Diversified ETF Portfolio Performance For Q2 2014

Includes: BIZD, PKW, VOO, VWO
by: Zach Tripp


The diversified portfolio is faring well concerning its 80/20 stock/bond split.

The portfolio has a higher yield than that of the S&P 500.

The portfolio has underperformed the S&P 500 year to date.

The performance of the S&P 500 during the first half is equivalent to a 15% annual return.

Here is the performance for Q2 2014 for a diversified ETF portfolio I recommended at the end of 2013.

Year to date, the yield curve is lower and down sharply, considering at the end of last year it was reaching for 3%.

Source: thumbcharts.com

In regard to sectors, the utilities led the way during the first quarter. During the second quarter, energy was king. For the second quarter, all sectors showed positive gain.

Source: thumbcharts.com / 2014 Q2 Sector Performance

In regard to sector performance year to date, all sectors are in the green, with energy and utilities leading the way.

Source: thumbcharts.com / 2014 Sector Performance YTD

The portfolio as a whole was up 3.75% (with dividends), as compared with 5.19% (with dividends) for the S&P 500 (NYSEARCA:VOO) for Q2. Year to date the portfolio is up 5.08%, as compared with 7.44% for the S&P 500. The effective annual dividend yield of the portfolio was 5.74%, as compared with 3.78% for the S&P 500. The S&P 500's 7.44% return in the first half of the year is equivalent to a healthy 15.4% annual total return (up from 8.8% after the first quarter).

Here is the performance of the individual holdings:

The star performer this quarter was the emerging markets fund (NYSEARCA:VWO), which was the only fund to outperform the S&P 500. The PowerShares Buyback Achievers ETF (NASDAQ:PKW) just did not have the magic sector weighting to match the performance of the S&P 500. Below is the sector weighting of PKW as of 8-July-2014.

Source: Invesco

Comparison of fund performance:

Source: Yahoo! Finance

In my last quarterly update, I wrote about the risk associated with business development companies being removed from indices. Market Vectors BDC Income ETF (NYSEARCA:BIZD) performed very well, given the rebalancing by the major indices. The yield support helped. I feel as the yield curve continues to increase, the typical bond proxy equities will suffer. Those looking for higher-yielding equities will be forced to move out the risk spectrum to BDCs from blue chip stocks, providing a certain level of support. I still like this space. In today's low interest rate environment, BDCs can still profit by investing in companies that larger banking institutions will not. Most BDCs have modified their loan terms to be floating rate loans. Any market downturn could be a buying opportunity for BDCs with cash on hand.

I do not see any reason to make any adjustments at this time. The biggest risk is whether the market has run out of steam and is preparing for a pullback. Companies that buy back shares (EPS support) and value-priced small caps should be the right holdings.

Disclosure: The author is long VOO, VWO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.