ETFs for the Lazy
Here are the holdings and their weights:
- WisdomTree Total Earnings ETF (EXT): 20%
- Rydex S&P Small Cap 600 Pure Value (RZV): 10%
- WisdomTree Pacific Ex-Japan High-Yielding Equity Fund (DNH): 15%
- Claymore BNY BRIC ETF (EEB): 5%
- iShares S&P Global Energy Index Fund (IXC): 5%
- PowerShares Water Portfolio (PHO): 5%
- SPDR DJ Wilshire International Real Estate (RWX): 5%
- PowerShares DB Gold (DGL): 5%
- PowerShares Financial Preferred (PGF): 20%
- Advent Claymore Convertible Bond Fund (AVK): 5%
- Rydex CurrencyShares Australia (FXA): 5%
EXT fills the role of a "total U.S. market" fund in that it is a broad-based domestic fund, so it can be the core U.S.-based fund for a portfolio. The back-test on it covers almost five years, and in that time it beat the Russell 3000 by an average annualized 1.93%. The reason for that outperformance is that EXT, an earnings-based fund, does not tilt as heavily to value as the dividend funds.
Small-cap value over extremely long periods of time has been the best-performing "style box," which is why I chose a value fund for my lazy portfolio rather than something broader. RZV is very thinly traded, but its results stand up very well and any individual investor wanting a small-cap value product should take a look at this one.
I am not a fan of EAFE-based products; they are heavy in Western Europe and Japan. As I wrote last month, these regions didn't provide much diversification during the last bear market and I don't expect them to do so in the future. Australia, on the other hand, by virtue of its commodity-based economy, does offer the potential for good bear-market diversification from the U.S. DNH is 88% Australia and offers a yield better than 4%.For emerging-market exposure, the Claymore BRIC ETF is compelling. It has dramatically outperformed the better-known iShares MSCI Emerging Market Fund (EEM) since EEB's listing last fall. The nature of the BRIC -- that's Brazil, Russia, India and China -- economies is such that EEB has less technology exposure and more materials exposure, which I believe will mean EEB continues to outperform.
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