Table 1. Model ETF Portfolio
ETF (Ticker) Weight
in
Portfolio
(%)
YTD
Return
(%)
1-Year
Annual
Return
(%)
Annualized
Return
Since
3/31/2006
First Trust Dow Jones Select MicroCap Index (FDM) 16 1.4 12.2 3.9
PowerShares FTSE RAFI US 1000 (PRF) 16 7.1 14.8 13.6
Rydex S&P MidCap 400 Pure Value (RFV) 16 2.3 12.7 9.2
Rydex S&P SmallCap 600 Pure Value (RZV) 16 -8.5 1.3 -1.8
iShares Cohen & Steers Realty (ICF) 16 -5.0 5.1 9.1
SPDR S&P International Small Cap (GWX)* 5 na na na
SPDR DJ Wilshire International Real Estate (RWX)* 5 3 3 na
Vanguard FTSE All-World Ex-U.S.(VEU)* 5 na na na
Vanguard Emerging Markets (VWO) 5 35 58.3 33.1
Average of ETFs**   5 15.3 10.9
Actual Portfolio Return***   1.3 11.6 8.6
Optional Investment:
iShares Lehman 1-3 Year Treasury Bond (SHY)   4.8 5.7 5.2
Benchmarks:
iShares D.J. U.S. Total Market Index (IYY)   9.4 16.9 13.1
*Funds have not been existence long enough for certain performance numbers to be calculated.
**All funds are equally weighted in performance calculation.
***Performance of actual portfolio since inception including reinvested dividends.
Sources: Yahoo! Finance and Morningstar Principia. Data as of 9/30/2007.


ETF Descriptions

U.S. Domestic ETF Holdings

  • First Trust Dow Jones Select MicroCap Index Fund (FDM): Stocks are selected from the universe of micro-cap stocks (defined as the cap of the lowest two deciles of the NYSE) based on a combination of value and growth factors. The weighting of each stock is based on a modified market cap. It uses the shares in the float (as defined by the fund) rather than total shares to determine the market cap.
  • PowerShares FTSE RAFI US 1000 Portfolio (PRF): This index selects the top 1,000 stocks by market cap, but weights them on proprietary fundamental factors rather than market cap.
  • Rydex S&P MidCap 400 Pure Value (RFV): Stocks for this index are selected from the S&P MidCap 400 based on a number of value criteria.
  • Rydex S&P SmallCap 600 Pure Value (RZV): Stocks are selected from the S&P SmallCap 600 based on a number of value criteria.
  • iShares Cohen & Steers Realty Majors Index Fund (ICF): I feel this is the best REIT exchange-traded fund at this time, but wish it contained more smaller REITs and was not market-cap-weighted.

International ETF Holdings

  • SDPR S&P Int'l Small Cap (GWX): An index of small-cap (market cap under $2 billion) stocks of developed nations, and capitalization weighted.
  • SDPR DJ Wilshire Int'l Real Estate (RWX): Basically an index of non-U.S. REITs and other foreign real estate holdings.
  • Vanguard FTSE All-World Ex-U.S. (VEU): A cap-weighted index of the equities of 47 countries.
  • Vanguard Emerging Markets (VWO): Focuses on emerging markets and follows the MSCI emerging markets index.

Optional ETF Holding

  • iShares Lehman 1-3 Year Treasury Bond (SHY): Use of this exchange-traded fund as a way of controlling portfolio risk shows my preference for the low-risk element to be as low risk as possible. With a three-year investment horizon, this exchange-traded fund has virtually no risk.

Updates for the ETF Portfolio will appear in the May and November issues of the AAII Journal. See the ETF Portfolio area of AAII.com for more information.