All-ETF Portfolios

1/20/2014


Frugal investors who like exchange-traded funds (ETFs) and want easy access to various corners of the market need look no further than our all-ETF portfolios listed below.

The table lists 14 high-potential ETFs that roughly mirror the chief attributes of our recommended mutual funds. In addition, we offer target weights in line with our Growth and Conservative portfolios, which consist mostly of traditional mutual funds.

ETFs APPROXIMATE OUR FUND PORTFOLIOS
Target Weight
ETF (Price; Ticker)
Conser-
vative
(%)
Growth
(%)
Exp.
Ratio
(%)
Category
Guggenheim S&P 500 Pure Gro.
($71; RPG)
11
11
0.35
Large-co. growth
Guggenheim S&P Midcap 400 Gro.
($123; RFG)
5
7
0.35
Midcap growth
iShares Core S&P Small-Cap ($109; IJR)
5
8
0.17
Small-co. blend
iShares Growth Allocation ($39; AOR)
6
9
0.30
Balanced – 60% stks.
iShares Morningstar Large-Cap
($108; JKD)
6
7
0.20
Large-co. blend
iShares MSCI EAFE Small-Cap ($52; SCZ)
7
8
0.40
Foreign small co.
PIMCO Total Return ($105; BOND)
6
0
0.55
Inter.-term bonds
SPDR Barclays High Yield Bond ($41; JNK)
5
4
0.40
High-yield bonds
Vanguard FTSE Developed Mkts.
($41; VEA)
9
9
0.10
Int'l large-co. blend
Vanguard High Dividend Yield ($62; VYM)
12
12
0.10
Large-co. value
Vanguard Mid-Cap Value ($80; VOE)
5
7
0.10
Midcap value
Vanguard S&P Small-Cap 600 Gro.
($101; VIOG)
9
9
0.23
Small-co. growth
Vanguard Short-Term Corp. ($80; VCSH)
6
0
0.12
Short-term bonds
Vanguard Total Stock Market ($96; VTI)
8
9
0.05
Large-co. blend

The ETFs boast solid track records — 12 have outperformed the category average return over the past 12 months, while 11 have outpaced their peers over the last three years. All 14 have modest expense ratios — one of the most reliable predictors of future returns.

The all-ETF conservative portfolio has a yearly expense ratio of 0.23%, versus 0.22% for the growth portfolio. Remember, though, that brokerage commissions typically apply to ETF trades. Assuming a commission of $8 per trade, the cost to purchase the portfolios runs from $96 to $112, which works out to less than one-half of a percentage point on a $25,000 investment.

With fees that low, it's tempting to ditch traditional mutual funds. But actively managed funds, which far outnumber ETFs, offer the potential for market-beating returns, and many have low expenses. Our recommended Growth and Conservative portfolios have a modest 0.70% expense ratio and have performed very well.

2013 performance recap

Last year, the Growth Portfolio returned 29.4%, versus 28.1% for its passive benchmark portfolio. Our Conservative Portfolio returned 25.9%, versus 19.7% for its benchmark. Up 49.1%, T. Rowe Price New Horizons ($47; PRNHX) was our top performer, followed by Wells Fargo Advantage Discovery's ($34; STDIX) 42.4%. For comparison, the S&P 500 Index returned 32.4% including dividends, the Barclays Aggregate Bond Index dipped 2.0%, and the MSCI EAFE Index of international stocks rose 22.8%.

For the 15 years ended Dec. 31, the Growth Portfolio returned an annualized 8.5%, versus 7.7% for its benchmark. The Conservative Portfolio gained 8.1%, versus 7.2% for its benchmark. Notably, the Growth Portfolio topped its benchmark in 10 of the 15 years, while the Conservative Portfolio outperformed 11 times.

OUR RECOMMENDED MUTUAL FUNDS
Year-To-Date *
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating †
Artisan International ($30; ARTIX)
(1.2)
E
9
9
99
Dreyfus Midcap Index ($37; PESPX)
0.3
B
0
0
43
Dreyfus Small Cap Stock Index
($29; DISSX)
(1.0)
E
0
0
85
Fidelity High Income ($9; SPHIX)
0.5
D
5
4
65
Homestead Small Company
($37; HSCSX)
0.3
A
5
8
90
PIMCO Total Return ETF
($105; BOND)
0.8
B
6
0
NA
T. Rowe Price New Horizons
($47; PRNHX)
0.9
B
9
9
99
T. Rowe Price Value
($34; TRVLX)
0.5
A
8
9
88
Thompson Bond ($12; THOPX)
0.5
A
6
0
97
Vanguard 500 Index ($170; VFINX)
(0.5)
C
6
7
72
Vanguard Dividend Growth
($21; VDIGX)
(0.8)
E
12
12
83
Vanguard GNMA ($11; VFIIX)
0.9
A
0
0
77
Vanguard Growth Index
($48; VIGRX)
(0.4)
D
11
11
79
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
1.1
C
0
0
85
Vanguard Selected Value
($28; VASVX)
0.4
A
5
7
99
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
0.3
B
0
0
90
Vanguard Total Bond Mkt. Index
($11; VBMFX)
0.8
B
0
0
32
Vanguard Total Int'l Stock Index
($17; VGTSX)
(0.7)
D
0
0
32
Vanguard Wellesley Income
($25; VWINX)
0.2
D
0
0
93
Vanguard Wellington ($38; VWELX)
0.1
C
6
9
92
Wasatch International Growth
($29; WAIGX)
0.2
C
7
8
88
Wells Fargo Advantage Discovery
($34; STDIX)
(0.2)
D
5
7
91

* Year-to-date ranks through Jan. 14 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%.
† Fund ratings are percentile ranks based on our fund-rating system.


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