Last year my diversified ETF portfolio outperformed the S&P 500 Index (link). I made some recommendations for calendar year 2013. Here I discuss the performance of those recommendations for the first quarter of 2013.
Also, I would like to show a rebalancing strategy. Rebalancing is the buy-and-hold investors' dirty little secret. For the purpose of this series of articles, I will show the effects of quarterly rebalancing, which I think is reasonable for most investors to execute.
For the performance figures below, assume a buy at the open price for January 2, 2013. All price data is from Yahoo! Finance. Dividend data is from the website of the ETF in question. If no price was given for the dividend reinvestment, I used the open price for the distribution date.
Rebalancing is calculated using the open price for the first day of the next quarter. For demonstration purposes only, "sells" and "buys" happen at the same time, which is unrealistic, I understand. Taxes and commissions are not considered in any calculations. Next quarter I will show the results of this portfolio as is, and as if it were rebalanced on April 1, 2013.
At the start of the quarter, the portfolio will be rebalanced back to the original weighting of 20% per ETF.
First of all, how did the market do? Well above average. According to Yahoo! Finance, the S&P 500 Index returned 8.28%. To see how this compares with past years, I looked at the first-quarter performance (without dividends) of the S&P 500 Index (using price data from Yahoo! Finance) since 1950.
I know everyone is interested, so here are the years that had better Q1 performance than 2013; there are only 12 of them. One of them is 2012!
For a benchmark, I am using the "investable" S&P 500, namely, the Vanguard S&P 500 ETF (VOO). With dividend reinvestment, it had an 8.28% return during Q1 of 2013.
My overall portfolio was up only 3.65% for the quarter. Only one fund outperformed the Vanguard S&P 500 ETF. The Guggenheim S&P 500 Equal Weight (RSP) was up an impressive 10.07%. The worst-performing fund was the Vanguard FTSE Emerging Markets ETF (VWO), which was down -4.81% for the quarter. The ETRACS Linked to the Wells Fargo Business Development Company Index (BDCS) has an effective annual yield (based on the Q1 payout) of 7.42%. Its Q1 total return was 5.92%. Vanguard REIT Index ETF Shares (VNQ) was a little behind the S&P 500 with a total return of 6.18%. Finally, the bond portion, represented by PIMCO Total Return ETF (BOND), stayed in the black with a total return of 0.88%.
If you started with a $5,000 investment, the Vanguard S&P 500 Index ETF would have distributed $25.20, which would result in an effective annual yield of 2.02%. My ETF portfolio would have distributed $34.89, which would result in an effective annual yield of 2.79%.
Stay the course. The market has had an impressive quarter. During strong markets, the S&P 500 Index is a tough index to outperform. I hope with the higher yield and maybe a turnaround in the emerging markets, I will be able to give the S&P 500 a run for its money again.
The quarterly rebalancing is going to be interesting. The second quarter started with the selling of RSP, BDCS, and VNQ, and using that money to add to VWO and BOND.
Here is a link to my Excel file with some detailed information (link).