Critique of an Overly Broad ETF Portfolio

Roger Nusbaum submits: I caught a few minutes of the Kudlow show last night, and they talked at length about ETFs. One of the guests for the segment was Matt Hougan from Index Universe -- way to go Matt.

There was someone from XTF Advisors (please correct me I have this wrong) with a 60/40 ETF portfolio as follows:

• S&P 500 SPDR (SPY) 24%
• Vanguard Mid Cap (VO) 8%
• iShares Russell 2000 (IWM) 9%
• MSCI EAFE (EFA) 19%
• iShares ST Treasury (SHY) 8.5%
• iShares Intermediate Treasury (IEF) 8.5%
• iShares LT Treasury (TLT) 7%
• iShares Corp Bond (LQD) 5%
• Vanguard REIT (VNQ) 11%

I am not really a fan of going so broad (even for a conservative allocation) for equity exposure. There are ways to adjust things like volatility, yield, correlation, style and so on, if you are willing to explore a little bit, do some work and think outside the lines.

As far as treasury ETFs, unless they are for small accounts or for a trade, I would say most folks are better to lock in a rate with an actual treasury.

One last point -- here is a vote for Pisani to replace Kudlow. Bob mostly just asked questions in the part of the show I saw, without pounding the audience (or the guests) over the head with his opinions.

I said this in a video post a couple of weeks ago, for as little as I see the show, I really don't trust when he spits out data. I don't know if it is cherry picked to the point of being misleading.

Comments

[james joseph]

i have never voted for a socialist in 46 years of voting. but i too agree that bob pasani should take over kudlow's program. i have told cnbc that i think kudlow's program is horrible because he does not listen to his guests, thinks he is funny, and like most of the horrible hosts on cnbc he cuts people off all the time. in my opinion, bob pasani is the most underated person at cnbc.

[RogerNusbaum]

while I am no fan of Kudlow it is tough to be critical of someone for thinking they are funnier than they really are;-) but I view Kudlow as a moderator so shouting over his guests makes no sense. He is not the show in the way that Cramer is. No matter what your opinion of Cramer, he is the show, not so Kudlow.

[hblank]

I do not work for XTF Advisors. However, for generally televised advice for full-market allocation for most investors taking into account where we currently are on the yield curve and without individual investor profiles, I believe that Nussbaum's criticisms of this portfolio are WAY-OFF-BASE! This is an excellent "starter" or generalized ETF-allocation model portfolios for the vast majority of investors (most of whom do NOT own and mangae treasuries directly and certainly do not have the ability to change maturities with the yield curve). The targeted investor -- particularly on this show -- is the typical mutual-fund/ 401K investor. Most of these investors would be so much better off following the XTF model portfolios than keeping their current fee-hogging mutual funds that words cannot express my hopes that XTF wins converts in this regard. Good job, XTF! Bad criticism, Nussbaum.

As for Pisani vs. Kudlow, I agree with Nussbaum 1000%. Having dealt with Kudlow at two industry events and with Pisani on many occasions, there is no doubt in my mind that the latter is the better journalist and interviewer. Bob does his homework, tries to interview the right subjects, is always respectful, and tries to educate his audience. Larry is an economist first, an iconoclast second, and a journalist third (if not fourth). His opinions and observatrions are interesting, his pithy comments less occasionally so, but if he has much interest in educing enough from his guest to educate and enlighten his viewing audience, I've never seen any evidence of it!

[RogerNusbaum]

disagreement is always welcome so in that light the portfolio being a starter? It strikes me as being very similar to almost every other ETF portfolio put forth.

[sdrone]

I'm a little late here, but why not add an investment idea or 2 instead of just noting criticism? That way people like me could learn from your critique.

Yeah, it looks like a starter portfolio. On the other hand, it looks, in general terms, like a well diversified portfolio. It has various equity capitalizations, international stocks, and even a significant REIT portion to go along with plenty of bonds (too much bonds for my taste). The only thing it might lack is a small percentage in come type of commodity ETF.

[RogerNusbaum]

i write quite a few posts between here, my blog and TheStreet.com that does just that.