Income Producing ETF Plan Update

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 |  Includes: AMJ, BWX, CIU, CORP, CSJ, DEM, DVY, EEM, EMB, FVD, HYG, ICF, IDV, IEF, IEI, IYR, LQD, MBB, MUB, PCY, PEY, PFF, PID, RWX, SDY, SHM, SHY, TIP, TLT, VCLT, VCSH, VIG, VNQ, VWO, VYM, WIP
by: MyPlanIQ

We introduced Retirement Income ETFs plan in a previous article in November 2010. In this article, we give an update on this plan with some added funds.

This plan is designed for income producing: high dividend (yield) stock ETFs are chosen for both US stocks and international stock asset classes. The original plan uses general emerging market stock ETFs (EEM or VWO) for emerging market asset class. In the updated plan: Retirement Income ETFs II, we added WisdomTree Emerging Market Income ETF (NYSEARCA:DEM). DEM has had an average trading volume of 277K in the past three months. It is not highly liquid but sufficient for intermediate and long term holding. It has a $1.59B total asset. The annual yield is about 3.3%.

Furthermore, to remedy the drawback of the lack of a dividend ETF for the commodity asset class (which the original plan does not have), we now add a Master Limited Partnership (MLP) ETN for energy (oil and gas pipeline). We chose the JPMorgan Alerian MLP Index ETN (NYSEARCA:AMJ) that represents 50 prominent energy MLP companies. It has a 1.4M average trading volume and its total asset size is about $2.67B. It yields about 5% annually.

Retirement Income ETFs II consists of 36 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, Emerging Market Equity, REITs, Fixed Income. The following table shows the funds in the plans.

The list of minor asset classes covered by Retirement Income ETFs The list of minor asset classes covered by Retirement Income ETFs II
Diversified Emerging Mkts: EEM, VWO
Emerging Markets Bond: EMB, PCY
Foreign Large Value: PID, IDV
Global Real Estate: RWX
High Yield Bond: HYG
Inflation-protected Bond: TIP
Intermediate Government: IEI
Intermediate-term Bond: CIU, CORP, MBB
Large Blend: VIG
Large Value: DVY, SDY, VYM, FVD
Long Government: IEF, TLT
Long-term Bond: LQD, VCLT
Mid-cap Value: PEY
Miscellaneous Sector: PFF
Muni National Long: MUB
Muni Short: SHM
Real Estate: IYR, ICF, VNQ
Short Government: SHY
Short-term Bond: CSJ, VCSH
World Bond: BWX, WIP
Diversified Emerging Mkts: DEM, VWO, EEM
Emerging Markets Bond: EMB, PCY
Equity Energy: AMJ
Foreign Large Value: PID, IDV
Global Real Estate: RWX
High Yield Bond: HYG
Inflation-protected Bond: TIP
Intermediate Government: IEI
Intermediate-term Bond: CIU, CORP, MBB
Large Blend: [[VIG
Large Value: DVY, SDY, VYM, FVD
Long Government: IEF, TLT
Long-term Bond: LQD, VCLT
Mid-cap Value: PEY
Miscellaneous Sector: PFF
Muni National Long: MUB
Muni Short: SHM
Real Estate: IYR, ICF, VNQ
Short Government: SHY
Short-term Bond: CSJ, VCSH
World Bond: BWX, WIP
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Asset Class Retirement Income ETFs Retirement Income ETFs II
REITs 4 4
Fixed Income 19 19
Sector Fund 1 2
Foreign Equity 2 2
Emerging Market Equity 2 3
US Equity 6 6
Other 0 0
Total 34 36
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As of Jun 21, 2011, Retirement Income ETFs investment choice is rated as average and Retirement Income ETFs II investment choice is rated as above average based on our Plan Rating methodology, which was designed to measure how effective a plan's available investment funds are. It has the following detailed ratings:

Attribute Retirement Income ETFs Retirement Income ETFs II
Diversification great (95%) great (95%)
Fund Quality below average (20%) below average (22%)
Portfolio Building above average (65%) above average (78%)
Overall Rating average (61%) above average (66%)
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The chart and table below show the historical performance of moderate model portfolios employing our strategic and tactical asset allocation strategies (SAA and TAA).

Performance chart (as of Jun 21, 2011)

Performance table (as of Jun 21, 2011)

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Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate 12% 92% 11% 81% 12% 82%
Retirement Income ETFs Strategic Asset Allocation Moderate 15% 136% 4% 18% 6% 25%
Retirement Income ETFs II Tactical Asset Allocation Moderate 13% 111% 12% 89% 13% 93%
Retirement Income ETFs II Strategic Asset Allocation Moderate 17% 148% 4% 16% 6% 24%
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For more detailed comparison, refer here.

From the above table, we can see the new plan has about 1% extra annual return over the original plan for the Tactical Asset Allocation portfolios. It also improves in the Strategic Asset Allocation portfolios.

To summarize, with more and more ETFs being introduced and getting mature, one can improve a portfolio's performance by bringing those new ETFs (with careful calibration) in asset allocation.

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I am long IYR.