E-Trade All Star ETFs: A Myriad Of Low Cost And Popular Funds For Portfolio Building

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 |  Includes: AGG, AGZ, BIK, BIV, BLV, BND, BSV, BWX, BWZ, CRED, DIA, EFA, EMB, HYG, IDV, IEI, ITE, IWD, IWF, IWM, IWN, IWO, JNK, MGK, MGV, PCY, RSP, RWO, RWR, SCZ, SHY, SPY, TIP, TLH, VO, VOE, VOT, VWO, VYM, WIP
by: MyPlanIQ

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 Class Ticker Name
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
Click to enlarge
Asset Class Number of funds
Balanced Fund 0
REITs 2
Fixed Income 19
Commodity 0
Sector Fund 0
Foreign Equity 2
Emerging Market Equity 2
US Equity 14
Other 1
Total 40
Click to enlarge

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
Return
YTD
Return
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%
Click to enlarge

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.