We constructed an investment plan - Five Core Asset CEFs - by using five closed-end funds (CEFs) that represent five major asset classes. These funds allow us to gain exposure to five major assets: U.S. equity, foreign equity, REITs, emerging market equity and fixed income.
|LARGE VALUE||GDV||Gabelli Dividend & Income|
|Foreign Large Blend||BGY||BlackRock International Growth & Income|
|DIVERSIFIED EMERGING MKTS||EMF||Templeton Emerging Markets|
|REAL ESTATE||RQI||Cohen & Steers Qual Inc Realty|
|WORLD BOND||GIM||Templeton Global Income|
The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies. For comparison purposes, we also include the moderate model portfolios of a typical five asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:
Performance chart (as of Dec 8, 2011):
Click to enlarge
Performance table (as of Dec 8, 2011)
|Portfolio Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Five Core Asset CEFs Tactical Asset Allocation Moderate||0%||0%||16%||102%||10%||63%|
|Five Core Asset CEFs Strategic Asset Allocation Moderate||-8%||-42%||20%||90%||1%||-1%|
|Five Core Asset ETF Benchmark Tactical Asset Allocation Moderate||3%||15%||9%||71%||8%||49%|
|Five Core Asset ETF Benchmark Strategic Asset Allocation Moderate||-2%||-7%||14%||81%||2%||9%|
The five core asset CEF tactical asset allocation portfolio outperforms the corresponding ETF one in three and five year periods. The strategic CEF portfolio did well in the three year period but under performed in the one- and five-year period, compared with the ETF one.
Closed-end funds offer better yields and more opportunities with the expense of increased volatility. The best way to invest in closed-end funds is to adopt a rigorous asset allocation strategy that is well defined and consistent.
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I am long SPY.