Model Mutual Fund and ETF Portfolios: Choosing a Benchmark Isn't Easy
Through March, the 2012 equity market has been a friendlier place than we have seen for a while.
The S&P 500 index was up 12.5%, as measured by the Vanguard S&P 500 Index fund (VFINX). This is somewhat better than our Model Mutual Fund Portfolio at 10.0% and our portfolio of exchange-traded funds , the Model ETF Portfolio, at 10.9%. Tables 1 and 2 show the longer-term performance of the Model Mutual Fund Portfolio, and Tables 3 and 4 show the history of the Model ETF Portfolio.
In this article
- Performance Comparisons
- Portfolio Changes and News
- Looking Ahead
- ETFs: A New Look
- Model ETF Portfolio: Selection Rationale
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It has been brought to our attention that we have used the term “benchmark” incorrectly in relation to the Vanguard S&P 500 Index fund, the SPDR S&P 500 Index ETF (SPY) and the iShares MSCI EAFE Index ETF (EFA). These index funds are based on giant capitalization and moderate value equity holdings, and most of the holdings of both model portfolios are not in this subcategory. A benchmark should show the average performance of all portfolios following the same approach as the portfolio being evaluated. Therefore, we will use the term “comparisons” for these index funds going forward.
VFINX, SPY and EFA are funds based on what most people consider the overall equity market here and abroad to be valid bases for comparison, if not for fund evaluation. Since they are capitalization-weighted, they represent the average performance of all portfolios. In addition, when evaluating a portfolio of funds, should the composite fund get credit or blame for both the selection of equity subcategories as well as the specific funds within each subcategory? The subcategory weightings are not static, and the portfolio’s ultimate performance is an ever-changing combination of subcategory weightings and specific fund selection.
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