Lazy Portfolio Evolves?

As our week long conversation about efficient portfolio construction progresses, it could also be thought of as a discussion about Lazy Portfolios. Yesterday I got an email informing me that RBS came out with a Trendpilot ETN for gold, symbol TBAR (IndexUniverse also had an article about it). This is the third fund in the lineup and I think there could be more coming. There is one for the S&P 500 with symbol TRND and one for the S&P 400 with symbol TRNM. I wrote about TRND and TRNM for theStreet if you want more details but basically the ETN replicates long exposure to the underlying when the underlying is above its 200 DMA and replicates t-bills when the underlying is below its 200 DMA. Before getting into strategy, these are notes issued by a bank that is 80% owned by the UK government and while I don’t think the central bank has propped them up only to later allow them to fail the facts of the issuer remain. Additionally, employing the 200 DMA strategy under the hood of the ETN is not plain vanilla, although it is plainer than if they were doing this in an ETF. That out of the way, we have been talking for the last few days about very simplistic portfolios for people just starting out (the idea being you might be a person of influence on investing in your various social or professional circles) but we could also be talking about lazy portfolios too. I’ve mentioned using the Schwab Large Cap ETF (SCHB) and the Schwab Small Cap ETF (SCHA) for certain accounts...

Lazy Portfolio Evolves?

As our week long conversation about efficient portfolio construction progresses, it could also be thought of as a discussion about Lazy Portfolios. Yesterday I got an email informing me that RBS came out with a Trendpilot ETN for gold, symbol TBAR (IndexUniverse also had an article about it). This is the third fund in the lineup and I think there could be more coming. There is one for the S&P 500 with symbol TRND and one for the S&P 400 with symbol TRNM. I wrote about TRND and TRNM for theStreet if you want more details but basically the ETN replicates long exposure to the underlying when the underlying is above its 200 DMA and replicates t-bills when the underlying is below its 200 DMA. Before getting into strategy, these are notes issued by a bank that is 80% owned by the UK government and while I don’t think the central bank has propped them up only to later allow them to fail the facts of the issuer remain. Additionally, employing the 200 DMA strategy under the hood of the ETN is not plain vanilla, although it is plainer than if they were doing this in an ETF. That out of the way, we have been talking for the last few days about very simplistic portfolios for people just starting out (the idea being you might be a person of influence on investing in your various social or professional circles) but we could also be talking about lazy portfolios too. I’ve mentioned using the Schwab Large Cap ETF (SCHB) and the Schwab Small Cap ETF (SCHA) for certain accounts...

The Right Lazy?

A reader left a comment professing a lack of comfort with country selection and wonders about the following lazy portfolio; 55% Vanguard FTSE All World Ex-US (VEU) 45% iShares Russell 3000 Index Fund (IWV) The chart compares both funds with the S&P 500 since VEU’s inception. In its short life VEU, the foreign fund, has had a 0.876 correlation to the S&P 500. In the same time period but less surprising IWV has had a 0.975 correlation to the S&P 500. Further, VEU and IWV have had 0.863 to each other. This is something I have written about many times in the past, all of the diversification benefits of the component countries gets blended away in a broad based product like VEU. I think it is clear that VEU quacks a lot like EFA. During the last slow decline, at the start of this decade, EFA offered no protection and during the next slow decline I doubt it or VEU will offer protection either. VEU will likely do better than the US market if the dollar stays weak or gets weaker but the diversification benefits seem non existent to me. IWV yields about the same as the S&P 500 and while the Vanguard website does not provide the yield for IWV it can’t be much different than EFA which ETFconnect lists at 1.8%. I am not opposed to the concept of a lazy portfolio but I don’t think all the bases can be covered with four funds, let alone two. I am not sure what the optimal number is but two ain’t it. Another reader asked if buying foreign...

The Right Lazy?

A reader left a comment professing a lack of comfort with country selection and wonders about the following lazy portfolio; 55% Vanguard FTSE All World Ex-US (VEU) 45% iShares Russell 3000 Index Fund (IWV) The chart compares both funds with the S&P 500 since VEU’s inception. In its short life VEU, the foreign fund, has had a 0.876 correlation to the S&P 500. In the same time period but less surprising IWV has had a 0.975 correlation to the S&P 500. Further, VEU and IWV have had 0.863 to each other. This is something I have written about many times in the past, all of the diversification benefits of the component countries gets blended away in a broad based product like VEU. I think it is clear that VEU quacks a lot like EFA. During the last slow decline, at the start of this decade, EFA offered no protection and during the next slow decline I doubt it or VEU will offer protection either. VEU will likely do better than the US market if the dollar stays weak or gets weaker but the diversification benefits seem non existent to me. IWV yields about the same as the S&P 500 and while the Vanguard website does not provide the yield for IWV it can’t be much different than EFA which ETFconnect lists at 1.8%. I am not opposed to the concept of a lazy portfolio but I don’t think all the bases can be covered with four funds, let alone two. I am not sure what the optimal number is but two ain’t it. Another reader asked if buying foreign...