04/06/2011

Schwab ETF Plan Has Good Pedigree and Bright Prospects Retirement is now a "hair on fire" problem. There is much talk of working longer, downsizing, living on less. However, there is something you can do to help improve your risk adjusted returns. Look at your portfolios and plans to build a diversified portfolio with a systematic investment strategy.

This is not as hard as you might think -- to highlight this point, we feature a plan created by a non professional that matches up well with any of the other plans. Kevin Carr. is an individual investor who employs a long term strategy. He manages an individual common stock portfolio as well as many plans on MyPlan IQ.  If you have any questions regarding this plan please contact him.

This plan provides you with Schwab's experts’ top picks of low-cost ETFs representing approximately 50 ETFs, based on rigorous criteria including expenses, tracking error, trading volume, and more.  Schwab ETFs trade commission free.  There are no redemption periods so you can start today and not worry about holding periods.

We report on this Schwab ETF Select List which consists of 49 funds. These funds give exposure to 6 major assets: US Equity, Commodity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.

Many are looking for access to a well rounded ETF plan through Schwab. This fills this hole and as Schwab makes more of their own funds available, it will be possible to move them into the plan. On this review, the only comment would be to add another REIT choice. The other asset classes have a good number of selections without being overwhelming.

As of Apr 4, 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 (99%)
Fund Quality -- Rated as average (47%)
Portfolio Building -- Rated as average (56%)
Overall Rating: above average (66%)

Thehigh diversification score means that all the major and minor asset classes have been ticked. Fund quality is lower because some of the ETF's don't have a long history but that shouldn't impede the ability for the future.

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 4, 2011)

Performance table (as of Apr 4, 2011)

This portfolio performs well against the six asset ETF benchmark

• SAA provides lower volatility while albeit delivering lower historical returns but as more of the newer funds are applied to the portfolio, there will be more opportunity for closing the gap
• The TAA portfolios run neck and neck over the five year period

In a future article, we will review performance over the last three months to see how the plan has performed in the light of recent events.

Kay Takeaways

• Building a plan of funds is not the preserve of the few -- anybody who has the interest and application to research can provide well constructed plans
• It is possible to benefit from those individuals while still having transparency and not being captive to any particular broker

Symbols: SPY, VTI, EFA, VEU, EEM, VWO, IYR, VNQ, ICF, AGG, BND, DBC, HYG, JNK, PHB, CIU, BIV, MUB, TFI, PZA, MLN, GII, PUI, DBU, RYU, UPW, IYH, IXJ, VHT, XBI, PBE, DBR, RYH, EFG, IXP, PTE, DGG, LTL, IYM, IGE, VAW, XLB, XME, PYZ, DBN, RTM, UYM, MTK, PTF, DBT, RYT, ROM, GWL, PFA, IVE, IWW, JKF, VTV, ELV, PWV, RPV, SCHV, EFV, PID, DWM, IYF, VFH, IPF, PFI, DRF, RYF, KXI, VDC, PSL, DPN, RHS, RXI, VCR, IYJ, EXI, VIS, IGOV, BWX, WIP, IVV, IYY, IWV, VV, DLN, RSP, SCHX, IOO, VT, 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, IJH, IWR, JKG, VO, MDY, EMM, PJG, DON, EZM, MVV, IFSM, VSS, SCHC, IJS, IWN, JKL, VBR, DSV, PWY, RZV, UVT, IJR, IWM, JKJ, VB, DSC, PJM, DES, SAA, UWM, SCHA, GMM, PXH, DEM, SCHE, ITE, IXC, IPW, DBE, RYE, DKA, IEI, VGIT, IJK, IWP, VOT, EMG, PWJ, RFG, UKW, IJT, IWO, JKK, VBK, DSG, PWT, RZG, UKK, TIP, EPP, VPL, GMF, PAF, EWJ, JPP, PJO, DXJ, GSG

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.

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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%)

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)

The annuity performs well against our benchmark -- indicating a good choice of funds

We are now going to build a clone plan and see how it performs. We will simplify the choice and not duplicate styles.

US Funds

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 Funds

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 Estate

Real estate is under represented -- an international REIT would strengthen this asset class.

We add an international REIT Fund to the ETF's.

Fixed Income

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.

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, ,

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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.

We are now going to build a clone plan and see how it performs. We will simplify the choice and not duplicate styles.

US Funds

The US funds choice is very wide and here we will not mirror all the choices just one in each style category.

International Funds

Similarly we will match one style in each category in the international asset class.

Emerging markets

We select two emerging market ETF's to provide an alternative style.

Real Estate

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 Income

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)

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)

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,

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11/26/2010

In a previous article we questioned conventional wisdom that risk based assets as the main engine of portfolio growth. We presented a simple investment strategy -- pick the top seven bond managers and own the top performing bond fund which you review on a monthly basis (or quarterly if you prefer).

Currently, the top seven are:

In this article, we examine other bond only plans and see if the results can compete.

There are two other portfolios we present.

Goldman Sachs Global Tactical Asset Allocation:This is a cross-asset (or multi-asset) momentum based tactical asset allocation. This is based on a published report by Goldman Sachs on some of their funds. This is a simplified interpretation of strategies proposed by Goldman Sachs on Global Tactical Asset Allocation. The original strategy is based on the following:

Portfolio Performance Comparison

Portfolio Name	1Yr AR	1Yr Sharpe	3Yr AR	3Yr Sharpe	5Yr AR	5Yr Sharpe
Best of Bonds (BoB)	9%	194%	12%	199%	11%	165%
Bond ETFs	8%	86%	4%	38%	4%	33%
Gold-Sachs-Bonds-TAA	9%	123%	7%	88%	6%	68%

 
Click for full details

Looking over a five year horizon, it is clear that BoB delivers the best results by quite a margin. In the shorter term, the results are much closer and as more fixed income ETF's become established and liquid, it will be worth watching and paying a return visit to look at returns in the future.

For now, the simplicity of the approach and the strength of the results leave BoB out in front. In this case, actively managed funds appear to beat the index funds.

labels:investment,

Symbols:SPY,VTI,EFA,VEU,EEM,VWO,IYR,VNQ,ICF,AGG,BND,HYG,JNK,PHB,CIU,BIV,GII,PUI,DBU,RYU,UPW,IYH,IXJ,VHT,XBI,PBE,DBR,RYH,IXP,PTE,DGG,LTL,IYM,IGE,VAW,XLB,XME,PYZ,DBN,RTM,UYM,MTK,PTF,DBT,RYT,ROM,GWL,PFA,IVE,IWW,JKF,VTV,ELV,PWV,RPV,SCHV,IYF,VFH,IPF,PFI,DRF,RYF,KXI,

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10/28/2010

Ameritrade with 101 funds and Vanguard with 62 funds are left with the ability to go into deeper analysis to see whether the extra funds in Ameritrade deliver added value.

TD Ameritrade have multiple ETF's in each minor asset category whereas Vanguard does not. Both brokers offer a very broad range of US equities

Performance chart (as of Oct 25, 2010)

Performance table (as of Oct 25, 2010)

labels:investment,

Symbols:SPY,VTI,EFA,VEU,EEM,VWO,IYR,VNQ,ICF,AGG,BND,HYG,JNK,PHB,CIU,BIV,GII,PUI,DBU,RYU,UPW,IYH,IXJ,VHT,XBI,PBE,DBR,RYH,IXP,PTE,DGG,LTL,IYM,IGE,VAW,XLB,XME,PYZ,DBN,RTM,UYM,MTK,PTF,DBT,RYT,ROM,GWL,PFA,IVE,IWW,JKF,VTV,ELV,PWV,RPV,SCHV,IYF,VFH,IPF,PFI,DRF,RYF,KXI,

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10/26/2010