This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

An El-Erian Fund for the Masses Using ETFs

Stocks in this article: PBP IJR DOL

Mohamed El-Erian has quickly become an investment guru.

El-Erian, the CEO of Pimco, the world's largest bond-fund manager, has interesting ideas about portfolio construction and the evolution of diversification. He devotes a large portion of his latest book, "When Markets Collide," to a new type of portfolio. I will now explore some simple choices that fit in with El-Erian's concept.

Here's the breakdown:

Foreign Developed
Emerging Market
Private Equity
Real Assets
Real Estate
Special Opportunities

For the domestic equity allocation, 10% goes to PowerShares S&P 500 Buy Write Portfolio (PBP). The track record of the buy write index has been to outperform the S&P 500 over the entire stock-market cycle, only lagging when the market rallies, as it did in 2003. iShares S&P 600 Small Cap ETF (IJR) would take the other 5% in domestic equities. In the early stage of a stock-market cycle, small-cap stocks tend to outperform large caps. IJR helps capture that effect.

Many investors use iShares MSCI EAFE ETF (EFA) for developed country equities, but it is heavy in Japan, at 25%, so I prefer 10% be allocated to WisdomTree International Large Cap Dividend ETF (DOL), which only puts 9.7% in Japan. There is now a choice among foreign small caps. The SPDR S&P International Small Cap Index Fund (GWX) is lighter in financials than similar funds and gets the other 5% in this category.

In emerging markets, I use the PowerShares BLDRS Emerging Market 50 Index Fund (ADRE). Interestingly, small-cap emerging markets ETFs don't do any better than large-caps.

El-Erian likes private equity. Because no ETF can mimic that category adequately, I omitted it from the portfolio. El-Erian recently said this might be the most difficult part of the market for do-it-yourselfers to access.

The ETF industry has been creating more fixed-income choices, which is a boon for investors. For domestic bonds, I would suggest 6% to iShares Barclays 1-3 Year Treasury Bond ETF (SHY) and 3% to iShares Barclays Agency Fund (AGZ). The yields are lousy (about 2% and 2.5%, respectively) but if yields rise, longer-dated bonds and bond funds will tumble. Anyone so inclined could buy individual fixed-income issues. The 15% target for foreign bonds could be easily captured with iShares S&P Citigroup International Treasury (IGOV). SPDR has a similar product, but it has emerging market exposure, whereas IGOV does not.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs