New All-ETF Portfolios

2/20/2017


For fund investors, the best odds for long-term success lie in minimizing expenses. That view helps explain the massive shift to low-cost, passive index funds. Fueled by record flows into exchange-traded funds (ETFs), passive funds took in $504.8 billion in 2016, while actively managed funds saw outflows of $340.1 billion, according to Morningstar.

To create our all-ETF portfolios, we focused on low-cost ETFs that share the main attributes of our recommended funds. In fact, five Vanguard ETFs are essentially identical to the mutual funds we track in the newsletter, and iShares MSCI EAFE Small-Cap ($53; SCZ) is already a member of our Growth and Conservative portfolios.

Importantly, the ETFs and portfolios are dirt cheap. Among the 13 funds, 12 have expense ratios below their category average. Both all-ETF portfolios have projected annual expense ratios of only 0.13%, or about half the cost of the all-ETF portfolios we profiled 10 years ago.

The total cost of owning the portfolios depends on your brokerage firm and frequency of rebalancing, as commissions typically apply to each trade. However, some brokers may waive commissions on select ETFs, so shop around.  

Assuming a commission of $8 per trade, the initial cost to purchase the portfolios is $104. Adding in commissions for a one-time rebalancing and the portfolio expense ratio of 0.13%, the total cost of owning either all-ETF portfolio would be about $338 for a $100,000 account, or roughly 0.34%.

How do those fees compare to our long-recommended Growth and Conservative portfolios? Both portfolios, which contain mostly traditional open-end mutual funds, charge only 0.40% annually. Note that you can often buy mutual funds with no commission.


Two all-ETF portfolios

The all-ETF portfolios below roughly correspond to the allocations of our recommended Growth and Conservative portfolios. Both ETF portfolios consist of 13 holdings and have projected annual expense ratios of only 0.13%.

Target Weight
--- Total Return ---
Fund (Price; Ticker)
Conser-
vative
(%)
Growth
(%)
12
Months
(%)
5 Years
Annual.
(%)
Exp.
Ratio
Fund
Score
iShares iBoxx $ High Yield
Corp. ($88; HYG)
5
3
20.7
5.3
0.50
44
iShares MSCI EAFE Small-Cap
($53; SCZ)
6
8
23.2
9.3
0.40
93
SPDR S&P 600 Small Cap Value
($121; SLYV)
4
4
46.8
14.5
0.15
98
Vanguard 500 ($215; VOO)
11
12
28.1
14.0
0.05
100
Vanguard FTSE Developed Mkts.
($38; VEA)
12
13
21.0
6.1
0.09
95
Vanguard Growth ($119; VUG)
11
12
26.8
13.4
0.08
89
Vanguard Interm.-Term ($83; BIV)
11
7
0.6
2.6
0.09
79
Vanguard Mid-Cap ($102; VOE)
7
10
35.1
14.7
0.08
83
Vanguard Russell 3000
($108; VTHR)
7
8
29.9
13.7
0.15
92
Vang. S&P Small-Cap 600 Gro.
($132; VIOG)
4
4
42.0
14.8
0.20
99
Vanguard Short-Term Corp.
($80; VCSH)
7
3
3.0
2.2
0.07
97
Vanguard Small-Cap Value
($125; VBR)
4
4
43.5
14.8
0.08
94
Vanguard Value ($96; VTV)
11
12
30.5
14.3
0.08
100
Note: Fund scores are percentile ranks, with 100 the best.

 

Portfolio statistics

5-Year
-- (Annualized) * --
-------- Allocations --------
12-Month
Return*
(%)
Return
(%)
Standard
Deviation
(%)
Est.
Yield
(%)
Exp.
Ratio
(%)
U.S.
Stocks
(%)
Int'l
Stocks
(%)
Bonds
(%)
All-ETF portfolios
Conservative
17.5
10.6
8.5
2.3
0.13
59
18
23
Growth
19.1
11.5
9.5
2.2
0.13
66
21
13
Notable indexes
Barclays U.S.
Aggreg. Bond
1.5
2.1
2.9
2.4
NA
0
0
100
S&P 500 Index
20.0
14.1
10.3
2.0
NA
100
0
0
MSCI EAFE
12.0
6.0
13.4
3.1
NA
0
100
0
Historic statistics based on portfolios as presently constructed.    * Through Jan. 31.

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