Equal-Weighted ETF Helps Boost Model Fund Portfolio Return

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.

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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