ETFs Simulate Our Fund Picks

12/15/2014


Many investors have steered away from actively managed mutual funds and into exchange-traded funds (ETFs) in recent years. For those investors, we offer two all-ETF portfolios, listed below.

ALL-ETF PORTFOLIOS
The ETFs portfolios below roughly correspond to the target weights of our recommended Growth and Conservative portfolios, shown in the table below.
Portfolio Target Weight
Exp.
Ratio
(%)
YTD
Total
Return
(%)
Fund
Rating
ETF (Price; Ticker)
Conservative
(%)
Growth
(%)
iShares Core S&P Small-Cap
($113; IJR)
5
8
0.12
4.3
99
iShares Growth Allocation
($40; AOR)
8
10
0.30
6.4
80
iShares Morningstar Large-Cap
($125; JKD)
10
10
0.20
17.1
100
iShares MSCI EAFE Small-Cap
($48; SCZ)
7
8
0.40
(5.6)
94
iShares S&P Small-Cap 600 Gro.
($121; IJT)
9
9
0.25
2.5
97
SPDR Barclays High Yield Bond
($39; JNK)
5
6
0.40
0.7
57
Vanguard FTSE Developed Mkts.
($39; VEA)
9
9
0.09
(3.7)
90
Vanguard High Dividend Yield
($69; VYM)
10
11
0.10
13.7
100
Vanguard Inter.-Term Bond
($85; BIV)
6
0
0.10
6.9
84
Vanguard Mega Cap Growth
($82; MGK)
11
11
0.11
13.9
96
Vanguard Mid-Cap Value
($90; VOE)
7
10
0.09
12.9
100
Vanguard S&P 500 ($189; VOO)
7
8
0.05
13.5
NA
Vanguard Short-Term Corp. Bond
($80; VCSH)
6
0
0.12
1.7
NA

Why have investors soured on traditional funds? Picking a winning fund is difficult when so many fail to keep up with their benchmark index. Among U.S. large-cap blend mutual funds, 74% trail the three-year return of the S&P 500 Index. So far this year, 84% have lagged the index.

Paying a portfolio manager to underperform adds insult to injury. The average large-cap blend fund has an annual expense ratio of 1.16%, while similar ETFs on average charge only 0.44%.

Our recommend Growth Portfolio is 73% invested in actively managed mutual funds, versus 75% for our Conservative portfolio. That's partly because there are far more active funds to choose from. Our rating system, which requires five years of data, scores 4,262 mutual funds but only 741 ETFs. All 20 of our recommend funds have expense ratios below peer-group averages, and both portfolios have weighted expense ratios around 0.55%.

Still, ETFs represent a sound choice for thrifty investors who believe in indexing. To that end, we designed two all-ETF portfolios that roughly correspond to the allocations of our Growth and Conservative portfolios. We focused on high-potential funds with solid track records and above-average fund scores.

The All-ETF Growth Portfolio — with about 71% U.S. stocks, 19% foreign stocks, and 9% bonds — should appeal to long-term investors. The All-ETF Conservative Portfolio — roughly 63% U.S. stocks, 17% foreign stocks, and 19% bonds — is geared toward investors at or near retirement. Both portfolios have 1% cash positions.

The All-ETF Growth portfolio has an annual expense ratio of 0.18% and the All-ETF Conservative charges 0.17%. Assuming a commission of $8 per trade, the total cost to purchase the All-ETF Growth Portfolio is $88, versus $104 for the All-ETF Conservative Portfolio.

Combining annual expenses and brokerage fees (including a one-time rebalancing), the total first-year cost of the All-ETF Growth Portfolio is $284, or 0.57% based on a $50,000 investment. The All-ETF Conservative Portfolio would cost about $295, or 0.59%.

OUR RECOMMENDED MUTUAL FUNDS
If you want to mimic our recommended Growth or Conservative Portfolios, purchase the funds listed below in the proportion suggested by the target weights.
Year-To-Date *
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating †
Artisan International ($31; ARTIX)
1.0
A
9
9
87
Baird Core Plus Bond ($12; BCOSX)
6.1
A
6
0
93
Dreyfus Midcap Index ($40; PESPX)
8.5
B
0
0
56
Dreyfus Small Cap Stock Index
($31; DISSX)
4.0
B
0
0
94
Homestead Small Company
($39; HSCSX)
5.1
B
5
8
91
iShares MSCI EAFE Small-Cap ETF
($47; SCZ)
(5.6)
D
7
8
94
T. Rowe Price Divers. Small-Cap Growth
($26; PRDSX)
5.7
A
9
9
100
T. Rowe Price Value
($38; TRVLX)
13.2
A
10
11
86
Thompson Bond ($12; THOPX)
1.4
B
6
0
86
Vanguard 500 Index ($191; VFINX)
13.4
A
7
8
87
Vanguard Dividend Growth
($24; VDIGX)
11.9
C
10
10
87
Vanguard GNMA ($11; VFIIX)
6.4
A
0
0
97
Vanguard Growth Index
($54; VIGRX)
13.6
A
11
11
92
Vanguard High-Yield Corp. ($6; VWEHX)
3.7
A
5
6
96
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
7.1
B
0
0
88
Vanguard Selected Value
($30; VASVX)
6.2
D
7
10
76
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
1.8
A
0
0
97
Vanguard Total Bond Mkt. Index
($11; VBMFX)
5.4
C
0
0
49
Vanguard Wellesley Income
($26; VWINX)
8.0
A
0
0
99
Vanguard Wellington ($41; VWELX)
9.9
A
8
10
99

* Year-to-date ranks through Dec. 9 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.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com