Here are the components and weighting of the all equity version, all of the funds are from iShares;
- S+P 500 Barra Growth IVW 32%
- S+P 500 Barra Value IVE 32%
- Russell Midcap Growth IWP 7%
- Russell Midcap Value IWS 7%
- Russell 2000 Growth 3%
- Russell 2000 Value 4%
- MSCI EAFE 13%
- Cash 2%
So the portfolio makes no effort to add value with sector weightings. The bank's strategist is on CNBC all time talking about sector weighting so the portfolio does not leverage off of this part of the bank's work.
I believe another flaw is only using EFA for foreign exposure. More than 40% of the fund is western Europe. I have written a few times my belief about the correlation between economic and stock market cycles of Europe and the US growing tighter. If this holds water that should mean the products like EFA will not offer as much diversification as in the past.
The last point to make, and I mention this all the time about ETFs, is that the portfolio yields 1.69% which is a little less than the market. In a flat market I think it makes sense to overweight dividends.
To sum I think a lot of people could come up with the same thing on their own and with just a little bit of effort capture a little more yield and diversification.
4 comments:
I agree with your points - it is diversified, but looks rather uninspired. No emerging markets; no individual country calls (e.g. no overweighting of countries or regions within the non-US element - surely a real opportunity to add value); no sector calls. And quite apart form your valid poijt on dividends, I am surprised there is so little "style" positioning - is this intended to be a strategic portoflio (in which case, fair enough to take no view on style) or a tactical one (in which case, one might expect the manager to express a view on value vs growth at any given point). The latter is hinted at in the slight tilt to value in small-cap - in which case, the "neutral" style positioning in large and mid-cap looks odd. You'll correct me if I am wrong, but is not owning equal proportions of the Growth and Value indices somewhat similar to owning the index itself and, hence, inherently rather pointless? Or would this construction leave out an exposure to a "core" of the index classified neither growth nor value. I suspect not in this case.
Nor it addresses the reward(return) to risk issue. I am using a method which puts more into high reward/return investments. My core domestic holdings are HSGFX,ANDEX,PRPFX. The 3 yr return/standard deviation are: 1.7,2,and 1.5. In contrast, the reward to risk ratio of S&P 500 is only 1.0. I carry my high reward to return concept to internationals too. ILF(2.5),TEDIX(2.3),RSNRX(2.2) and TAVIX(3.2). One bond fund I like has a reward to risk ratio of 4.54. FFRHX(Fidelity floating high income).
Seems a bit light on the intl side. I would increase EFA and add some EMM.
I would also add some five-star domestic and intl funds to the mix to capture some mgmt expertise as well.
Just my humble opinion.
I agree that investors should "back up the truck" on dividend paying stocks. If I had to choose a domestic ETF that pays dividends, I would probably go with DVY. As for foreign exposure, I would go with ADRE - risky, but the yield is nice. Only my opinion, though - good post!
Post a Comment