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:
|LARGE BLEND||RSP||Rydex S&P Equal Weight|
|LARGE BLEND||SPY||SPDR S&P 500|
|LARGE GROWTH||IWF||iShares Russell 1000 Growth Index|
|LARGE GROWTH||MGK||Vanguard Mega Cap 300 Gr Index ETF|
|LARGE VALUE||IWD||iShares Russell 1000 Value Index|
|LARGE VALUE||DIA||SPDR Dow Jones Industrial Average|
|LARGE VALUE||VYM||Vanguard High Dividend Yield Indx ETF|
|LARGE VALUE||MGV||Vanguard Mega Cap 300 Value Index ETF|
|MID-CAP BLEND||VO||Vanguard Mid-Cap ETF|
|Mid-Cap Growth||VOT||Vanguard Mid-Cap Growth ETF|
|MID-CAP VALUE||VOE||Vanguard Mid-Cap Value ETF|
|SMALL BLEND||IWM||iShares Russell 2000 Index|
|Small Growth||IWO||iShares Russell 2000 Growth Index|
|SMALL VALUE||IWN||iShares Russell 2000 Value Index|
|Emerging Markets Bond||EMB||iShares JPMorgan USD Emerg Markets Bond|
|Emerging Markets Bond||PCY||PowerShares Emerging Mkts Sovereign Debt|
|High Yield Bond||HYG||iShares iBoxx $ High Yield Corporate Bd|
|High Yield Bond||JNK||SPDR Barclays Capital High Yield Bond|
|Inflation-Protected Bond||TIP||iShares Barclays TIPS Bond|
|Intermediate Government||IEI||iShares Barclays 3-7 Year Treasury Bond|
|Intermediate Government||AGZ||iShares Barclays Agency Bond|
|Intermediate Government||ITE||SPDR Barclays Capital Interm Term Trs|
|Intermediate-Term Bond||AGG||iShares Barclays Aggregate Bond|
|Intermediate-Term Bond||CFT||iShares Barclays Credit Bond|
|Intermediate-Term Bond||BIV||Vanguard Intermediate-Term Bond ETF|
|Intermediate-Term Bond||BND||Vanguard Total Bond Market ETF|
|LONG GOVERNMENT||TLH||iShares Barclays 10-20 Year Treasury Bd|
|Long-Term Bond||BLV||Vanguard Long-Term Bond Index ETF|
|SHORT GOVERNMENT||SHY||iShares Barclays 1-3 Year Treasury Bond|
|Short-Term Bond||BSV||Vanguard Short-Term Bond ETF|
|WORLD BOND||BWX||SPDR Barclays Capital Intl Treasury Bond|
|WORLD BOND||BWZ||SPDR Barclays Cap S/T Intl Treasury Bond|
|WORLD BOND||WIP||SPDR DB Intl Govt Infl-Protected Bond|
|DIVERSIFIED EMERGING MKTS||BIK||SPDR S&P BRIC 40|
|DIVERSIFIED EMERGING MKTS||VWO||Vanguard Emerging Markets Stock ETF|
|Foreign Large Blend||EFA||iShares MSCI EAFE Index|
|Foreign Large Value||IDV||iShares Dow Jones Intl Select Div Idx|
|Foreign Small/Mid Value||SCZ||iShares MSCI EAFE Small Cap Index|
|Global Real Estate||RWO||SPDR Dow Jones Global Real Estate|
|REAL ESTATE||RWR||SPDR Dow Jones REIT|
|Asset Class||Number of funds|
|Emerging Market Equity||2|
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
REITs: IYR or VNQ or ICF
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 Name||1 Week
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr 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.