‘Other Assets’ – 10% allocation.
How does an Individual Investor sort through and select from the multitude of Exchange Traded Funds (ETFs)?
Previously we used ETF screening tools and selection criteria to select REIT, EAFE & EM, U.S., Global and Canadian Equity and Bond ETF(s). Again, our aim is to build an ETF portfolio that resembles the PIAC average Pension Plan asset allocation. Using PIAC as a reference portfolio, there is ~10% allocated toward ‘Other’ assets or ‘Alternatives’. Here an Investor can add complementary exposure to the portfolio’s core. Investors may have a favourite stock or active / specialty investment manager in mind for small cap, or a particular sectors’ exposure or maybe something more exotic. Investors that want to stick with ETFs, however, can still use the ETF screening tools.
Alternatives Allocation – 10%.
|ASSET MIX of PLANS at DEC 31, 2010||PIAC Allocation||ETF options include||Simplified allocation|
|CANADIAN BONDS||26.20%||XBB, XSB||30%|
|REAL RETURN BONDS||4.58%|
|REAL ESTATE||8.86%||XRE ZRE VNQ||10%|
|V.C. / PRIVATE EQUITY||7.24%|
Using the TMX ETF screener, select Commodity & Currency & Other (Asset Class), All (Region), All (Style), All (Size), All (Sector) and All (Issuer). De-select Leveraged, Inverse, Advisor-class and ETN.
There are 37 Canadian ‘Alternatives’ ETFs. Further sort by Issuer to refine the search.
One exotic option might be the iShares ‘Alternatives Completion Portfolio Builder Fund’ (XAL) for an all-in-one complimentary exposure to the portfolios core. (Personally, I’d like to see less REIT and more Commodity exposure … but the allocations change over time as Blackrock makes periodic active calls). Claymore Broad Commodity ETF (CBR) is interesting but flawed. It doesn’t meet criteria as it breaks the ‘simplicity’ constraint. Horizons ETFs are excluded for the same reason.
There you have it. ETF screening tools are far from perfect but they can help to make the ETF sorting process more manageable.ETF Screening Tools: TMX Bloomberg IndexUniverse Next time? Back to Risk Management. Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan