What we're looking at
Most investors who use exchange-traded funds build their portfolios fund by fund. It's not widely known, but you can also buy ready-made ETF portfolios in a single fund. In the mutual fund world, this type of product is known as a wrap.
We've isolated six ETF portfolios from the close to 300 ETFs listed on the Toronto Stock Exchange, all of them offered by the iShares family. Note that the two CorePortfolio products on our list were originated by Claymore Investments, which has recently been absorbed into the iShares family.
What we found
Very promising returns that are being enjoyed by a strikingly small number of investors. Check out the asset levels for these products - aside from the iShares Balanced Income CorePortfolio, they're all pint-size players that haven't enjoyed anything close to the massive success of mutual fund wraps.
CBD offers a good working example of how an ETF wrap works. It holds 15 component funds, the largest of which are the iShares 1-5 Year Laddered Government Bond Index Fund (CLF) and the iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (CDZ). Other components cover off U.S. dividend stocks, global stocks, real estate and preferred shares.
CBD is classified as a Canadian neutral balanced fund, where it goes up against some giant-sized competitors from the big banks and mutual fund companies like Manulife and Fidelity. Returns for CBD over the past three years are good enough to put it in the first quartile, which is elite territory. Quartiles divide funds in a category into four groups by performance - one is best and fourth is worst.
Note that the cost of owning ETF wrap products is roughly 0.20 of a percentage point higher than if you bought the ETFs they hold individually. That seems a reasonable value for a fully assembled and continually monitored portfolio, particularly in comparison to the far pricier wraps in the mutual fund universe.
PORTFOLIO IN A BOX, ETF-STYLE
|Fund||Asset class||Ticker||Assets ($ mil.)||MER %||YTD return through March 30||Three-year return to Feb. 29||3-year quartile|
|iShares Balanced Income CorePortfolio||Canadian Neutral Balanced||CBD-T||$42.7||0.71||3.4||15.9||1|
|iShares Alternatives Completion Portfolio Builder||Miscellaneous - Other||XAL-T||$14.2||0.71||4.7||16.3||1|
|iShares Balanced Growth CorePortfolio||Global Equity Balanced||CBN-T||$14.1||0.84||8.1||15.7||1|
|iShares Conservative Core Portfolio Builder||Global Fixed Income Balanced||XCR-T||$12.6||0.61||1.0||9.9||3|
|iShares Growth Core Portfolio Builder||Global Neutral Balanced||XGR-T||$11.0||0.61||2.8||13.7||2|
|iShares Global Completion Portfolio Builder||Miscellaneous - Other||XGC-T||$6.3||0.72||4.9||15.6||1|
|Source: Globeinvestor.com, ETF company websites|
© 2007 The Globe and Mail. All rights reserved.
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