Fidelity's Commission-Free ETFs Remain Good For Portfolio Building

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Includes: ACWI, ACWX, AGG, DVY, EEM, EFA, EMB, HYG, IDV, IJH, IJJ, IJK, IJR, IJS, IJT, IVE, IVV, IVW, IWB, IWD, IWF, IWM, IWN, IWO, IWV, IYR, LQD, MUB, SCZ, TIP
by: MyPlanIQ

As of 4/23/2011, Fidelity had 30 commission-free iShares ETFs. These ETFs cover all U.S. equity sizes and styles (large/mid/small caps and growth/blend/value styles), international equity markets as well as good fixed income ETFs. The missing major asset class is commodities. A plan called Fidelity Commission Efficient ETFs extends this plan by including several additional ETFs (which cost a flat $7.95 commission per trade).

The plan consists of 31 funds. These funds enable participants to gain exposure to five major assets: U.S. Equity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.

Asset Class Ticker Name
LARGE VALUE IWD iShares Russell 1000 Value Index
LARGE BLEND IVV iShares S&P 500 Index
LARGE BLEND IWB iShares Russell 1000 Index
LARGE BLEND IWV iShares Russell 3000 Index
LARGE GROWTH IVW iShares S&P 500 Growth Index
LARGE GROWTH IWF iShares Russell 1000 Growth Index
MID-CAP VALUE IJJ iShares S&P MidCap 400 Value Index
MID-CAP BLEND IJH iShares S&P MidCap 400 Index
Mid-Cap Growth IJK iShares S&P MidCap 400 Growth Index
SMALL VALUE IJS iShares S&P SmallCap 600 Value Index
SMALL VALUE IWN iShares Russell 2000 Value Index
SMALL BLEND IJR iShares S&P SmallCap 600 Index
SMALL BLEND IWM iShares Russell 2000 Index
Small Growth IJT iShares S&P SmallCap 600 Growth
Small Growth IWO iShares Russell 2000 Growth Index
WORLD STOCK ACWI iShares MSCI ACWI Index
Foreign Large Blend EFA iShares MSCI EAFE Index
Foreign Small/Mid Value SCZ iShares MSCI EAFE Small Cap Index
DIVERSIFIED EMERGING MKTS EEM iShares MSCI Emerging Markets Index
Intermediate-Term Bond AGG iShares Lehman Aggregate Bond
Inflation-Protected Bond TIP iShares Lehman TIPS Bond
Long-Term Bond LQD iShares iBoxx $ Invest Grade Corp Bond
Emerging Markets Bond EMB iShares JPMorgan USD Emerg Markets Bond
Muni National Long MUB iShares S&P National Municipal Bond
ROOT CASH CASH
LARGE VALUE IVE iShares S&P 500 Value Index
LARGE VALUE DVY iShares Dow Jones Select Dividend Index
Foreign Large Value IDV iShares Dow Jones Intl Select Div Idx
Foreign Large Blend ACWX iShares MSCI ACWI ex US Index
High Yield Bond HYG iShares iBoxx $ High Yield Corporate Bd
REAL ESTATE IYR iShares Dow Jones US Real Estate
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Asset Class Number of funds
Balanced Fund 0
REITs 1
Fixed Income 6
Commodity 0
Sector Fund 0
Foreign Equity 5
Emerging Market Equity 1
US Equity 17
Other 1
Total 31
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As of May 17, 2012, this plan investment choice is rated as 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 (92%)
Fund Quality -- Rated as poor (4%)
Portfolio Building -- Rated as above average (78%)
Overall Rating: average (60%)

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 five asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:

  • U.S. Equity: SPY or VTI

  • Foreign Equity: EFA or VEU

  • REITs: IYR or VNQ or ICF

  • Emerging Market Equity: EEM or VWO

  • Fixed Income: AGG or BND

Performance chart (as of May 17, 2012)

Performance table (as of May 17, 2012)

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Fidelity Commission-Free ETFs Tactical Asset Allocation Moderate 1% 35% 10% 94% 6% 53%
Fidelity Commission-Free ETFs Strategic Asset Allocation Moderate -2% 10% 12% 105% 2% 12%
Five Core Asset ETF Benchmark Tactical Asset Allocation Moderate -1% 9% 9% 82% 6% 48%
Five Core Asset ETF Benchmark Strategic Asset Allocation Moderate -6% -18% 12% 83% 2% 9%
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Currently High Yield Bond, Fixed Income and Real Estate are doing well. These asset classes are all available to Fidelity Commission-Free ETFs participants.

What to like for Fidelity Commission-Free ETFs:

  • It has fairly reasonable line ups in fixed income (bonds) that include high yield, emerging market bonds and long- and short-term Treasury bonds. We especially like inflation-protected bonds and believe every portfolio should have this as a candidate fund.

  • It has all nine U.S. style ETFs (i.e. large, mid and small cap with growth, blend and value styles).

What we don't like is that these ETFs still have too high expense ratios compared with Vanguard ETFs and Schwab ETFs.

Disclosure: I am long TLT, IYR.

Disclaimer: 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.