Model ETF Portfolio Versus Benchmark: More Diversification, Similar Returns

The Model Exchange-Traded Fund (ETF) Portfolio is now five years old.

The portfolio’s performance has been very close to that of our benchmark, although we have done somewhat better since we filled out our holdings three years ago.

It is worthwhile to note that we have an 18% commitment to real estate while our benchmarks do not. Without real estate our returns would have been higher, but I feel that real estate is an essential part of an investment portfolio. It is unfortunate to have a 75% pullback during a short five-year holding period, but real estate’s previous performance, as well as its recovery from its low, support the desirability of its place in a long-term portfolio.

Change in Review Schedule

Though the Model ETF and Model Mutual Fund Portfolios are kept up to date monthly at AAII.com, a number of members suggested that it would be helpful to cover them more frequently in the AAII Journal.

Consequently, we have decided to review both the ETF and mutual fund model portfolios in the AAII Journal four times a year.

My Model Portfolios column in the August 2011 issue will be the first to discuss both portfolios in conjunction; subsequently, every March, May, August and November column will review both portfolios together. We will alternate printing the rules for the portfolios in these issues, but updated rules for both the Model ETF and Model Mutual Fund Portfolios are always available on our website at AAII.com. We hope this will be of help to all of our members who follow these model portfolios.

Looking Ahead

The market continues to vacillate within a fairly narrow range but maintains a positive trend.

As I mentioned previously, the emphasis on reducing government spending by both parties in Congress may offset the usual pre-presidential election programs that have made the third year in the election cycle a bullish one.

We will review the Model ETF Portfolio in August in conjunction with the Model Mutual Fund Portfolio, under the new schedule. In the meantime you can follow it here.