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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.

Source: Diversified Core Asset Allocation ETF Portfolios Review