 |
Vanguard ETF: |  |
7.4%* |
|
Diversified Core: | |
8.1%* |
|
Six Core Asset ETFs: | |
7.3%* |
Articles on BSV
- Using Asset Classes in Amerivest Guided Portfolios to Construct ETF Portfolios
07/22/2011
We have just released ETF based plan Amerivest Guided Portfolios Based ETF Plan that uses index ETFs to represent the asset classes suggested by the Amerivest balanced portfolio. Based on Amerivest, the model portfolios are suggested by Morningstars.
One can see the list of ETFs used in this plan from the Investment Options of the plan.
This plan investment choice is rated as average based on our plan rating methodology that measures the effectiveness of a plan's available investment funds. It has the following detailed ratings:
Diversification -- Rated as great (94%)
Fund Quality -- Rated as below average (26%)
Portfolio Building -- Rated as below average (23%)
Overall Rating -- Average (45%)The performance has been reasonable.
Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe VFINX 23% 151% 3% 15% 3% 8% Amerivest Guided Portfolios Based ETF Plan Strategic Asset Allocation Moderate 19% 181% 3% 17% 6% 34% Amerivest Guided Portfolios Based ETF Plan Tactical Asset Allocation Moderate 14% 125% 7% 44% 11% 76% VBINX 16% 203% 6% 32% 5% 28% Both SAA and TAA portfolios beat the general S&P 500 (SPX) (VFINX) and the balanced portfolio index (VBINX) in the last 5 years.
See more detailed comparison from our comparison tool here. Users can change the parameters on that page to compare with other portfolios or funds.
See the SeekingAlpha article for some detailed description on this plan.
In general, this is a good plan that has very good diversification. Users can do more comparison and studies on this.
Symbols: BIV, SPX, BLV, BND, BSV, BWX, DBC, EMB, GWX, IWC, JNK, MBB, TIP, VBK, VBR, VEU, VNQ, VOE, VOT, VTI, VTV, VUG, VWO, Brokerage Plans
- Schwab Mutual Funds Beat out ETFs
04/06/2011
l
Retirement investing is a "hair on fire" problem -- especially for baby boomers for whom retirement is a near and present danger. There is a real lack of consistent, unbiased information that a retiree can use to help improve risk adjusted returns. Blogger Jenny Hollingworth has been teaching herself about investing and has come to the point where she is going to choose a plan and make her first investments.
In her recent post New Steps she sorted through a list of alternatives and chose the Schwab OneSource Select List Funds.
The reason for her choice was:
- The highest possible rating for each plan is 5 stars. So I bypassed anything that didn’t have 5 (because really, why go for less?)
- Picked out a name I knew: Schwab. Specifically: Schwab OneSource Select List Funds. I selected it.
- This is an application to Charles Schwab's OneSource Select List mutual funds. These funds are No Load and No Transaction Fee (NTF) mutual funds. Based on Schwab's policy, the no load NTF funds have 90 days redemption fee period. As of 1/1/2010, there are total 140 OneSource Select List funds available from Schwab.
We are going to review the Schwab OneSource Select List Funds to see whether she chose a good plan. The plan consists of 137 funds. These funds enable participants to gain exposure to 6 major assets: US Equity, Commodity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.
Asset Class Ticker Name LARGE VALUE AAGPX American Beacon Lg Cap Value Inv Foreign Large Value AAIPX American Beacon Intl Equity Inv Retirement Income AANPX American Beacon Retire Inc & Apprec Inv High Yield Muni ABHYX American Century High-Yield Muni Inv Inflation-Protected Bond ACITX American Century Infl-Adj Bond Inv Muni National Long ACLVX American Century Long-Term Tax-Free Inv MID-CAP VALUE ACMVX American Century Mid Cap Value Inv Conservative Allocation AONIX American Century One Choice: Vry Cnsrv I MID-CAP VALUE ARDEX Aston/River Road Dividend All Cap Val N Target Date 2011-2015 ARFIX American Century LIVESTRONG 2015 Inv Retirement Income ARTOX American Century LIVESTRONG Inc Inv Target Date 2021-2025 ARWIX American Century LIVESTRONG 2025 Inv Target Date 2031-2035 ARYIX American Century LIVESTRONG 2035 Inv SMALL VALUE AVPAX American Beacon Small Cp Val Inv EUROPE STOCK AXEAX Threadneedle European Equity A Muni National Interm BMBSX Baird Intermediate Muni Bd Inv Technology BOGSX Black Oak Emerging Technology Small Growth BSCFX Baron Small Cap Moderate Allocation BUFBX Buffalo Balanced Technology BUFTX Buffalo Science & Technology DIVERSIFIED EMERGING MKTS CEMVX Causeway Emerging Markets Investor MID-CAP BLEND CHTTX Aston/Optimum Mid Cap N Intermediate Government CPTNX American Century Government Bond Inv Small Growth CSMVX Century Small Cap Select Inv REAL ESTATE CSRSX Cohen & Steers Realty Shares Long-Short CVSIX Calamos Market Neutral Income A SMALL BLEND DISSX Dreyfus Small Cap Stock Index Bank Loan EABLX Eaton Vance Floating Rate Adv Conservative Allocation EXDAX Manning & Napier Pro-Blend Cnsrv Term S Foreign Large Blend EXWAX Manning & Napier World Opportunities A Moderate Allocation FAGSX First American Strat Growth Allc A Financial FBRSX FBR Small Cap Financial ULTRASHORT BOND FEUGX Federated Adjustable Rate Secs Instl Intermediate Government FICMX Federated Income Instl Muni National Interm FIMTX Federated Intermediate Municipal Instl LARGE BLEND FMIHX FMI Large Cap Long-Short FMLSX Wasatch-1st Source Long/Short SHORT GOVERNMENT FSGVX Federated US Govt 1-3 Yr Instl Muni Short FSHIX Federated Shrt-Interm Dur Muni Instl Short-Term Bond FSTIX Federated Short-Term Income Instl Intermediate-Term Bond FTRFX Federated Total Return Bond Instl Svc SMALL BLEND GABSX Gabelli Small Cap Growth AAA Communications GABTX GAMCO Global Telecommunications AAA LARGE GROWTH HCAIX Harbor Capital Appreciation Inv Foreign Large Blend HIINX Harbor International Inv WORLD STOCK HLMGX Harding Loevner Global Equity Advisor Foreign Large Growth HLMNX Harding Loevner International Equity Inv Equity Energy ICENX ICON Energy S China Region ICHKX Guinness Atkinson China & Hong Kong LARGE VALUE INDZX RiverSource Diversified Equity Inc A Moderate Allocation JABAX Janus Balanced T Health JAGLX Janus Global Life Sciences T LARGE GROWTH JAMRX Janus Research T Small Growth JATTX Janus Triton T Foreign Large Blend JETAX Artio International Equity II A Target Date 2021-2025 JNSAX JPMorgan SmartRetirement 2025 A LARGE BLEND JRMSX INTECH Risk-Managed Core T Target Date 2011-2015 JSFAX JPMorgan SmartRetirement 2015 A Target Date 2026-2030 JSMAX JPMorgan SmartRetirement 2030 A Target Date 2016-2020 JTTAX JPMorgan SmartRetirement 2020 A LARGE BLEND JUEAX JPMorgan US Equity A LARGE VALUE JVLAX JHancock3 Disciplined Value A Small Growth KGSCX Kalmar Growth-with-Value Small Cap LARGE GROWTH LGILX Laudus Growth Investors US Large Cap Gr WORLD BOND LIFNX Laudus Mondrian Intl Fixed Income Foreign Large Blend LISOX Lazard Intl Strategic Equity Open Multisector Bond LSBRX Loomis Sayles Bond Retail DIVERSIFIED PACIFIC/ASIA MAPIX Matthews Asia Pacific Equity Income PACIFIC/ASIA EX-JAPAN STK MAPTX Matthews Pacific Tiger Investor China Region MCHFX Matthews China Investor Muni National Interm MITFX Marshall Intermediate Tax-Free Inv JAPAN STOCK MJFOX Matthews Japan Investor Foreign Large Blend MKIEX McKee International Equity Instl DIVERSIFIED PACIFIC/ASIA MPACX Matthews Asia Pacific Investor High Yield Bond MWHYX Metropolitan West High Yield Bond M Short-Term Bond MWLDX Metropolitan West Low Duration Bond M Intermediate-Term Bond MWTRX Metropolitan West Total Return Bond M MID-CAP BLEND NMMCX Northern Multi-Manager Mid Cap SMALL VALUE NOSGX Northern Small Cap Value Muni National Long NOTEX Northern Tax-Exempt Small Growth NSPAX ING Small Cap Opportunities A Foreign Small/Mid Value OAKEX Oakmark International Small Cap I WORLD STOCK OAKGX Oakmark Global I COMMODITIES BROAD BASKET PCRDX PIMCO Commodity Real Ret Strat D Emerging Markets Bond PEMDX PIMCO Emerging Markets Bond D LARGE BLEND PEOPX Dreyfus S&P 500 Index WORLD BOND PFODX PIMCO Foreign Bond (USD-Hedged) D Intermediate-Term Bond PGBOX JPMorgan Core Bond A Multisector Bond PONDX PIMCO Income D LARGE BLEND PRBLX Parnassus Equity Income - Inv Inflation-Protected Bond PRRDX PIMCO Real Return D SMALL VALUE PSOAX JPMorgan Small Cap Value A Intermediate-Term Bond PTTDX PIMCO Total Return D SMALL BLEND RYTFX Royce Total Return Svc Intermediate-Term Bond SAMIX RidgeWorth Intermediate Bond I Foreign Large Blend SICNX Schwab International Core Equity Inst Foreign Large Blend SIEIX RidgeWorth Intl Equity Index I ULTRASHORT BOND SIGVX RidgeWorth US Gov Sec Ultra-Short Bd I Target Date 2031-2035 SRJAX JPMorgan SmartRetirement 2035 A DIVERSIFIED EMERGING MKTS SSEMX SSgA Emerging Markets Instl High Yield Bond STHTX RidgeWorth High Income I Muni National Interm STTBX RidgeWorth Investment Grade T/E Bond I LARGE BLEND SWANX Schwab Core Equity Inv Global Real Estate SWASX Schwab Global Real Estate Select Target Date 2026-2030 SWDRX Schwab Target 2030 LARGE VALUE SWDSX Schwab Dividend Equity Financial SWFFX Schwab Financial Services Target Date 2011-2015 SWGRX Schwab Target 2015 Intermediate Government SWGSX Schwab GNMA Long-Short SWHEX Schwab Hedged Equity Health SWHFX Schwab Health Care Target Date 2021-2025 SWHRX Schwab Target 2025 Intermediate-Term Bond SWIIX Schwab Premier Income Instl Foreign Large Blend SWISX Schwab International Index Retirement Income SWKRX Schwab Monthly Income Enh Payout Retirement Income SWLRX Schwab Monthly Income Max Payout LARGE GROWTH SWLSX Schwab Large-Cap Growth Foreign Large Growth SWMIX Laudus International MarketMasters Sel Small Growth SWMSX Laudus Small-Cap MarketMasters Select Muni National Interm SWNTX Schwab Tax-Free Bond Moderate Allocation SWOBX Schwab Balanced Inv LARGE BLEND SWPPX Schwab S&P 500 Index SMALL BLEND SWSSX Schwab Small Cap Index LARGE GROWTH TGCNX TCW Select Equities N Mid-Cap Growth TGDNX TCW Growth Equities N EQUITY PRECIOUS METALS TGLDX Tocqueville Gold LARGE BLEND TICRX TIAA-CREF Social Choice Eq Retail LARGE GROWTH TIRTX TIAA-CREF Large-Cap Growth Retail LARGE GROWTH TWCGX American Century Growth Inv Muni National Interm TWTIX American Century Interm-T Tx-Fr Bd Inv SHORT GOVERNMENT TWUSX American Century Short-Term Govt Inv LARGE VALUE TWVLX American Century Value Inv Foreign Large Value TWWDX Thomas White International Foreign Large Growth UMBWX Scout International SMALL VALUE VSFAX Federated Clover Small Value A Mid-Cap Growth WTMGX Westcore MIDCO Growth LARGE VALUE YAFFX Yacktman Focused Asset Class Number of funds Balanced Fund 21 REITs 2 Fixed Income 34 Commodity 1 Sector Fund 9 Foreign Equity 18 Emerging Market Equity 7 US Equity 41 Other 4 Total 137
As of Apr 5, 2011, 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 (98%)
Fund Quality -- Rated as average (54%)
Portfolio Building -- Rated as great (86%)
Overall Rating: above average (80%)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 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 Apr 5, 2011)Performance table (as of Apr 5, 2011)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Schwab OneSource Select List Funds Tactical Asset Allocation Moderate 13% 106% 10% 91% 13% 110% Schwab OneSource Select List Funds Strategic Asset Allocation Moderate 12% 152% 4% 32% 7% 52% Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 10% 81% 9% 82% 13% 89% Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 14% 121% 4% 20% 7% 34% With six asset classes and a wide number of funds, the returns beat the six asset class benchmark. With high scores in all categories, this plan delivers portfolios that have produced strong historical returns.
Symbols: SPY, VTI, EFA, VEU, EEM, VWO, IYR, VNQ, ICF, AGG, BND, DBC, HYG, JNK, PHB, AOM, AOK, CIU, BIV, ITM, MUB, TFI, PZA, MLN, IYH, IXJ, VHT, XBI, PBE, DBR, RYH, EFG, IXP, PTE, DGG, LTL, MTK, PTF, DBT, RYT, ROM, GWL, PFA, IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV, SCZ, EFV, PID, DWM, IYF, VFH, IPF, PFI, DRF, RYF, IFGL, RWX, TZE, TZG, TZI, TZO, TZL, IGOV, BWX, WIP, IVV, IYY, IWV, VV, DLN, RSP, SCHX, IOO, VT, SHY, SHV, VGSH, PLK, USY, IEV, VGK, PEF, DEB, 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, GBF, LAG, PCY, CSJ, BSV, VCSH, ITE, IXC, IPW, DBE, RYE, DKA, IEI, VGIT, IJK, IWP, VOT, EMG, PWJ, RFG, UKW, IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK, TIP, DBP, EPP, VPL, GMF, PAF, AAXJ, DND, EWJ, JPP, PJO, DXJ, GSG, BIL
Disclosure:
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Originally from the UK, Jenny Hollingworth lives with her husband and two sons in Northern California. She is a wife, mother, writer, theatre director, coffee drinker, avid reader, keen walker, movie watcher, Jane Austen lover and observer of life, in no particular order. MyPlanIQ has no formal relationship with Jenny Hollingworth.
- Morningstar's 401K Clone Begs the Question- What about Managed Funds?
02/27/2011
We have already examined the Morningstar 401K plan. We explained why it is a model of plan creation - providing a manageable number of funds with broad asset class exposure that enables portfolios that can deliver solid returns. We also provided an ETF clone which enabled portfolios that underperformed the original.
Performance chart (as of Feb 25, 2011)
Performance table (as of Feb 25, 2011)
Portfolio Name
1Yr AR
1Yr Sharpe
3Yr AR
3Yr Sharpe
5Yr AR
5Yr Sharpe
Morningstar 401K ETF Clone Tactical Asset Allocation Moderate
15%
112%
8%
63%
11%
75%
Morningstar 401K ETF Clone Strategic Asset Allocation Moderate
17%
155%
3%
14%
6%
30%
Morningstar Inc 401K Plan Tactical Asset Allocation Moderate
22%
168%
13%
121%
14%
125%
Morningstar Inc 401K Plan Strategic Asset Allocation Moderate
15%
178%
3%
22%
5%
35%
The chart is a little misleading as the ETF Clone has fewer choices until recently because of the newness of the ETF funds. If we look at the table and consider just the five year return figures we can see that the strategic asset allocation returns are similar but there is an additional 3% garnered from the original.
This has prompted further analysis of the funds which we present here.
We tracked returns for all of the funds used in each portfolio over 5, 3 and 1 years. Some of the ETFs are sufficiently new that there wasn't five year data. We then created a score which was the summation of the five year number multiplied by three, the three year number multiplied by 1.5 and the one year number.
Name
5 year AR (%)
3 year AR (%)
1 year AR (%)
ETF Score
Mu Fund Score
PowerShares DB Commodity Index Tracking
5.97
(4.76)
20.50
31%
PIMCO Commodity Real Ret Strat Instl
2.32
(8.45)
20.85
15%
SPDR S&P Emerging Markets Small Cap
8.69
(0.04)
18.93
45%
American Funds New World A
8.29
(0.21)
17.00
42%
Oppenheimer Developing Markets Y
(2.86)
(7.95)
25.22
5%
Vanguard Emerging Markets Stock ETF
17.45
17%
SPDR Barclays Capital High Yield Bond
4.15
6.89
11.89
35%
PIMCO High Yield Instl
5.51
6.10
7.11
33%
PIMCO Real Return Instl
5.40
4.34
5.44
28%
iShares Barclays TIPS Bond
4.10
2.46
4.06
20%
iShares Barclays Aggregate Bond
5.28
5.05
3.76
27%
PIMCO Total Return Instl
8.07
8.64
6.61
44%
iShares Barclays Interm Govt/Credit Bond
3.12
2.53
7%
Loomis Sayles Bond Instl
6.35
4.82
8.32
35%
STABLEVALUE
3.96
3.07
(0.21)
16%
iShares Barclays 1-3 Year Treasury Bond
3.65
1.99
1.07
15%
Vanguard Short-Term Bond ETF
1.08
0.90
3%
Vanguard Short-Term Bond Index Inv
4.36
2.87
0.10
17%
Vanguard Europe Pacific ETF
(2.68)
17.45
13%
Vanguard International Growth Adm
4.04
(1.26)
21.65
32%
iShares MSCI EAFE Value Index
(0.66)
(4.69)
12.77
4%
TweedyBrowne Global Value
2.87
1.38
13.75
24%
Morgan Stanley Real Estate I
2.55
2.13
34.01
45%
Vanguard REIT Index ETF
2.09
2.26
33.32
43%
Fidelity Select Brokerage & Invmt Mgmt
(1.09)
(1.28)
15.23
10%
Financial Select Sector SPDR
(10.63)
(12.91)
15.61
-36%
iShares Russell 3000 Index
1.91
1.28
21.97
30%
Oakmark I
4.75
5.85
17.86
41%
Selected American Shares S
1.35
(1.68)
15.91
17%
Vanguard Dividend Appreciation ETF
3.37
18.54
24%
Vanguard Institutional Index Instl
2.11
0.16
19.63
26%
Vanguard Total Stock Market ETF
2.57
1.55
23.38
33%
Calvert Social Index I
1.71
1.66
23.25
31%
Harbor Capital Appreciation Instl
3.15
4.35
20.33
36%
Vanguard Mega Cap 300 Gr Index ETF
3.25
23.65
29%
Vanguard Growth ETF
3.25
2.33
22.48
36%
American Funds Washington Mutual R5
1.68
(1.10)
16.74
20%
Vanguard Value ETF
2.03
(0.60)
19.16
24%
Brandywine
1.16
(3.55)
36.42
35%
iShares Russell Midcap Growth Index
4.55
5.27
38.04
60%
PRIMECAP Odyssey Aggressive Growth
6.64
9.56
18.72
53%
Vanguard Mid-Cap Growth ETF
3.45
36.71
42%
Vanguard Selected Value Inv
4.65
4.17
23.07
43%
Vanguard Mid-Cap Value ETF
3.77
23.68
29%
iShares S&P Moderate Allocation
9.73
10%
Vanguard STAR Inv
3.61
2.57
12.85
28%
T. Rowe Price Small-Cap Stock
5.52
10.67
38.04
71%
Vanguard Small Cap ETF
4.14
6.49
31.92
54%
Allianz NFJ Small Cap Value Instl
6.67
5.67
28.03
57%
Vanguard Small Cap Value ETF
2.50
4.42
25.69
40%
Instead of looking at each fund individually, we added the scores in each of the major asset classes together:
Asset Class
ETF Score
Mutual Fund Score
MF/ETF
Delta
US Equities
4.20
4.22
0%
International Equities
0.17
0.56
228%
Emerging Markets
0.62
0.46
-26%
Real Estate
0.43
0.45
4%
Commodities
0.31
0.15
-52%
Fixed Income
1.07
1.73
62%
This gives us some insight on the different portfolios.
- US equity returns are running neck and neck - indicating that to improve the returns of the ETF portfolio, looking at the US equities should only be undertaken when the other asset classes have been examined
- There is a significant gap in the international equities. The Vanguard Europe Pacific ETF looks like it will help but this is an area for shoring up the ETF portfolio
- The Emerging Market ETF outperforms the original so, while it may be better to improve performance, that is a secondary task
- Real estate runs neck and neck so look at that later
- Commodities, the ETFs are running ahead so, again, we can look at that later
- Fixed income is probably the biggest area where the difference is explained. It is the largest single asset category in terms of funds invested (in most cases) and there is a significant difference between the two. The original plan has two of the leading managed fixed income funds which shows consistently higher performance.
The takeaway is that to look to improve returns from the Clone ETF, focus needs to be applied on international and fixed income asset classes.
As we go through this exercise, this will bring to the fore a elephant in the ETF space - are there times when managed funds do outperform indexed funds - intuitively it would seem so and fixed income in this market seems to suggest itself as a prime example.
We will examine this deeper in an upcoming article
Disclosure:
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Symbols:DBC,PCRIX,EWX,NEWFX,ODVYX,VWO,JNK,PHIYX,PRRIX,TIP,AGG,PTTRX,GVI,LSBDX,PRWBX,SHY,BSV,VBISX,VEA,VWILX,EFV,TBGVX,REFDX,VNQ,FSLBX,XLF,IWV,OAKMX,SLASX,VIG,VINIX,VTI,CISIX,HACAX,MGK,VUG,RWMFX,VTV,BRWIX,IWP,POAGX,VOT,VASVX,VOE,AOM,VGSTX,OTCFX,VB,PSVIX,VBR,
- Shell Versus Morningstar -- More is Better
02/27/2011
We recognize that technology continually changes the world charging into every aspect of our lives. Investing has also been significantly changed with instant access to news and the lead measured in milliseconds. Significant swings of the market can be impacted by the touch of a button.
For the longterm or retirement investor, the impact is more muted but still present and with the emergence of new investing apps, perhaps a larger change is occurring. Historically, plans for the long term investor have been limited to a relatively few funds, hopefully well chosen to give an easily comprehensable set of choices that still enable the creation of a strong portfolio to deliver good returns.
We have already reported on what we think is one of the best --Morningstar's 401K plan has only 26 funds that give access to six major assst classes. Based on MyPlanIQ's Plan Rating methodologythey achieve top ratings. This is about as good as it gets -- good diversification, great choice of funds, ability to create a non correlated portfolio and strong historical returns.
However, if we have access to applications that will automatically sift and sort a large number of funds, do we need to limit the number of funds in a plan?
To contrast this, we also reviewed a Shell 401k Plan which offers an extraordinary number of funds -- which we compare with the Morningstar alternatives.
Asset Class
Shell
Morningstar
Balanced Fund 28 1 REITs 3 1 Fixed Income 43 6 Commodity 0 1 Sector Fund 40 1 Foreign Equity 31 2 Emerging Market Equity 8 2 US Equity 143 11 Other 7 1 Total 303 26 Without a technological solution, the number of funds in the Shell plan is overwhelming, but if there is an application to sort and select, more funds can actually be better.
We can compare the rating of both plans.
Attribute Shell Morningstar Diversification Great (98%) Great (96%) Fund Quality Average (37%) Average (72%) Portfolio Building Great (88%) Great (96%) Overall Rating Above Average (76%) Above Average (89%) The Shell plan wins in diversification by having excellent coverage of the five main asset classes and some of the sub-classes which contribute to better returns. Morningstar is close behind with one more major asset class but less coverage of the secondary styles.
Morningstar funds are higher quality making it easier to select a strong portfolio which makes it easier to build a portfolio and hence Morningstar comes out on top in the ratings.
If we now compare historical results of the two plans:
Performance table (as of Feb 23, 2011)Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Royal Dutch Shell Tier III 401K Tactical Asset Allocation Moderate 9% 110% 11% 108% 14% 111% Royal Dutch Shell Tier III 401K Strategic Asset Allocation Moderate 13% 183% 2% 15% 5% 29% Morningstar Inc 401K Plan Tactical Asset Allocation Moderate 21% 170% 13% 125% 14% 127% Morningstar Inc 401K Plan Strategic Asset Allocation Moderate 14% 179% 3% 25% 5% 36% We see that in the five year time horizon, the performance of the plans are nearly identical -- note that the Sharpe index is higher for the Morningstar plan.
This nicely contrasts the brute force and elegant approach to retirement fund planning.
What we see going forward are more and more ETF plans with many alternatives in them (Vanguard has 64, TD Ameritrade has 101) that offer more of the brute force alternatives.
With investing apps to sort and rank the choices, this should enable investors to leverage these plans to get good returns at a low cost.
Disclosure:
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up retirement 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,DBC,HYG,JNK,PHB,AOM,CIU,BIV,GWL,PFA,IVE,IWW,JKF,VTV,ELV,PWV,RPV,SCHV,EFV,PID,DWM,IYF,VFH,IPF,PFI,DRF,RYF,IVV,IYY,IWV,VV,DLN,RSP,SCHX,SHY,SHV,VGSH,PLK,USY,IVW,IWZ,JKE,VUG,ELG,QQQQ,RPG,SCHG,IJJ,IWS,JKI,VOE,EMV,PWP,RFV,UVU,IJS,IWN,JKL,VBR,DSV,PWY,RZV,UVT,IJR,IWM,JKJ,VB,DSC,PJM,DES,SAA,UWM,SCHA,GMM,PXH,DEM,SCHE,GBF,LAG,CSJ,BSV,VCSH,IJK,IWP,VOT,EMG,PWJ,RFG,UKW,TIP,GSG,
- Initiating Tracking of US Subclasses
02/22/2011
We are initiating weekly tracking of the nine different styles or subclasses in the US Equity asset class. We use ETFs to represent each sub-class. We track returns over 1, 4, 13, 26, and 52 weeks and aggregate them to get a trend score. We then track the trend score to see the direction of each representative ETF in the subclass. By using an ETF from the same provider, we are attempting to normalize out performance of the ETF over the performance of the subclass.
Assets Class
Symbols
02/18
Trend
Score02/11
Trend
ScoreDirection
Russell Smallcap Growth
IWO
20.85%
19.88%
^
Russell Smallcap Index
IWM
18.7%
17.58%
^
Russell Midcap Growth
IWP
18.3%
18.8%
v
Russell Smallcap Value
IWN
17.28%
16.08%
^
Russell Midcap Index
IWR
16.68%
16.74%
v
Russell Midcap Value
IWS
15.91%
15.66%
^
Russell Largecap Growth
IWF
14.31%
14.08%
^
Russell Largecap Index
IWB
13.44%
13.04%
^
Russell Largecap Value
IWD
13.27%
12.67%
^
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).
We note that most of the of the sub-classes are positive as the US bull market continues. We also note that Midcap is dropping in comparison to Smallcap - Midcap has been at the top of the list but is starting to be replaced by Smallcap. Finally we note that the order within a sub-class is Growth, Index (Blend), Value.
Although the entire top three dropped compared to the prior week, the smalcaps dropped less than the midcap stock. The continuing bull market is moving investors away from the relative safety of large cap to the small cap stocks. The midcap, which had been a nice midway point, is being supplanted by the smallcap options as investors seek to maximize returns.
The large cap stocks are solidly at the bottom of the table as investors look for higher returns. We note that the Largecap Value has the best performance in the short term even though it has had the poorest return over the longer time horizon.
We would expect to see this picture to remain for some time unless the unrest in the Middle East and North Africa causes investors to look for safer US equities.
Symbols:VCR,VDC,VIG,VWO,VDE,VEA,VGK,EDV,VFH,VEU,VSS,VUG,VHT,VYM,VIS,VGT,BIV,VCIT,BLV,VCLT,VGLT,VAW,MGC,MGK,MGV,VO,VOT,VOE,VMBS,VPL,VNQ,BSV,VGSH,VB,VBK,VBR,VOX,BND,VTI,VT,VPU,VTV,IJK,VBK,QQQQ,MDY,IWO,IJT,IJH,VB,VXF,IWP,IJR,VO,VOT,IWR,IJJ,VBR,IJS,IWN,RSP,IWM,IWS,VOE,VTV,IWC,SCHA,VTI,DIA,VUG,IWF,SPY,IWB,SDY,IVW,VIG,IVV,IWD,OEF,IVE,DVY,
Disclosure:
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
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This report reviews Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account 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 Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan can achieve reasonable investment results using asset allocation strategies.
Plan Review and Rating
--
Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan's 401K plan consists of 55 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, Commodity, Emerging Market Equity, Fixed Income. The list of minor asset classes covered:
Commodities Broad Basket: GSG, DBC
Conservative Allocation: AOK
Diversified Emerging Mkts: EEM, GMM, PXH, DEM, SCHE
Diversified Pacific/asia: EPP, VPL, GMF, PAF
Equity Energy: ITE, IXC, IPW, DBE, RYE, DKA
Europe Stock: IEV, VGK, PEF, DEB
Foreign Large Blend: EFA, VEU, GWL, PFA
Foreign Small/mid Growth: IFSM, VSS, SCHC
Health: IYH, IXJ, VHT, XBI, PBE, DBR, RYH
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
Latin America Stock: ILF, GML
Long Government: TLT, TLH, IEF, EDV, VGLT, TLO, PLW
Mid-cap Value: IJJ, IWS, JKI, VOE, EMV, PWP, RFV, UVU
Multisector Bond: AGG, GBF, BND, LAG
Natural Resources: IYM, IGE, VAW, XLB, XME, PYZ, DBN, RTM, UYM
Pacific/asia Ex-japan Stk: EPP, AAXJ, GMF, PAF, DND
Short Government: SHY, SHV, VGSH, PLK, USY
Short-term Bond: CSJ, BSV, VCSH
Small Growth: IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK
Technology: MTK, PTF, DBT, RYT, ROM
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 (91%)
Fund Quality -- Rated as (48%)
Portfolio Building -- Rated as (84%)
Overall Rating: (75%)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 Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account 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)
Emerging Market Equity: (EEM or VWO)
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 Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan Tactical Asset Allocation Moderate 6% 44% 7% 51% 16% 109% Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan Strategic Asset Allocation Moderate 12% 119% 3% 21% 9% 61% Four Core Asset ETF Index Funds Emerging Markets Tactical Asset Allocation Moderate 1% 6% 6% 49% 12% 78% Four Core Asset ETF Index Funds Emerging Markets Strategic Asset Allocation Moderate 10% 75% 2% 6% 7% 31% Currently, asset classes in Foreign Equity (EFA,VEU), Emerging Market Equity (EEM,VWO) and Fixed Income (AGG,BND) are doing relatively well. These asset classes are available to Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan participants.
To summarize, Allegheny Ludlum Corporation Personal Retirement and 401(k) Savings Account Plan plan participants can achieve reasonable investment returns by adopting asset allocation strategies that are tailored to their risk profiles.
Symbols: ATI , SPY , VTI , EFA , VEU , EEM , VWO , AGG , BND , DBC , AOK , CIU , BIV , IYH , IXJ , VHT , XBI , PBE , DBR , RYH , IYM , IGE , VAW , XLB , XME , PYZ , DBN , RTM , UYM , MTK , PTF , DBT , RYT , ROM , GWL , PFA , IVE , IWW , JKF , VTV , ELV , PWV , RPV , SCHV , IVV , IYY , IWV , VV , DLN , RSP , SCHX , SHY , SHV , VGSH , PLK , USY , TLT , TLH , IEF , EDV , VGLT , TLO , PLW , IEV , VGK , PEF , DEB , IVW , IWZ , JKE , VUG , ELG , QQQQ , RPG , SCHG , IJJ , IWS , JKI , VOE , EMV , PWP , RFV , UVU , IFSM , VSS , SCHC , GMM , PXH , DEM , SCHE , GBF , LAG , CSJ , BSV , VCSH , ITE , IXC , IPW , DBE , RYE , DKA , ILF , GML , IJT , IWO , JKK , VBK , DSG , PWT , RZG , UKK , TIP , EPP , VPL , GMF , PAF , AAXJ , DND , GSG
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