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Great Exchange-Traded Funds (according to Smart Money)
By JLP | February 20, 2007
There’s an article over on Smart Money titled Seven Great ETFs. Their list:
Large Company
Rydex S&P Equal Weight (RSP)
iShares Russell 1000 Growth (IWF) – picked because the article’s author thinks that growth is the place to be.
Midsize Company
Midcap SPDRS (MDY)
Vanguard Midcap (VO)
Small Company
iShares Russell 2000 Value (IWN)
Multicap
Vanguard Total Stock Market (VTI)
International
iShares MSCI EAFE (EFA)
It looks like a pretty good list to me. However, I’m a little surprised they chose the iSharesRussell 1000 Growth fund. It has underperformed significantly over the last 5 years, as the graphic below illustrates:
I realize that value and growth tend to rotate in and out of favor. However, it seems like a better way might be to just purchase the iShares Russell 1000 fund (IWB). I don’t have a problem with iShares Russell 2000 Value fund because small cap value always seems to do better than small cap growth (there’s a theory behind it that I’ll try to write about in the future).
Topics: Exchange-Traded Funds, Investing | 4 Comments »
February 20th, 2007 at 5:54 pm
I think the reason to buy both growth and value instead of one combined fund is that you can rebalance between the funds.
February 20th, 2007 at 6:11 pm
See, “numbered” title grabs attention!
February 20th, 2007 at 6:24 pm
The author is making a mid-range bet on growth. He looks at the past history, sees it has underperformed blend/value the past 5 years and thinks it’ll switch around soon.
And yet although the author thinks growth is set to outperform, Rydex Equal Weight S&P is the other choice for large cap. A typical S&P blend fund buys by market weight which means you have end up owning more stocks at their highs. Buying in at equal weight tilts it toward the value range.
In summary, there’s really no rhyme or reason to these picks. The author is trying to market time with a pick but then chooses another ETF opposite of the growth prediction.
Now there’s nothing wrong with the individual ETFs themselves but they should be viewed in terms of overall asset allocation and not just random “great” labels.
February 21st, 2007 at 12:28 pm
Can you add the expense ratios to the chart? All of these are fairly low, but you’d be surprised at what some of the newer ETFs cost. Heck, even 0.4% (RSP) seems expensive to me for an ETF.
Also – are dividends generally included in growth vs. value comparisons? If not, that can be a pretty significant difference over the long run.