ETF Resources

I just noticed that Bill Cara has put up a page about ETFs that is a great resource along the lines of David Jackon's work on one of his sites. Both of these are very useful and written by guys that know what they are doing. Bill's page is fairly new as this version of his blog is fairly new. I don't know if or when either page gets updated. You can ask them if you are curious. Both of them are very responsive to emails.

That being said there are a couple of things on Bill page that I would do a little differently. My going over this is, to me, what the blogosphere is all about. Take a little from one blog, a little bit from another blog and so on.

Bill lays out a recommendation for an all ETF portfolio for a very specific case study of a man in his 40's as follows;

5% LQD (corporate bond ETF, the rest are all equity)
5% EWU (UK ETF)
10% IEV (large cap European equity)
20% DIA (US large cap)
15% IWP (US mid cap growth)
10% IWO (US small cap growth)
10% IJT (US small cap growth)
10% IGE (natural resources sector)
5% BBH (biotech sector)
5% BDH (broadband sector)
5% HHH (internet sector)

Before I comment, you may want to read about the portfolio on Bill's page to have it all in the proper context.

I'm not sure why the small cap allocation is divided between two growth ETFs, IJT and IWO. I looked at charts from 1,2,3 & 4 year time periods expecting the correlation to be very tight but it turns out that IJT out performed by a lot, most of the time. Having one growth and one value makes more sense to me. IJS (a small cap value ETF) outperformed IWO for the last four years.
I think the foreign allocation misses some opportunity for better diversification. A chart that compares IEV, EWU and the S+P 500 shows a very tight correlation but you can see that iShares Australia (EWA) offers a chance for better diversification, due to it being a commodity based economy as I have written many times before. The ETF, EWA, is not as important as the concept.

The Natural Resource Fund is about 82% energy stocks which may not be a bad thing but is not obvious to me by the name.

LQD has a yield of 4.5%, average weighted maturity of 10 years and effective duration of 6.5 years. The duration is pretty good but there may be better ways, outside the ETF realm, to capture more yield.

Bill uses HOLDRs for sector exposure. I would seek out alternatives where they exist. HOLDRs, because of their structure, can sometimes be more volatile than an individual stock you might otherwise choose.

The last thing I would point out is, and I have written this before, I'm not sure that anyone needs only ETFs. The fictional person in this case study does not have a lot of time to watch his portfolio. I still don't think that equates to ETFs only. There are many tools that allow for low impact ways to manage your own portfolio.

This is just my second opinion and I'm sure Bill could easily out debate me on my points but that's what I would do differently.