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We started off with four ETF Providers, Schwab (NYSE:SCHW), Ameritrade (NYSE:AMTD), Vanguard and Fidelity. (see Top Tier ETF Broker Playoffs and Top Tier ETF Broker Playoffs II)
Schwab and Fidelity were removed from the list as Ameritrade and Vanguard both had more asset classes and more funds with which to build a portfolio generating higher returns.

Ameritrade's 101 funds and Vanguard's 62 funds left us to perform some deeper analysis to see whether Ameritrade's extra funds deliver added value.
  • Both brokers offer a broad selection of funds in multiple asset classes - so diversification and choice is not a problem.
  • Both brokers use Vanguard ETF's and both have high quality products.
  • TD Ameritrade have used Morningstar Associates to select the funds so their selection will enable the creation of a high performance portfolio.

And the winner is...

With almost 40 extra funds, TD Ameritrade can provide more funds in each asset class allowing some styles rotation to improve returns.

Asset Class TDA Vanguard
U.S. 31 33
Bonds 32 11
International 14 6
Emerging markets 11 1
Sectors 3 9
Commodities 6 1
Real Estate 4 1
  • TD Ameritrade has multiple ETF's in each minor asset category whereas Vanguard does not.
  • Both brokers offer a broad range of U.S. equities.

Performance chart (as of Oct 25, 2010):

Performance table (as of Oct 25, 2010):

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Vanguard 62 Tactical Asset Allocation Moderate 14% 93% 5% 33% 13% 81%
Vanguard 62 Strategic Asset Allocation Moderate 17% 126% 2% 5% 8% 42%
TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate 14% 96% 13% 84% 20% 128%
TD Ameritrade Commission Free ETFs Strategic Asset Allocation Moderate 10% 89% -1% -10% 8% 44%

Performance notes:

  • In order to create historical data, it was necessary to provide substitutes for some of the ETF's with a short history
  • Both portfolios deliver solid risk adjusted returns -- especially in strategic asset allocation strategies where styles rotation enables squeezing out some extra performance
  • The biggest difference between the two brokers is clearly seen with the tactical asset allocation strategy, where we can observe some of the best returns for a moderate portfolio compared with all of the portfolios we have tested

The results clearly favor TD Ameritrade, with about 40% more funds selected by Morningstar (and including a large number of Vanguard products) that enables strong portfolios that deliver good risk adjusted rewards.

We hope that competition will continue to drive brokers to offer even better alternatives. Although TD Ameritrade comes out on top, both of the finalists have a strong offering. The ultimate winner here is the investor.


Disclosure: no positions

Source: Top Tier ETF Brokers: And the Winner Is...