 45 minor asset categories. All ETFs, including Schwab ETFs, are evaluated using the same criteria and broken into sectors for US Equity, Foreign Equity, Emerging Market Equity, Fixed Income, Commodity and REITs.
The ETF Select List gives investors a choice of low-cost, pre-screened ETFs. Schwab highlights just one ETF in each category, chosen based on specific criteria including expense ratio, risk, structure and how well it fits into its category. To make the list, an ETF has to meet minimum criteria that include assets under management, including narrowness of index, trading volume, bid/ask volatility, risk, annualized cost of ownership, fund structure and fit within a given category. The list excludes exchange-traded notes (ETNs), inverse or leveraged ETFs, actively managed ETFs, and unmanaged baskets of securities.
While the ETF Select List has only been out a few days, I constructed a plan on MyPlanIQ platform. The Schwab ETF Select List has no redemption periods, is commission efficient and offers low expenses.
As of March 13, the Schwab ETF Select List Plan has a four star investment menu rating with a 99% diversification score and an overall above average investment choice based on MyPlanIQ Plan Rating methodology . The Plan Rating methodology is designed to measure how effective a plan’s available funds are using key factors such as diversification, fund quality and portfolio building.
| Attribute | | Schwab ETF Select List | | Six Core Asset ETF Benchmark |
| Diversification |
|
great (99%) |
|
average (63%) |
| Fund Quality |
|
above average (70%) |
|
below average (23%) |
| Portfolio Building |
|
average (53%) |
|
above average (70%) |
| Overall Rating |
|
above average (72%) |
|
average (54%) |
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 6 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:
US Equity: SPY or VTI
Commodity: DBC
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 Mar 15, 2011)
Performance table (as of Mar 15, 2011)
Currently Commodities, Real Estate and US Equity are doing well. These asset classes are available to Schwab ETF Select List participants.
To Summarize, Schwab ETF Select List Plan offers wide diversification, high quality funds with low expenses. compared with other brokerage supported ETF plans, it is very favorable. From time to time, we will review the plan.
Symbols:DBC,DBA,IAU,DBB,USL,PFF,VNQ,XLY,XLP,XLE,XLF,XLV,XLI,XLB,XLK,IYZ,XLU,BND,SCHO,SCHR,TLH,SCHP,CIU,JNK,BWX,MUB,SCHF,EFG,EFV,SCHC,SCHE,VEU,VT,VGK,VPL,EWJ,GXC,SCHX,SCHG,SCHV,VO,VOT,VOE,SCHA,VBK,VBR,SCHB,VYM,
Symbols (exchange): (DBC),(DBA),(IAU),(DBB),(USL),(PFF),(VNQ),(XLY),(XLP),(XLE),(XLF),(XLV),(XLI),(XLB),(XLK),(IYZ),(XLU),(BND),(SCHO),(SCHR),(TLH),(SCHP),(CIU),(JNK),(BWX),(MUB),(SCHF),(EFG),(EFV),(SCHC),(
SCHE),(VEU),(VT),(VGK),(VPL),(EWJ),(GXC),(SCHX),(SCHG),(SCHV),(VO),(VOT),(VOE),(SCHA),(VBK),(VBR),(SCHB),(VYM)
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