We review one of the most diversified ETF plans: MyPlanIQ Diversified Core Allocation ETF Plan.
This plan consists of 35 funds. These funds are carefully chosen to have exposure to 6 major assets: US Equity, Commodity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income. Furthermore, for U.S. stocks, 9 styles (Large Cap Growth, Large Cap Blend, Large Cap Value, Mid Cap Growth, Mid Cap Blend, Mid Cap Value, Small Cap Growth, Small Cap Blend, Small Cap Value) are covered. For fixed income asset class, interest rate (maturity long, intermediate and short term), credit (high yield, investment grade), inflation protected bonds, mortgage bonds as well as international bonds are all covered.
The following is the list of candidate funds in the plan:
| Asset Class | Ticker | Name |
|---|---|---|
| LARGE BLEND | VTI | Vanguard Total Stock Market ETF |
| LARGE GROWTH | VUG | Vanguard Growth ETF |
| LARGE GROWTH | QQQ | PowerShares QQQ |
| LARGE VALUE | DVY | iShares Dow Jones Select Dividend Index |
| LARGE VALUE | VTV | Vanguard Value ETF |
| MID-CAP BLEND | VO | Vanguard Mid Cap ETF |
| Mid-Cap Growth | IJK | iShares S&P MidCap 400 Growth Index |
| MID-CAP VALUE | IJJ | iShares S&P MidCap 400 Value Index |
| SMALL BLEND | VB | Vanguard Small Cap ETF |
| Small Growth | VBK | Vanguard Small Cap Growth ETF |
| SMALL VALUE | VBR | Vanguard Small Cap Value ETF |
| Foreign Large Blend | EFA | iShares MSCI EAFE Index |
| Foreign Large Blend | VEA | Vanguard Europe Pacific ETF |
| Foreign Large Growth | EFG | iShares MSCI EAFE Growth Index |
| Foreign Large Value | EFV | iShares MSCI EAFE Value Index |
| Foreign Small/Mid Value | SCZ | iShares MSCI EAFE Small Cap Index |
| DIVERSIFIED EMERGING MKTS | VWO | Vanguard Emerging Markets Stock ETF |
| REAL ESTATE | VNQ | Vanguard REIT Index ETF |
| Global Real Estate | RWX | SPDR DJ Wilshire Intl Real Estate |
| COMMODITIES BROAD BASKET | DBC | PowerShares DB Commodity Idx Trking Fund |
| COMMODITIES | GLD | SPDR Gold Shares |
| SHORT GOVERNMENT | SHY | iShares Barclays 1-3 Year Treasury Bond |
| LONG GOVERNMENT | IEF | iShares Barclays 7-10 Year Treasury |
| Intermediate Government | IEI | iShares Barclays 3-7 Year Treasury Bond |
| Intermediate-Term Bond | BND | Vanguard Total Bond Market ETF |
| Long-Term Bond | LQD | iShares iBoxx $ Invest Grade Corp Bond |
| Short-Term Bond | CSJ | iShares Barclays 1-3 Year Credit Bond |
| Intermediate-Term Bond | CIU | iShares Barclays Intermediate Credit Bd |
| High Yield Bond | HYG | iShares iBoxx $ High Yield Corporate Bd |
| Inflation-Protected Bond | TIP | iShares Barclays TIPS Bond |
| WORLD BOND | WIP | SPDR DB Intl Govt Infl-Protected Bond |
| Intermediate-Term Bond | MBB | iShares Barclays MBS Bond |
| WORLD BOND | BWX | SPDR Lehman Intl Treasury Bond |
| Emerging Markets Bond | EMB | iShares JPMorgan USD Emerg Markets Bond |
| ROOT | CASH | CASH |
| Asset Class | Number of funds |
|---|---|
| Balanced Fund | 0 |
| REITs | 2 |
| Fixed Income | 13 |
| Commodity | 2 |
| Sector Fund | 0 |
| Foreign Equity | 5 |
| Emerging Market Equity | 1 |
| US Equity | 11 |
| Other | 1 |
| Total | 35 |
As of Jan 10, 2012, this plan investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are . It has the following detailed ratings:
Diversification - Rated as great (99%)
Fund Quality - Rated as below average (22%)
Portfolio Building - Rated as above average (82%)
Overall Rating: above average (69%)
We reviewed 2011 performance and their recent 5 year performance of the two asset allocation portfolios in this plan. The two portfolios are based on two asset allocation strategies: strategic and tactical asset allocation strategies (SAA and TAA).
Strategic Asset Allocation is based on well known modern portfolio theory and its key features include: diversification, proper fund selection and periodically re-balancing.
Tactical Asset Allocation works on a diversified array of assets provided by funds in a plan and adjusts asset mixes based on market conditions such as asset price momentum utilized by TAA.
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 6 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:
- US Equity: SPYor VTI
- Commodity: DBC
- Foreign Equity: EFA or VEU
- REITs: IYR or VNQ or ICF
- Emerging Market Equity: EEMor VWO
- Fixed Income: AGGor BND
Performance chart (as of Jan 10, 2012)
Performance table (as of Jan 10, 2012)
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate | -2% | -16% | 8% | 70% | 10% | 70% |
| MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation Moderate | 0% | -7% | 13% | 84% | 5% | 25% |
| Six Core Asset ETF Benchmark Tactical Asset Allocation Moderate | -2% | -20% | 9% | 74% | 9% | 66% |
| Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate | -1% | -15% | 13% | 67% | 4% | 17% |
in 2011, MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation Moderate out performed Six Core Asset ETF Benchmark Strategic Asset Allocation Moderate and the tactical portfolios were about the same. However, in 5 year period, both portfolios for MyPlanIQ Diversified Core Allocation ETF Plan out performed their six core asset plan's counterparts, indicating the additional minor asset classes coverage did add value.
Furthermore, MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate out performed many well known tactical allocation funds in 2011. The following table shows how these funds performed in 2011:
Portfolio Performance Comparison (as of 12/30/2011)
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| DWTFX | -6.95% | -73% | 8.6% | 35% | ||
| GTAA | -8% | -57% | ||||
| Six Core Asset ETFs Tactical Asset Allocation Moderate | -2% | -22% | 8% | 64% | 8% | 60% |
| VBINX | 3% | 14% | 12% | 46% | 3% | 10% |
| GDAFX | -2% | -8% |
Disclosure: 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.
