A previous article introduced the extended SIB or ESIB. An ESIB has multiple funds in each asset class. The purpose is for each asset class to have a better opportunity to offset an underperforming asset class.
The ESIB3 comprises ten funds. These funds provide access to three major assets: US and foreign equity and fixed income.
|Asset Class||Number of funds|
|Emerging Market Equity||0|
The impact of the additional funds in the portfolio increases the returns in both the long and short term.
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|ESIB-3 Strategic Asset Allocation Moderate||11%||112%||2%||11%||4%||23%|
|Three Core Asset ETF Index Funds Strategic Asset Allocation Moderate||9%||67%||2%||7%||4%||14%|
Click to enlarge
The two charts above show the transactions based on the portfolios. The brown line (SIB in the top diagram, ESIB in the bottom) have the transactions marked with a blue shield. The SIB has thirteen transactions in the period whereas the ESIB has twenty.
We would have expected that the ability to optimize funds in each asset class would give about a 1-2% additional return. While that has proven to be the case in the short term, over the long term the differences are less. Given the extra effort and costs (tax and commissions), the results are equivocal.
We note from a previous article that a four asset SIB -- one fund in each of four asset classes beats the ESIB -- several funds in each of three asset classes and so moving to more asset classes is still the preferred path.
- Increasing asset classes beats out adding funds into fewer asset class portfolios
- Adding additional funds to a three asset class portfolio provides additional returns but this requires more portfolio activity
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.