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E-Trade provides a selected list of ETFs for its customers. This list of ETFs are called All Star ETFs. E-Trade stated that these ETFs are selected based on criteria such as low expense ratio, tracking error, liquidity, style purity, underlying holdings, and how well the ETF represents the index it seeks to replicate. In addition, ETFs chosen are passively managed, have at least 6-months trading history and are sponsored by a well balanced investment firm. Inverse and leveraged ETFs are not considered.

The following is the list of the All Star ETFs:

Asset ClassTickerName
LARGE BLENDRSPRydex S&P Equal Weight
LARGE GROWTHIWFiShares Russell 1000 Growth Index
LARGE GROWTHMGKVanguard Mega Cap 300 Gr Index ETF
LARGE VALUEIWDiShares Russell 1000 Value Index
LARGE VALUEDIASPDR Dow Jones Industrial Average
LARGE VALUEVYMVanguard High Dividend Yield Indx ETF
LARGE VALUEMGVVanguard Mega Cap 300 Value Index ETF
Mid-Cap GrowthVOTVanguard Mid-Cap Growth ETF
MID-CAP VALUEVOEVanguard Mid-Cap Value ETF
SMALL BLENDIWMiShares Russell 2000 Index
Small GrowthIWOiShares Russell 2000 Growth Index
SMALL VALUEIWNiShares Russell 2000 Value Index
Emerging Markets BondEMBiShares JPMorgan USD Emerg Markets Bond
Emerging Markets BondPCYPowerShares Emerging Mkts Sovereign Debt
High Yield BondHYGiShares iBoxx $ High Yield Corporate Bd
High Yield BondJNKSPDR Barclays Capital High Yield Bond
Inflation-Protected BondTIPiShares Barclays TIPS Bond
Intermediate GovernmentIEIiShares Barclays 3-7 Year Treasury Bond
Intermediate GovernmentAGZiShares Barclays Agency Bond
Intermediate GovernmentITESPDR Barclays Capital Interm Term Trs
Intermediate-Term BondAGGiShares Barclays Aggregate Bond
Intermediate-Term BondCFTiShares Barclays Credit Bond
Intermediate-Term BondBIVVanguard Intermediate-Term Bond ETF
Intermediate-Term BondBNDVanguard Total Bond Market ETF
LONG GOVERNMENTTLHiShares Barclays 10-20 Year Treasury Bd
Long-Term BondBLVVanguard Long-Term Bond Index ETF
SHORT GOVERNMENTSHYiShares Barclays 1-3 Year Treasury Bond
Short-Term BondBSVVanguard Short-Term Bond ETF
WORLD BONDBWXSPDR Barclays Capital Intl Treasury Bond
WORLD BONDBWZSPDR Barclays Cap S/T Intl Treasury Bond
WORLD BONDWIPSPDR DB Intl Govt Infl-Protected Bond
Foreign Large BlendEFAiShares MSCI EAFE Index
Foreign Large ValueIDViShares Dow Jones Intl Select Div Idx
Foreign Small/Mid ValueSCZiShares MSCI EAFE Small Cap Index
Global Real EstateRWOSPDR Dow Jones Global Real Estate
Asset ClassNumber of funds
Balanced Fund0
Fixed Income19
Sector Fund0
Foreign Equity2
Emerging Market Equity2
US Equity14

The total number of ETFs is 40. These funds cover five major assets: U.S. Equity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.

The ETFs do provide a fair comprehensive coverage on many sub categories or so called minor assets. But on the other hand, some categories are over covered with many duplicate funds. For example, in the popular large-cap value category, four funds are provided. On the other hand, in mid-cap and small-cap categories, each style has only one fund.

Noticeably, the list offers two inflation protected bonds: iShares Barclays TIPS Bond and SPDR Intl Government Inflation Protected Bond WIP. It has two dividend ETFs, one Vanguard High Dividend Yield Indx ETF for US equities and one iShares Dow Jones Intl Select Div Idx for international equities. We are somewhat disappointed that Vanguard low-cost REIT index fund VNQ was not chosen, instead, SPDR Dow Jones REIT made the list.

In the following, we show the performance of asset allocation portfolios built from this list of funds. For benchmark purposes, two asset allocation portfolios are compared against their corresponding portfolios built from a 5 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
Emerging Market Equity: EEM or VWO
Fixed Income: AGG or BND

Performance chart (as of June 25, 2012)

Performance table (as of June 25, 2012)

Portfolio Name1 Week
1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
E-Trade All Star ETFs Tactical Asset Allocation Moderate-0.8%2.9%5.8%54.4%13.8%117.4%11.4%86.9%
E-Trade All Star ETFs Strategic Asset Allocation Moderate-1.2%2.0%-2.2%-15.3%10.7%86.6%0.9%1.9%
Five Core Asset ETF Benchmark Tactical Asset Allocation Moderate-0.8%2.5%1.6%9.6%9.4%86.0%6.1%44.2%
Five Core Asset ETF Benchmark Strategic Asset Allocation Moderate-1.8%2.2%-3.4%-18.5%11.5%84.8%2.1%7.9%

We note that the strategic allocation portfolio under performs the corresponding five core portfolio in the five-year period (0.9% vs. 2.1%). This indicates higher cost of ETFs as well as too many duplicate funds in a category can actually distract the performance. On the other hand, many minor asset coverage provides a great way for a tactical allocation strategy to take advantage of, as evidenced by the big out performance in the five-year period (E-Trade's 11.4% vs. five core's 6.1%).

To summarize, E-Trade All Star ETFs are good enough for investors to build a solid asset allocation portfolio. However, lowering fees and streamline some of those offerings can definitely help to improve portfolio quality.

Disclosure: I am long BND.

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.