Equal-Weighted ETF Helps Boost Model Fund Portfolio Return
by James B. Cloonan
The Model Fund Portfolio, which three months ago was trailing the Vanguard 500 Index fund (VFINX) by 5%, just about caught up to the broad market for the year, finishing 2012 up 15.5% compared to a 15.8% return for the index fund.
Year-to-date through January 31, 2013, the Model Fund Portfolio has pulled ahead again by a bit, with a return of 5.3% compared to 5.2% for the Vanguard 500 Index fund. Much of this is due to the run up and run down of Apple Inc. (AAPL). With Apple at more typical growth levels, our portfolio’s S&P 500 exchange-traded fund holding, the Guggenheim S&P 500 Equal Weight fund (RSP), reestablished dominance over the Vanguard 500 Index fund over both the long and short term, as can be seen in Table 1.
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Figure 1 shows the cumulative return of the Model Fund Portfolio since its inception in June 2003 compared to the Vanguard 500 Index fund. Table 2 gives year-by-year return figures.
Portfolio Composition
There are no changes in the portfolio this month. I have had a number of emails indicating that investors prefer exchange-traded funds (ETFs) because of the flexibility, the low expense ratios and, above all, the better control of tax liability. I believe our Model Fund Portfolio will gradually move toward holding more ETFs as we get more portfolio history, but unless the rules change, there will always be some areas of profit opportunity that don’t fit the ETF model.
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Discussion
I AM AN OCTOGENARIAN WITH SEVERAL YEARS INVESTING EXPERIENCE. YOU HAVE NOT ANSWERED MY PREVIOUS QUESTION----DO I PARTICIPATE IN YOUR PORTFOLIOS( I RECENTLY SIGNED UP FOR THE DI PROGRAM) BUY YOUR SELECTED STOCKS/FUNDS/ETF'S ETC THRU YOU AS MANAGED ACCOUNT, OR DO I BUY THEM THRU MY BROKER? I LOOK FORWARD TO YOUR RESPONSE.-----------------RESPECTFULLY, JOHN K.
posted 3 months ago by John Kneepkens from Washington
Hi John,
You will need to use a broker. AAII is not licensed to manage money for individual investors.
-Charles
posted 3 months ago by Charles Rotblut from Illinois
With the 4 efts covering the overall market why not just go with those plus a Vangurad Reit rather than having multiple other mutual funds added to the mix? It appears the overall return would not suffer maybe be better and the overall admin costs would be less
posted 3 months ago by Charles Schweitzer from Virginia
Hi Manuel,
Here is what Jim Cloonan says:
We select funds or ETFs because the fund or the investment area it is in has a long term record of outperforming the market. Utilities do not outperform. In some cases they may be useful for dividends or diversification but don't meet the basic requirement.
-Charles
AAII
posted 2 months ago by Charles Rotblut from Illinois
Since 2003 as an individual investor I have been using ETF funds, ishares dj, sp/tsx reit, djcda sl div xdv, have been remarkably stable despite 2008 great fall, while dividend has been steady, capital gain average. For those who want passive ETF this may be a good route. I still hold them, value of initial investment was 40,000 C$.
shared in common interest.
posted 2 months ago by Vaidy Bala from
