One way I keep pace with the industry is by seeing how much it costs to create a model, balanced portfolio using the cheapest available ETFs. I use a sample allocation that might fit an aggressive younger investor with a long time horizon:
- 40% Broad Market U.S. equities
- 35% Foreign Equities
- 15% Fixed-Income (broadly diversified)
- 5% REITs
- 5% Commodities
You could quibble with the weights, choices and omissions, but at least it's in the vicinity.*
Right now, that portfolio can be bought with a blended expense ratio of 0.16%. Sixteen basis points!
Five years ago … heck, two years ago … you’d be looking at a multiple of that.
And that doesn’t even go down the path of all the interesting things you can layer on top. I find the hedge fund like products, such as the DB currency fund and the BuyWrite ETN, very interesting, as they open up new areas of the market to all investors. And the various strategy, sector and style funds work for folks, as well.
This is not a recommendation, either of the weights or the underlying ETFs. It's just a way to gauge the market. But it does show how far we've come. In a time when the average active fund investor is paying 1% or more per year, plus loads, for sub-par performance, balanced exposure at 0.16% looks pretty good.
If CalPERS is taking hedgies out, ETFs may be coming back in.
‘Smart beta’ almost surely means loss of more market share for active managers.
Be careful of your assumptions (and headlines!) about volatility ETFs.
WBIG hedges in some areas and bets big in others.