Vanguard ETF: | 7.4%* | ||
Diversified Core: | 8.1%* | ||
Six Core Asset ETFs: | 7.3%* |
Articles on IP
- Vanguard VA Has Some Rules and Can Be Cloned with an ETF Portfolio
12/08/2010
In a previous article noted that Variable Annuities have well chosen sub account funds that can lead to a portfolio that can deliver good returns. We now examine the Vanguard Variable Annuity and see how well an ETF clone performs
The Vanguard Variable Annuity consists of 15 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs, Fixed Income.As of Dec 3, 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 above average (83%)
Fund Quality -- Rated as average (64%)
Portfolio Building -- Rated as above average (75%)
Overall Rating: above average (74%)Asset Class
Vanguard Schwab Fidelity
US
8 35 13
International
1 5 5
Sector
0 3 12
Balanced
1 2 8
Fixed income
4 9 7
Emerging Markets
0 1 3
Real estate
1 1 1
Target Date
0 0 7
Compared to Schwab and Fidelity, the number of fund choices are significantly fewer leading to greater stress on the fund quality. This has a lower rating than the other two and so we would expect the returns to be lower.
We also note that the Vanguard annuity has additional restrictions. They limit the trading on any one fund to two sell-buy trips in a year. With the smaller number of funds, this could be a significant restriction.The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies ( SAA andTAA , both provided by MyPlanIQ). For comparison purpose, we also include the moderate model portfolios of a typical 4 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
Fixed Income: AGG or BND
Performance chart (as of Dec 3, 2010)Performance table (as of Dec 3, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Vanguard Variable Annuity Tactical Asset Allocation Moderate 13% 91% 10% 92% 12% 106% Vanguard Variable Annuity Strategic Asset Allocation Moderate 11% 120% 2% 7% 4% 22% Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate 8% 62% 6% 55% 9% 80% Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate 12% 94% 2% 7% 5% 20%
The annuity performs well against our benchmark -- indicating a good choice of fundsWe are now going to build a clone plan and see how it performs. We will simplify the choice and not duplicate styles.
US FundsStyle Fidelity ETF LARGE BLEND
VDEQX VLISX VTSMX
VTI
LARGE GROWTH
VHCAX VIGAX
VUG
LARGE VALUE
VEIPX
VTV
MID-CAP BLEND
VIMSX
VO
The US funds choice is very wide. There are probably too many choices in this category and it would be better to have more choices in other asset classes.
We will not mirror all the choices with the ETF clone just one ETF in each style category.
International FundsStyle Fidelity ETF Foreign Large Growth
VGTSX
EFA
It would have been better to have some mid or small cap alternatives but still a good amount of choice.
We will match one style in each category in the international asset class.
Real EstateStyles Fidelity ETF REAL ESTATE
VGSIX
IYR, RWX
Real estate is under represented -- an international REIT would strengthen this asset class.
We add an international REIT Fund to the ETF's.
Fixed IncomeStyle Fidelity ETF High Yield Bond
VWEAX
HYG
Intermediate-Term Bond
VBMFX
BND Cash
CASH
CASH Short-Term Bond
VFSTX
SHY
The fixed income class is well balanced with good choices and diversification.
We match this with the exception of having a second intermediate term bond. We add an emerging markets bond to offset this.
We now compare the returns of the two plans using tactical and asset allocation strategies with a moderate risk portfolio.Strategic Asset Allocation 1Yr
AR1Yr Sharpe 3Yr
AR3Yr Sharpe 5Yr
AR5Yr Sharpe Strategic Asset Allocation Growth Customize 14% 96% 1% 1% 6% 22% Strategic Asset Allocation Moderate Customize 12% 105% 1% 6% 5% 26% Strategic Asset Allocation Conservative Customize 9% 119% 2% 16% 5% 35%
Tactical Asset Allocation 1Yr
AR1Yr Sharpe 3Yr
AR3Yr Sharpe 5Yr
AR5Yr Sharpe Tactical Asset Allocation Growth Customize 10% 64% 6% 44% 10% 70% Tactical Asset Allocation Moderate Customize 8% 64% 5% 48% 8% 75% Tactical Asset Allocation Conservative Customize 6% 81% 4% 61% 7% 86%
The Variable Annuity Portfolios have a clear lead over its ETF clone. The reason for this is the larger number of funds to allow styles rotation. One important note is that the returns are before fees are assessed. Variable annuities are complex instruments with fees that can be in excess of 2% of the asset base per year. Even so, the historical returns are good and there is the benefit that gains are not taxed.
Looking at the fund design for Variable Annuities can be instructive to allow you to build a plan that enables portfolios that give you good risk adjusted returns.
labels:investment,
Symbols:AGG,AOK,AOM,BIV,BND,BSV,CIU,CSJ,DBC,DBE,DBN,DBR,DBT,DBU,DEM,DES,DGG,DKA,DLN,DON,DPN,DRF,DSC,DWM,EEM,EFA,EFG,EFV,ELG,ELV,EMG,EMM,EMV,EXI,EZM,GBF,GII,GMM,GWL,HYG,ICF,IGE,IJH,IJJ,IJK,IJR,IOO,IP,IPF,IPW,ITE,IVE,IVV,IVW,IWM,IWP,IWR,IWS,IWV,IWW,IWZ,IXC,IXJ,IXP, ,
- ETF Cloning of the Schwab VA
11/30/2010
In a previous article noted that Variable Annuities have well chosen sub account funds that can lead to a portfolio that can deliver good returns. We now examine the Schwab Select Annuity, compare it with the Fidelity Personal Retirement Annuity and see how well an ETF clone performs
In Summary, the Fidelity Personal Retirement Annuity's plan consists of 56 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity and Fixed Income.Asset Class
Schwab Fidelity
US
35 13
International
5 5
Sector
3 12
Balanced
2 8
Fixed income
9 7
Emerging Markets
1 3
Real estate
1 1
Target Date
0 7
We are now going to build a clone plan and see how it performs. We will simplify the choice and not duplicate styles.
US FundsStyle Fidelity ETF LARGE BLEND
DGAGX KBCAX PIODX PJIAX SICWX SWHGX SWPPX
VTI
LARGE GROWTH
AAGOX JGIIX NMTBX SDGAX
VUG
LARGE VALUE
ACGMX ACSDX AVLIX KDCAX MEIIX
VTV
MID-CAP BLEND
GMCBX GTAVX RMVSX SOPVX
VO
Mid-Cap Growth
AMGOX BGRFX DFCIX TEGAX
IJK
Mid-Cap Growth
FMCCX
MID-CAP VALUE
ABASX
AVUA
IPVIXIJJ
SMALL BLEND
KDSAX
SMEIXVB
Small Growth PGOFX SIGWX SSDAX VBK Small Value CSSBX DEVLX FBVAX VBR
The US funds choice is very wide and here we will not mirror all the choices just one in each style category.
International FundsStyle Fidelity ETF World Stock
JWGRX
EFA
World Stock
OGLYX
VT
Similarly we will match one style in each category in the international asset class.
Emerging marketsStyle Fidelity ETF Emerging Markets
LZEMX
EEM
We select two emerging market ETF's to provide an alternative style.
Real EstateStyles Fidelity ETF REAL ESTATE
IYR
IYR, RWX
Real estate is under represented -- an international REIT would strengthen this asset class. We will add an international REIT Fund to the ETF's.
Fixed IncomeStyle Fidelity ETF Emerging Markets Bond
MSIEX
EMB
High Yield Bond
FHNIX
HYG
Inflation-Protected Bond
PRRIX
TIP
Intermediate-Term Bond
FBNDX
BND Intermediate-Term Bond
PTTRX
Cash
CASH
CASH Short-Term Bond
PTLDX
SHY
The fixed income class is well balanced with good choices and diversification. We match this with the exception of having a second intermediate term bond.
We are not attempting to match any of the balanced funds as there is no opportunity to use these in a standalone portfolio. While the managed funds are available, the fee structure is such that the returns are going to leak into other people's pockets and it will pay you to be on top of your own investments -- either directly or through a professional.
We now compare the returns of the two plans using tactical and asset allocation strategies with a moderate risk portfolio.Performance chart (as of Nov 19, 2010)
Performance table (as of Nov 19, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Fidelity Personal Retirement Annuity Tactical Asset Allocation Moderate 16% 113% 9% 78% 15% 115% Fidelity Personal Retirement Annuity Strategic Asset Allocation Moderate 15% 130% 4% 20% 7% 42% Fidelity-VA-Clone Tactical Asset Allocation Moderate 10% 69% 7% 58% 10% 75% Fidelity-VA-Clone Strategic Asset Allocation Moderate 12% 103% 1% 2% 5% 22%
The Variable Annuity Portfolios have a clear lead over its ETF clone. The reason for this is the larger number of funds to allow styles rotation.
In fact, to get similar performance using ETF's, you would need to go to one of the richest plans -- provided by TD Ameritrade. The comparison is below.Performance chart (as of Nov 19, 2010)
Performance table (as of Nov 19, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Fidelity Personal Retirement Annuity Tactical Asset Allocation Moderate 16% 113% 9% 78% 15% 115% Fidelity Personal Retirement Annuity Strategic Asset Allocation Moderate 15% 130% 4% 20% 7% 42% TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate 11% 77% 12% 78% 19% 117% TD Ameritrade Commission Free ETFs Strategic Asset Allocation Moderate 8% 74% -0% -5% 7% 37%
One important note is that the returns are before fees are assessed. Variable annuities are complex instruments with fees that can be in excess of 2% of the asset base per year. Even so, the historical returns are good and there is the benefit that gains are not taxed.
Looking at the fund design for Variable Annuities can be instructive to allow you to build a plan that enables portfolios that give you good risk adjusted returns.labels:investment,
Symbols:AGG,AOK,AOM,BIV,BND,BSV,CIU,CSJ,DBC,DBE,DBN,DBR,DBT,DBU,DEM,DES,DGG,DKA,DLN,DON,DPN,DRF,DSC,DWM,EEM,EFA,EFG,EFV,ELG,ELV,EMG,EMM,EMV,EXI,EZM,GBF,GII,GMM,GWL,HYG,ICF,IGE,IJH,IJJ,IJK,IJR,IOO,IP,IPF,IPW,ITE,IVE,IVV,IVW,IWM,IWP,IWR,IWS,IWV,IWW,IWZ,IXC,IXJ,IXP,
- Apartment Investment and Management Company 401(k) Retirement Plan Report On 12/03/2010
12/03/2010
This report reviews Apartment Investment and Management Company 401(k) Retirement Plan plan. We will discuss the investment choices and present the plan rating by MyPlanIQ. Current economic and market conditions are discussed in the context of the investment portfolios in the plan. We will then show how participants in Apartment Investment and Management Company 401(k) Retirement Plan can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
Apartment Investment and Management Company 401(k) Retirement Plan's 401K plan consists of 22 funds. These funds enable participants to gain exposure to 4 major assets: US Equity, Foreign Equity, REITs, Fixed Income. The list of minor asset classes covered:
Foreign Large Growth: EFG
Inflation-protected Bond: TIP
Intermediate-term Bond: AGG, CIU, BIV, BND
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
Mid-cap Blend: IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV
Real Estate: IYR, ICF, VNQ
Retirement Income:
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
Target Date 2000-2010: TZD
Target Date 2016-2020: TZG
Target Date 2026-2030: TZL
Target Date 2036-2040: TZV
Target Date 2050+:
As of Dec 2, 2010, this plan investment choice is rated as based on MyPlanIQ Plan Rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as (76%)
Fund Quality -- Rated as (36%)
Portfolio Building -- Rated as (87%)
Overall Rating: (68%)Current Economic and Market Conditions
We have experienced an uncertain 2010: plenty of worries on whether the US economy will climb out of the great recession and recover.
- The Federal Reserve embarked on Quantitative Easing II (QE2) to stimulate the economy.
- The housing market is still at its low but largely stabilized.
- The unemployment rate is stuck at 9%.
Americans continue to face an uncertain future, given (among others) the high unemployment rate, large federal and local government debts and global trade imbalance. With such an economic backdrop, the stock and debt markets are going to be volatile. Despite this, markets have been resilient and appear positioned to rebound.
In this market it is even more critical to properly diversify and respond market changes. MyPlanIQ offers two asset allocation strategies: strategic and tactical asset allocation strategies ( SAA and TAA for participants in Apartment Investment and Management Company 401(k) Retirement Plan).
Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.
Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.
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 4 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)
Fixed Income: (AGG or BND)
Performance chart (as of Dec 2, 2010)Performance table (as of Dec 2, 2010)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Apartment Investment and Management Company 401(k) Retirement Plan Tactical Asset Allocation Moderate 15% 97% 10% 84% 12% 98% Apartment Investment and Management Company 401(k) Retirement Plan Strategic Asset Allocation Moderate 13% 120% 4% 19% 6% 30% Four Core Asset Index Funds REITs Tactical Asset Allocation Moderate 8% 58% 6% 54% 9% 80% Four Core Asset Index Funds REITs Strategic Asset Allocation Moderate 11% 87% 2% 6% 5% 20% Currently, asset classes in US Equity (SPY,VTI), Foreign Equity (EFA,VEU) and REITs (IYR,VNQ,ICF) are doing relatively well. These asset classes are available to Apartment Investment and Management Company 401(k) Retirement Plan participants.
To summarize, Apartment Investment and Management Company 401(k) Retirement Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Symbols: AIV , SPY , VTI , EFA , VEU , IYR , VNQ , ICF , AGG , BND , CIU , BIV , EFG , IVE , IWW , JKF , VTV , ELV , PWV , RPV , SCHV , TZD , TZG , TZL , TZV , IVV , IYY , IWV , VV , DLN , RSP , SCHX , IVW , IWZ , JKE , VUG , ELG , QQQQ , RPG , SCHG , 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 , IJT , IWO , JKK , VBK , DSG , PWT , RZG , UKK , TIP
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