 |
Vanguard ETF: |  |
7.4%* |
|
Diversified Core: | |
8.1%* |
|
Six Core Asset ETFs: | |
7.3%* |
Articles on GXC
- 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)
Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Schwab ETF Select List Tactical Asset Allocation Moderate 9% 88% 6% 57% 12% 91% Schwab ETF Select List Strategic Asset Allocation Moderate 11% 114% 3% 15% 4% 19% Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate 9% 86% 8% 65% 12% 88% Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate 12% 113% 4% 17% 6% 32% 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) - End of the Year Review of Luminary Portfolios -- II
01/01/2011
Earlier in the year, we presented a series of reports on lazy portfolios from investing luminaries. We went on to pit them together to come out with an overall winner.
That was then, this is now. It's time to review their progress and look at how they have performed in 2010. This is the second article where we look at the bottom half of the alphabet and see how they have done this year.
We created SIB (Simpler is Better) portfolios one index fund for each asset class (ETF's are ideal for this) as a basic benchmark for each asset class portfolio. A SIB gives you diversification and low cost with no thought to picking a stock or even sub-segment of an asset class.
MyPlanIQ Benchmark
TAA 5 Yr Return Annualized
TAA 1 Year
SAA 1 Year
Asset Classes
15%
8%
10%
6
12%
7%
10%
6
11%
6%
11%
5
9%
8%
11%
4
11%
1%
10%
4
6%
-1%
10%
3
We present four return data points:
- The five year annualized return based on a Tactical Asset Allocation strategy (TAA) -- this gives a viewpoint on the longer term behavior
- The one year TAA return
- The one year Strategic Asset Allocation (SAA) return
We note that for 2010, SAA portfolios have performed better than the SAA but TAA has a better performance metric in the longer run. This will calibrate what we see with the lazy portfolios.
The portfolios are listed by decreasing number of asset classes and decreasing number of funds. We would expect that the portfolio with the greatest number of asset classes to have the highest returns and we will test that to see to what extent it is true.
Table of Lazy Portfolios and their classes and funds
Plan Name
TAA 5 Yr Return Annualized
TAA 1 Year
SAA 1 Year
Original
Asset Classes
11%
6%
11%
7%
5
10%
9%
11%
13%
6
13%
7%
13%
15%
3
6%
10%
14%
9%
3
13%
11%
14%
12%
7
11%
10%
10%
13%
5
9%
9%
13%
11%
4
- Gibson's 5 Equal Asset Allocation Strategy comes from his Asset Allocation: Balancing Financial Risks book. In it, he outlined a simple yet diversified asset allocation model: putting equal amount of investment into 5 asset classes: US Equity, International Equity, REIT, Commodity, Fixed Income.
- Alexander Green proposed this The Gone Fishin' Portfolio. Based on the book the allocation is achieved using Vanguard low cost index funds (in Bogleheads forum, there is a discussion thread devoted to this portfolio)
- Jim Lowell edits MarketWatch's ETF Trader, an investment letter employing a momentum-based exchange-traded-fund strategy for long-term investors. Large and small stocks, proposed his Sower's Growth Portfolio. This is a diversified portfolio of exchange-traded funds
- Bill Schulthe is is a former Smith Barney broker and author of "The Coffeehouse Investor"
- Craig L. Israelsen is an Associate Professor at Brigham Young University where he teaches Personal and Family Finance to over 1,200 students each year. The Israelsen Seven Equally Weighted is aimed to protect the portfolio against losses
- David Swensen, the Yale Endowment Manager, proposed a one size fit in all model portfolio for individual investors. The major difference of this portfolio is the emphasis on international equities (including emerging market equities) and real estate
- John Wasik is a professional journalist and author specializing in personal finance, the environment, investing and social issues. John has proposed a Nano plan investment portfolio which employs a handful of index or ETFs to cover virtually the entire world of bond and stock markets
The one year returns of the original portfolio are presented in order of highest to lowest.
How do the returns compare to what we would have expected?
Plan Name
TAA 5 Yr Return Annualized
TAA
1 Year ReturnSAA
1 Year ReturnOriginal 1Year
Asset Classes
13%
7%
13%
15%
3
10%
9%
11%
13%
6
11%
10%
10%
13%
5
13%
11%
14%
12%
7
9%
9%
13%
11%
4
6%
10%
14%
9%
3
11%
6%
11%
7%
5
- The second half of the group performed slightly better as a group than the first half. Lowell's return is the highest of the bunch -- as a three asset class portfolio, that will be an interesting study as to whether this will continue in 2011
- All of the portfolios exhibited the same behavior of the buy and hold approaches beating TAA -- this is an important lesson that TAA, while having significant benefits in a choppy market, may not perform as well as SAA in a good market
- As we end the year on a relatively strong note, there is still a note of caution and concern about the future and we will have to see how well these portfolios perform next year
Takeaways- 2010 has been a good year for lazy portfolios as stocks have continued their recovery albeit with concern for the future
- TAA has real benefits but so does SAA or buy and hold -- this year demonstrates this point
- Index funds continue to show good results against managed funds
- Larger asset class plans have the benefit of stability and good returns
- ETF’s can be used to implement any of these strategies
- We pick the top three -- Lowell, Green and Swensen Brown to move on to the finals
- The Seven-12 portfolio can feel hard done by because if it were in the top half of the draw, it would have made it through to the finals
labels:investment,
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- Lazy Portfolios -- The Playoffs II
10/19/2010
This is the second article as we attempt to whittle down the lazy portfolios to four finalists for great analysis of what makes for a great portfolio. We are in the bottom half of the alphabetical list and the eight are listed in reducing order asset classes and funds. We have stated that the winners should be those with the most asset classes and highest number of funds.
Portfolio Classes Funds ETF Equivalent Seven-12 7 12 Y SIX SIB SAA 6 6 y Gone Fishin' 5 10 y Swensen 6 4 6 Y Wasik`s Nano 4 5 Y Harry Browne 3 4 Y Schultheis 3 3 Y Lowell 2 8 Y We are using this series of comparisons to validate whether this proves to be true.- Craig L. Israelsen, Ph.D., is an Associate Professor at Brigham Young University. The Seven Equally Weighted, twelve fund portfolio is aimed to protect against losses.
- The MyPlanIQ six asset SIB has index funds for each of the asset classes represented and rebalances monthly – this is primarily a benchmark portfolio
- Alexander Green proposed this The Gone Fishin' Portfolio which was outlined in his book 'The Gone Fishin' Portfolio'
- David Swensen, the Yale Endowment Manager, proposed this one size fit in all model portfolio for individual investors.
- John Wasik has been a professional journalist and author for 30 years specializing in personal finance. John proposed a portfolio which employs a handful of index or ETFs
- Harry Browne is the author of Fail-Safe Investing
- Bill Schulthe is is a former Smith Barney broker and author of "The Coffeehouse Investor."
- Jim Lowell edits MarketWatch's ETF Trader, an investment letter employing a momentum-based exchange-traded-fund strategy for long-term investors.
The returns are now presented in order of highest to lowest of the five year returns. How do the returns compare to what we would have expected?
Portfolio/AR(%) 1 Yr 3 Yr 5 Yr Inception Harry Browne 12.49 7.40 8.99 7.31 Six SIB SAA 12.54 1.61 7.44 8.26 Seven-12 15.55 0.80 6.41 6.16 Swensen Six 15.10 (0.24) 6.21 7.10 Gone Fishin' 12.98 (0.34) 5.64 6.72 Wasik`s Nano 15.34 (1.93) 4.74 4.66 Schultheis 9.23 (2.28) 4.68 4.59 Lowell 12.45 (6.26) 3.55 6.74 - The portfolios roughly follow the asset class/fund class as would be expected
- The Harry Browne portfolio stands out as the clear exception to the rule – it has a signnificant lead over the other portfolios
- The six asset SIB performed well – that was expected. Six asset classes with index funds should perform well
When we look at the drawdown for each of the portfolios, it will reveal which is the most painful to own.Portfolio/DD1 Yr3 Yr5 YrInceptionHarry Browne5%15%15%15%Swensen Six8%39%39%39%Six SIB SAA8%39%39%39%Schultheis9%39%39%39%Seven-128%40%40%40%Gone Fishin'9%42%42%42%Wasik`s Nano9%44%44%44%Lowell16%57%57%57%
Again the Harry Browne portfolio is the clear winner.
We select the top two – which are the Harry Browne and Six asset SIB to move to the final round where they will be put against the best two funds from the top half of the alphabet.
Takeaways- The portfolios followed the expected path against asset classes and funds
- The Harry Browne portfolio was the clear winner and was the exception – we will find out in the final article whether it proves the rule
- With the exception of the Harry Browne portfolio, the drawdown ratios are uncomfortably high
- ETF’s can be used to implement any of these strategies
labels:investment,
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- Lazy Portfolios -- The Playoffs
10/19/2010
We have compared the performance of fifteen buy and hold portfolios from investing luminaries. Each of the portfolios was measured for performance against SIBs and their relative merits examined. We now move into a playoff round where we will compare the portfolios with each other and see if we can find an eventual winner and look at why they won and what we can learn from this.
When we were testing the portfolios against SIBs, we introduced a tactical asset allocation strategy which usually turned out to have the best performance. For this series of peer comparisons, we are only going to use a buy and hold strategy. When we find the eventual winner, we will then perform a final comparison with tactical asset allocation and see what we conclude.
The portfolios have been sorted alphabetically and we are going to start with the top part of the alphabet. The portfolios will be listed by decreasing number of asset classes and decreasing number of funds. We would expect that the portfolio with the greatest number of asset classes to have the highest returns and we will test that to see to what extent it is true.
Table of Lazy Portfolios and their classes and fundsPortfolio Classes Funds ETF Equivalent Fund Advice 5 11 Y Gibson 5 6 y Five SIB SAA 5 5 Y Aronson 4 11 y Armstrong 4 7 y Four SIB SAA 4 4 Y Burns/Tobias 3 3 Y - Paul Merriman's FundAdvice.com website has indexed porfolios for several fund companies. The basic strategy is the same as with all the other Lazy Portfolios, here with 11 no-load index funds
- Gibson's 5 Equal Asset Allocation Strategy comes from Roger Gibson’s widely read "Asset Allocation: Balancing Financial Risks.”
- The MyPlanIQ five asset SIB has index funds for each of the asset classes represented and rebalances monthly – this is primarily a benchmark portfolio
- Ted Aronson and his AJO Partners manage about $25 billion of institutional assets. Aronson puts his family's taxable money in this well-diversified portfolio of no-load index funds
- Frank Armstrong, author of The Informed Investor, proposed his portfolio for an MSN Money article
- The MyPlanIQ four asset SIB has index funds for each of the asset classes represented and rebalances monthly – this is primarily a benchmark portfolio
- Scott Burns has covered personal finance and investments for nearly 40 years and ranks as one of the most widely read personal finance writers in the country/ Andrew Tobias, a Harvard alum and writer of 12 books including The Only Investment Guide You'll Ever Need.
Table of Lazy Portfolios and their Annual ReturnsPortfolio/AR(%) 1 Yr 3 Yr 5 Yr Inception Five SIB SAA 14.27 1.73 7.67 8.38 Four SIB SAA 10.76 0.17 7.11 7.40 Fund Advice 10.85 0.24 6.06 6.75 Armstrong 11.69 (1.76) 5.15 5.55 Burns/Tobias 0.45 (2.32) 4.54 4.48 Aronson 8.46 (1.10) 3.48 3.59 Gibson 8.63 (4.72) 0.08 3.43 The returns are now presented in order of highest to lowest of the five year returns. How do the returns compare to what we would have expected.- There was a wider spread than expected on the four and five asset class portfolios and the Burns/Tobias three asset class, three fund portfolio performed better than expected
- A five asset class portfolio came out on top – that was expected. The fact that an index based portfolio won out it also not surprising as index funds often outperform funds with active management
- The fact that a four asset portfolio beat a five asset portfolio demonstrates that picking the right funds in an asset class is important and that index funds deliver good results
- For a very simple three asset portfolio, the Burns/Tobias performance came higher in the league table
- The most surprising result is that the Gibson portfolio performed so poorly. When breaking down the long term results of this portfolio, the selection of asset classes has given the portfolio a modest return with a low drawdown index. In the significant market downturn over the past few years, it suffered (as did most buy and hold strategies) badly and has returned to its modest gains whereas other portfolios have had a higher drawdown ratio but a faster recovery
Table of Lazy Portfolios and their Draw Down RatiosPortfolio/DD 1 Yr 3 Yr 5 Yr Inception Aronson 6% 30% 30% 30% Fund Advice 9% 38% 38% 38% Gibson 7% 38% 38% 38% Four SIB SAA 9% 40% 40% 40% Five SIB SAA 8% 41% 41% 41% Scott Burns 9% 41% 41% 41% Armstrong 11% 44% 44% 44% We list the draw down ratios for each of the portfolios and it’s clear that with the recent turbulence, all of them are higher than would be desired.We will select the top two – which are the four and five asset SIBs to move to the final round where they will be put against the best two funds from the bottom half of the alphabet.
Takeaways- Asset classes and number of funds in each class are an indicator of better returns but it’s not the only thing
- Index funds continue to show good results against managed funds
- or those investing in the very long term, looking at the draw down index is important because it will help you live with the fund selection you have made
- ETF’s can be used to implement any of these strategies
labels:investment,
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