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Comparison Of ETF Portfolios RSP/VNQ/VOE Vs. VTI/VEA//VWO/VNQ/VPU/VYM

|Includes: Invesco S&P 500 Equal Weight ETF (RSP), VEA, VNQ, VOE, VPU, VTI, VYM

In the comments section of Dividend Sleuth's article, "Is 3 Enough? How About 6? Re-Thinking A 10-ETF Portfolio", I promised I would do a comparison of returns and standard deviations between the Level3 Investing portfolio (RSP/VNQ/VOE) and Dividend Sleuth's proposed 6 ETF (VTI/VEA/VWO/VNQ/VPU/VYM). In addition I also commented that I like to examine the coefficient of variation (CoV) and that I prefer it to be less than 2.

Here is a table of the returns, standard deviations, and CoV for each of the ETFs for 10-year and 5-year periods:

 

10-year

5-year

ETF Symbol

Std Dev

% Return

Coeff. of Var.

Std Dev

% Return

Coeff. of Var.

RSP

17.86

8.43

2.12

11.29

11.77

0.96

VNQ

25.74

6.87

3.75

16.29

13.45

1.21

VTI

15.75

7.75

2.03

11.06

11.69

0.95

VEA

---

---

---

14.6

5.42

2.69

VWO

23.9

3.85

6.21

18.85

-0.4

47.13

VOE

17.89

8.25

2.17

12.68

15.34

0.83

VPU

14.00

7.71

1.82

12.97

12.11

1.07

VYM

---

---

---

10.31

14.88

0.69

The source for the above data is from Morningstar.

In my first comment I shared that the Level3 Investing portfolio would consist of the following: 40% Guggenheim S&P 500 Equal Weight ETF (NYSEARCA:RSP), 20% Vanguard REIT ETF (NYSEARCA:VNQ), 20% PowerShares Russell 1000 Equal Weight Portfolio ETF (NYSE:EQAL), 20% Vanguard Mid-Cap Value ETF (NYSEARCA:VOE). The PowerShares EQAL ETF started in 2015 and therefore an insufficient track record. Because of this I am altering the Level3 Investing portfolio to be 60% RSP, 20% VNQ, and 20% VOE.

Since there is insufficient 10-year data for all of the ETFs, I have used the 5-year data to create a comparison in the table below for the two portfolios:

Portfolio

Level3

Dividend Sleuth

ETF

RSP

VNQ

#EQAL

VOE

VTI

VEA

VWO

VNQ

VPU

VYM

% Mix

60%

20%

0%

20%

42.5%

36.5%

6%

5%

5%

5%

% Return

11.77

13.45

---

15.34

11.69

5.42

-0.4

13.45

12.11

14.88

Expected % Ret

12.82

8.94

Coeff. of Var.

0.96

1.21

---

0.83

0.95

2.69

47.13

1.21

1.07

0.69

Volatility Estimate

0.98

4.36

This comparison suggests that the Level3 Investing portfolio would offer a 3.88% greater return with a fair amount of less volatility for the 5-year data. Note that I indicated volatility and not risk as they are not the same. I stick to the philosophy that the only risk that matters is the risk of not having sufficient funds at that point of need, real risk.

One interesting point that stood out to me was that the 10-year CoV for all but the VPU ETFs were greater than 2. When it comes to looking CoV for mutual funds or ETFs, I might need to rethink an acceptable CoV.

There are many ways to compare funds and stocks, the standard deviation and coefficient of variation are just two statistical functions that I like to look at when trying to assess volatility. Wealth is impacted by the volatility of the investment as well as the purchase price timing and when investment dollars are withdrawn.

I do not own any of the aforementioned ETFs.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am a lifetime member of AAII and purchased James Cloonan's book, "Investing at Level3."