Three Broad-Based Equity ETFs; a Solid No Manager Approach
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Exchange-traded funds, ETFs, are the purest of passive style of investing. These programs are following a blueprint and whenever the blueprint changes, the holdings of the ETFs change. Broad-based equity ETFs take out the manager and when the index is large enough in terms of stocks that comprise it, these ETFs will mimic the market in general.
When such an ETF has established a long-term track record, then the ability to use historical returns for future planning is enhanced by the use of information that has a strong likelihood, though no guarantee, of performing similarly in upcoming market conditions. This near probable benefit can assist an investor set out a path of investing that can lead to meeting future goals.
On the other side of the story, this is not a fire and forget type plan. Routine monitoring and adjusting by the investor is still required to fine tune the program and make sure it is still on track. It may makes sense to reallocate among all the asset classes by removing profits from the winners and giving these to the losers in the expectation that there day will return. When that happens, the same rebalancing can be performed and with the passage of time, the desired financial goal has a high probability of being met. Here are three broad-based equity ETFs to consider. There are more to track in this group.
The iShares Russell 3000 Index Fund (NYSEMKT: IWV) is a broad based ETF that tracks the Russell 3000 Index. This ETF was started in May of 2000 and based on the most recent reporting holds 2975 issues. The largest allocation goes to Apple Inc. (NASDAQ: APPL) this equals 4.01% of IWV. The track record on a year-over-year returns clearly shows how IWV follows the market in general. This aids in the development of the planning process and when paired with other market following ETFs that demonstrate a high degree of non-correlation, then these elements may be able to offset the down times and enhance the up times. More info on IWV can be seen here http://us.ishares.com/product_info/fund/overview/IWV.htm
The iShares NYSE Composite Index Fund (NYSEMKT: NYC) replicates the NYSE Composite Index. This index is made up of common stocks, ADRs, tracking stocks, and REITs that are listed on the NYSE. NYC was formed in Mar of 2004 and holds 1739 stocks. The largest holding is Exxon Mobil (NYSE: XOM) which makes up 2.48% of this ETF. Similar to IWV, the year-over-year returns reflects the general mood of the market. NYC does not appear to be as volatile as IWV. Full details on IWV are found here http://us.ishares.com/product_info/fund/overview/NYC.htm
The Vanguard Extended Market ETF (NYSEMKT: VXF) follows the S&P Completion Index, which tracks a combination of small-cap and mid-cap stocks. The inception date was Jan of 2002 which gives it a solid ten years of performance to study. There are 3026 stocks in this ETF and Las Vegas Sands Corp (NYSE: LVS) which represents 0.6% of the portfolio. The past returns are attractive and it appears that the high degree of diversification found in VXF has worked well to reduce the risk during down market periods. 2008 did have an impact and VXF has recovered from that period of stress. Vanguard has placed all available data on this webpage https://personal.vanguard.com/us/funds/snapshot?FundId=0965&FundIntExt=INT#hist=tab%3A0
Applying broad-based index ETFs to the investment portfolio is a prudent way to gain high degrees of diversification, market rates of returns, and the reduction of portfolio management and operational expenses. The problem with this strategy is that it is important to use ETFs that do not track each other. Otherwise the in sync with market swings may adversely affect future planning.
Jeffrey L (Jeff) Stouffer is associated with Kingsview Asset Management, LLC and manages the Alexandria Virginia office. He has earned the privilege of using the CAIA and CFP® marks and holds several FINRA licenses. As a practicing financial advisor serving the needs of individual and owners of businesses, he believes in using a wide range of strategies including alternative investments. For additional information, he can be contact via email at jeff.stouffer@kingsviewassetmanagement.com
jlstouffer has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
