As the ETF world has grown over the past few years, investors have had the opportunity to access a number of different asset classes that were once off-limits to the average investor. Products targeting a number of currencies, commodities and emerging markets that were at one time inaccessible to all but the biggest and most powerful investors can now be traded by nearly any investor, opening up a wide world of possibilities to spread risk around and achieve alpha in a portfolio.
Many of the new introductions to the ETF world have offered increasingly granular exposure - focusing, for example, on specific sub-sectors or small international economies. But some have been designed to appeal to investors looking to simplify their portfolio instead of tweaking exposure with the newest choices out there. If ETFs like the Smartphone fund from First Trust (FONE) are precise tools for fine tuning a portfolio’s exposure, there are a number of extremely blunt ETF tools that may be appealing to those looking to minimize maintenance requirements, trading fees and management expenses. Among these are a number of "one stop shop" ETFs that offer exposure to a variety of products and asset classes in a single ticker. These innovative ETFs are generally structured as "fund-of-funds" that hold a number of different ETFs in their basket, giving investors a chance to use professional portfolio ideas and management at just a fraction of the cost. Although the space has not grown as fast as some of the other sectors of the ETF world, diversified portfolio ETFs have seen inflows nonetheless. Currently there are 10 ETFs in the Diversified Portfolio ETFdb Category with over half a billion in total AUM. Below, we highlight three options for investors looking to build a portfolio with a single ticker that provide exposure to a wide range of securities at a reasonable cost:
Cambria Global Tactical ETF (GTAA)
This fund is by far the most popular in the category with just over $155 million in assets under management - a total accumulated in a very short period of time. The fund invests in other ETFs spanning a variety of asset classes including equities, bonds, real estate, commodities and currencies. GTAA employs a quantitative methodology with strict risk management controls in order to actively manage the portfolio in an attempt to limit downside risks. Overall, the fund seeks to offer investors the potential of achieving equity-like returns with lower levels of risk and volatility.
At the end of March, GTAA’s portfolio was pretty well spread out with no one asset class segment making up more than 18% of the total portfolio. U.S. stocks, foreign stocks, commodities and real estate all make up at least 16% while a hefty allocation to cash - about 13% - gives some insight into the outlook for the market in the short term. Fixed income takes up 11% and foreign currency holdings constitute the remainder.
In terms of individual holdings, short term government and agency debt takes the top spot and is closely trailed by three real estate ETFs: RWR, VNQ and IYR. Next on the fund’s top 10 holdings are a number of commodity focused funds such as DBC, DBP, DBE, USCI and DBB, all of which make up at least 3% of the fund’s current makeup. So far this year GTAA has gained about 3%. This fund charges a management fee of 0.90%, and currently has a net expense ratio of 0.99%.
iShares S&P Moderate Allocation (AOM)
For investors seeking a balanced approach, AOM could make for an interesting pick. The fund tracks the S&P Target Risk Moderate Index, which is designed to measure the performance of S&P’s proprietary moderate risk allocation model. AOM is heavily exposed to fixed income, although equities do make a significant portion of the fund’s total holdings as well. Thanks to this focus, the fund does pay out a reasonable 30-Day SEC Yield of 2.1% while maintaining a relatively low beta portfolio that comes in at just 0.40 in total.
Overall, AOM allocates roughly 60% of its total portfolio to domestic fixed income, about 24.5% to domestic equities and the rest in international equities, the vast majority of which are developed markets such as the U.K., Japan and Germany. In terms of individual sectors, Treasurys make up a plurality of the fund at just over 41% while financials and MBS pass-through products combine for another 14%.
While AOM does offer a significantly smaller management fee than either one of the other products on the list - just 0.31% - it also employs a far simpler model, forgoing the use of currency or commodity products in its makeup. In other words, if investors are willing to forgo these "exotic" products and focus on the core components of a portfolio, equities and fixed income, AOM could be a reasonable choice for an extremely low cost.
PowerShares RiverFront Tactical Growth & Income Fund (PCA)
For investors seeking a balanced portfolio that is roughly 50% fixed income and 50% equities, PCA represents a solid choice. The fund tracks the RiverFront Global Tactical Balanced Growth & Income Index which is optimized relative to a growth risk profile that targets this 50/50 balance between fixed income (which RiverFront takes to include commodities and currencies as well as bonds) and stocks. Currently, the figures have deviated a little from that even split as domestic equities (37.5%) and international equities (20%) make up closer to three-fifths of the portfolio while fixed income (35.3%) currency (6.1%) and commodity (1.1%) products make up the remainder.
In terms of individual holdings, the fund has its heaviest weightings in the Vanguard Short-Term Corporate Bond ETF (VCSH), followed by the PowerShares ETF Trust Dividend Achievers Portfolio (PFM) and PowerShares FTSE RAFI Emerging Markets Portfolio (PXH). Interestingly, despite the fund’s focus on equities, it managed to pay out a reasonable 30 Day SEC Yield of 2.1%. This is probably due to the fund’s focus on high yielding equity ETFs such as PFM and other high yielding sectors such as MLPs, energy and the inclusion of high yield corporate bonds, all of which are in the fund’s top 10 holdings list.
Despite using more exotic products such as commodities and currencies as well as implementing a monthly rebalancing, PCA charges investors a relatively low expense ratio of 0.69%.
Disclosure: No positions at time of writing.
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