Ted Aronson is an asset manager. His family taxable account portfolio has been featured and tracked by MarketWatch.com's lazy portfolios, maintained by Paul Farrel. The lazy portfolio has done very well prior to 2008-2009 crash. In this article, we look at how to use ETF substitutes to form an asset allocation investment plan.
The portfolio consists of the following index funds and their ETF substitutes:
Notably, the portfolio has allocations in emerging markets, high yield corporate bonds and long term US treasury bonds, all of which are on high risk spectrum. The long term treasury bond has proved to be a good diversifier in the recent history.This plan consists of the above funds as its candidate funds. For the purpose of comparison, model portfolios in this plan should be compared with this lazy portfolio that rebalances annually.
The Aronson Family Taxable ETF Lazy Portfolio consists of 11 funds. These funds cover 4 major assets: US Equity, Foreign Equity, Emerging Market Equity, Fixed Income. A notable missing asset is Real Estate Investment Trusts (REITs) such as iShares Dow Jones REIT index (IYR):
|DIVERSIFIED EMERGING MKTS||VWO||Vanguard Emerging Markets Stock ETF|
|LARGE BLEND||VOO||Vanguard S&P 500 ETF|
|DIVERSIFIED PACIFIC/ASIA||VPL||Vanguard Pacific Stock ETF|
|MID-CAP BLEND||VXF||Vanguard Extended Market Index ETF|
|Inflation-Protected Bond||TIP||iShares Barclays TIPS Bond|
|EUROPE STOCK||VGK||Vanguard European ETF|
|High Yield Bond||JNK||SPDR Barclays Capital High Yield Bond|
|LONG GOVERNMENT||VGLT||Vanguard Long-Term Govt Bd Idx ETF|
|Small Growth||VBK||Vanguard Small Cap Growth ETF|
|SMALL VALUE||VBR||Vanguard Small Cap Value ETF|
|LARGE BLEND||VTI||Vanguard Total Stock Market ETF|
|Asset Class||Number of funds|
|Emerging Market Equity||2|
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purpose, we also include the moderate model portfolios of a typical 4 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:
Performance table (as of Sep 12, 2011)
|Portfolio Name||2011 YTD||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Aronson Family Taxable ETF Lazy Portfolio Tactical Asset Allocation Moderate||-2.07%||2%||18%||5%||48%||7%||51%|
|Aronson Family Taxable ETF Lazy Portfolio Strategic Asset Allocation Moderate||-5.68%||2%||12%||3%||17%||4%||16%|
|Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate||-0.74%||5%||57%||6%||56%||9%||60%|
|Four Core Asset ETF (EM) Benchmark Strategic Asset Allocation Moderate||-7.13%||1%||15%||4%||17%||4%||12%|
YTD (2011 up to 9/12/2011), both tactical and strategic portfolios have outperformed their four core asset counterparts respectively. However, this plan lacks two major asset classes: REITs and commodities. Currently Commodities, International Bonds and Fixed Income are doing well. Only Fixed Income is available to Aronson Family Taxable ETF Lazy Portfolio participants.
Disclosure: We do 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 have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.