Model Mutual Fund and ETF Portfolios: Combined Update, Different Strategies
As promised in my May column, both the Model Mutual Fund Portfolio and the Model Exchange-Traded Fund ETF Portfolio will be covered four times a year from now on. They both will be covered each March, May, August and November. Of course any changes will also be reported on AAII.com.
The two portfolios will be treated separately—not combined into one overall portfolio—although members can certainly choose investments from either or both. It seems an excellent time to emphasize the difference between the approach taken in the Model ETF Portfolio and that taken in the Model Mutual Fund Portfolio.
In this article
- Comparing the Two Portfolios
- The Model Mutual Fund Portfolio
- Model ETF Portfolio
- Looking Ahead
- Model Mutual Fund Portfolio: Selection Rules
Share this article
Comparing the Two Portfolios
In the Mutual Fund Portfolio, the emphasis has been finding funds that meet the criteria, regardless of what specific area of investment they are in. The portfolio only invests in U.S. general equity funds, although a slight exception is made this month. Diversification across different sub-areas is only a secondary consideration, such as value versus growth or capitalization size.
I feel this is the appropriate approach because mutual fund managers have a great deal of discretion, and mutual funds are not always defined by the classification given to them by analysts. To some degree managers are free to time the market and vary their strategy over time. The objective is not to try to select the funds that have had the best performance over recent years (the hot funds), since the highest short-term performance usually comes from an approach that will not be best in future market scenarios, but to select funds that are likely to do better over the long run than the market, absolutely and relative to the level of risk, under all market conditions.
To read more, please become an AAII member or CLICK HERE.