Thirty percent of the Gone Fishing portfolio is allocated to three fixed income ETFs such as the iShares Lehman Aggregate Bond Fund (amex: IGG - news - people ), 20% to broad and regional international ETFs such as the iShares MSCI Pacific ex-Japan (amex: EPP - news - people ). Another 20% of the portfolio is allocated to U.S. equities, balanced nicely between small cap, mid-cap and mega-cap.
How has this simple and balanced portfolio done? In 2005, it was up 11.43% versus less than 5% for the S&P 500 Index--or its ETF proxy, the SPDR Trust (amex: SPY - news - people ). So far this year, it is up 8.72% versus 4.94% for the S&P 500. The key, of course, is to have the right blend of ETFs so that the duds are likely to be offset by the sectors that are on fire--the whole idea behind asset allocation and portfolio diversification.
ETFs present investors with the best tools to build a “Gone Fishing” type of portfolio, because they are low cost and tax efficient. The weighted annual fee for the portfolio is 0.58% and there have been no capital gains distributions for the iShares family of ETFs during the past four years.
But for those adventuresome souls who yearn for the thrill and profits of chasing higher returns with commensurate risk, ETFs are also a good tool. Country-specific ETFs often are highly concentrated due to market cap weighting, and the ETF sector funds offer interesting but tricky opportunities as well. ETFs can also be shorted, and for many of them options are available.
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A lot of action has been happening south of the border for adventurous investors. The iShares MSCI Brazil Index (amex: EWZ - news - people ) is up 99% in the past year, while the broader iShares S&P Latin America 40 Index (amex: ILF - news - people ) is up a more modest--but still eye-popping--85%! These returns do not come without added volatility, however. You have to be willing to stomach periodic pullbacks of 10% to 15%--and the queasy feeling as you wonder if the next drop will develop into a bigger slide.
Chartwell’s Focused Global ETF service and portfolio contains a more limited number of ETFs and closed-end funds and does not shy away from risk. The Thai Capital Fund (amex: TF - news - people ) and the Indonesia Fund (amex: IF - news - people ) are two current holdings, and the portfolio is up 23.5% this year, beating the S&P 500 index by nearly a five-to-one margin.
Whether you are a “Gone Fishing” investor or more aggressive and trading oriented, ETFs should be in your investment tool box and can nicely complement stock and mutual fund holdings. Make sure that you allocate most of your portfolio to a diversified conservative portfolio, so that you protect your capital and will always have the time to fish all day long!
Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. |
