Websites & Suggestions for ETFs

[no_free_lunch]

I am looking to get a lot more passive with my investing.  While I love the game, I simply can't justify the amount of time I have to put in to beat the market.  I am thinking of just putting everything into ETF's and being done with it.

 

That being said, even investing in ETFs I don't want to be completely passive.  I have seen the Horizon Kinetic comments on potential dangers of ETFs and would like to keep a bit of a pulse on things.  Does anyone have any recommendations on good resources, something comparable to this site, but with an emphasis on ETF's?

 

[EliG]

ETF.com and Morningstar for ETF research and reference materials.

 

Bogleheads forum for community discussions. Just be aware of a strong Vanguard bias.

[Packer16]

A good compromise (in my opinion) is to be passive with a small cap value tilt.  There are a number of good posts over at Bogleheads on this and an author and contributor named Larry Swedroe has written about this approach.  Larry Ritholz at Bloomberg recently had a good podcast conversation with him which gives the perspective he is coming from.

 

Packer

[no_free_lunch]

Thanks Eli, Packer.

[no_free_lunch]

I bought into the ishares small cap index today (xcs.to).  It is down over 25% from where it started in 2008.  It looks like it is actually cheaper based on P/B, P/E, dividend yield than the larger TSX ETF's.  For comparison, the dividend yield is around 3%, while the Russel 2000 is at 1.3%.  There is about 15% exposure to oil so it is not completely oil driven but no doubt a knock-on effect will occur in the canadian economy if oil prices stay subdued.    I am hoping in the long run it will do well.

[Guest]

A couple more to check out:

 

RSP, GVAL, and QVAL. The latter two are new though. Not much of a track record there.

[no_free_lunch]

RSP is a good pick, it's just not very cheap at the moment. 

 

I have been thinking of GVAL, just haven't been able to pull the trigger.

[innerscorecard]

Honestly, with what you've posted in this thread, it seems that you're trying to market-time and exercise judgment with ETFs. If you do so, you're not passively investing at all. Prudent passive investing is about your behavior, not the vehicle. This is why investors' returns lag their funds' returns.

 

If you want to be a passive investor, you need to stick to a set schedule and a fixed asset allocation and be disciplined. This is simple but not easy.

[EliG]

+1 to innerscorecard.

 

I wouldn't touch XCS.TO with a ten-foot pole. 28.5% materials. 15.7% energy. 44% total in Canadian resource small-caps. You are making an active bet on commodities via junky small-caps. This is not passive investing.

 

 

[no_free_lunch]

I guess I am just trying to move my value investing from stocks to ETFs.  I figure that if value investing works at all (I believe it does) then why can't I apply it to ETF's.  So to apply it to ETF's I look for what is out of favour and cheap.  Throw in the small-cap phenomenon which has substantial data behind it and you get indexes like XCS.  I found some data on small cap canadian companies goig back to late 80's and they have actually had decent results.  Even in the 90's the stocks did well and that was not the best time for commodities.  This is not some index which is going to 0 unless the Canadian economy goes bust.  If that happens, even the larger more established indexes will get cracked as well when the pain hits the banks.

[no_free_lunch]

Also, isn't a fixed asset allocation kind of market timing as well?  I mean you are talking about moving funds from 1 ETF to another, from the ETF that has gone up to the ETF that has gone down.  So that implies that the ETF which has gone down is a better deal than the one that has gone up.  So once your accept that, why not just buy cheaper ETF's to begin with.

 

I think the main poitn you have regarding passive investing is you need to stay fully invested.  I will agree to that.

[AzCactus]

I know this answer deviates a bit from your question, but I would just put any passive money into VFINX 7 bp add a little every month and watch it grow. To the extent you want to be active have some portion of invest-able assets separate. 

[no_free_lunch]

I am currently thinking of investing in UK ETF's.  EWU (UK Ishares) is selling for 14x earnings, and is down about 12% from January.  EWU is generally a bit more conservative with sector weightings but does have a high energy component at 15%. 

 

I am also thinking about EWUS (UK SmallCap Ishares), not quite as cheap but geared towards high-growth areas like industrial, tech, consumer cyclical.  Kind of the opposite of EWU in some senses.  I like that it has a 15 PE.  This seems really cheap for a small-cap index. 

 

On a more general note, the UK indices have done fairly well over the past 110 years.  The numbers were comparable but slightly below US indices performance over the same period.

 

There is a currency issue to consider and hedging the currency isn't something I want to do.  The GPB is down considerably from the 2006-2007 highs, not sure if that means anything or not but currencies are supposed to mean-revert.  I will probably just risk it on the currency.

[petec]

My approach would be to choose a broad market etf (e.g. VT) and invest 90% of whatever you save in it on a monthly or quarterly basis, without fail.

 

I would leave the remainder in cash and have a rule that you use it to buy more whenever the market has fallen xx%.  You'd need to do some research and decide where you are comfortable setting this rule.  E.g. if you are trying to take advantage of corrections every couple of years then -15% might work for you, but if you're trying to take advantage of crashes every 10 years then you might choose -40% or whatever.

 

That allows you to be passive and value oriented without spending a lot of time on research.  Frankly, and don't take this as rude because it is just an observation from your posts, everything else you've suggested here looks more like oversimplification than value investing to me.  You can't tell if an etf is cheap without analysing every component of it, so you're better off analysing stocks. 

 

The other option would be to choose an active value fund run by someone with an epic record.

 

P

[no_free_lunch]

Pete,

 

Thanks and I do get your point but I disagree.  I inevitably am going to come across as defensive but nevertheless here is my position.  First, I think that even when evaluating individual stocks, people oversimplify.  There is no way that anyone really understands what is happening in AIG or BAC.  When I read the arguments for the stocks on this board, these types of stocks are basically reversion to mean arguments, so why not apply that to ETF's as well?  If AIG/BAC can revert to mean why can't an entire stock market?  There is actually ample evidence that while the PE's will bounce around, they do mean-revert.  Secondly, if you look at multi-decade performances of markets, it is not all the same.  Some markets underperform significantly over these long time periods.  The markets that underperform extendedly have some serious issue, generally corruption.  For instance, apparently the chinese index has had almost no inflation adjusted stock market returns over the past 21 years despite the GDP growing 8x.  Why would I want to invest in something like that?  Why wouldn't I limit myself to markets that have stronger rule of law and actual histories of rewarding investors?  I think if I can combine these 2 factors I will do ok.

[petec]

Pete,

 

Thanks and I do get your point but I disagree.  I inevitably am going to come across as defensive but nevertheless here is my position.  First, I think that even when evaluating individual stocks, people oversimplify.  There is no way that anyone really understands what is happening in AIG or BAC.  When I read the arguments for the stocks on this board, these types of stocks are basically reversion to mean arguments, so why not apply that to ETF's as well?  If AIG/BAC can revert to mean why can't an entire stock market?  There is actually ample evidence that while the PE's will bounce around, they do mean-revert.  Secondly, if you look at multi-decade performances of markets, it is not all the same.  Some markets underperform significantly over these long time periods.  The markets that underperform extendedly have some serious issue, generally corruption.  For instance, apparently the chinese index has had almost no inflation adjusted stock market returns over the past 21 years despite the GDP growing 8x.  Why would I want to invest in something like that?  Why wouldn't I limit myself to markets that have stronger rule of law and actual histories of rewarding investors?  I think if I can combine these 2 factors I will do ok.

 

I don't disagree with any of this - I suspect that your posts are merely the tip of the iceberg in terms of your knowledge and that gave me the impression of oversimplification.

 

In a way I have a similar method, in that I have a long list of stocks that pass two or three key criteria (have been around for decades, have decades of slow growth potential, generate high roic and fcf) and I add to these when the market and the stocks look cheap.  I guess I'm kind of making my own etf, while becoming more or less aggressive depending on mean reversion in margins and valuations.  So, in a way, quite similar.

 

Once I have decided the stocks meet my criteria I barely analyse them again.

 

What I would add is that if you're a mean reversion man, now's not the time to be investing ;)

 

The data seems to show a -ve correlation between gdp growth and stock market returns which is interesting (though I suspect the data is at least mildly flawed).  However, in a broad ETF like VT, the consistent underperformers are by definition small components given that the indices are market cap weighted.  VT is very US-dominated.

[no_free_lunch]

I think it is interesting that the comments have generally advocated a very broad-based ETF and to not try to improve upon that.  I will admit that I should probably listen to the board when there is that kind of consensus.

 

However, I am not quite ready to give up.  Does it change things if I say I need to/want to achieve a certain level of 10-year performance?  I really need 4-5% real returns for a decade, beyond that whether I beat or lag the actual S&P or any other benchmark is kind of irrelevant to me.  So when I look at something like VT and what the PE is on it, I do kind of wonder if it will do 4-5% real over the next decade.  You have a lot of folks saying that we could have another dead decade for stocks which is what I am trying to avoid. 

 

I am not trying to completely avoid analysis but I am kind of in an uncomfortable situation where I am looking for returns, hence individual stock selections but my AUM is sufficiently high that I am not going to go 20% on a position, and even 10% is frankly just scary.  So I end up with 15-20 positions which starts to create a mountain of research work.  What is motivating all of this is that I am just trying to find some kind of balance between tracking/finding such a large collection and just giving up and buying an ETF.

 

So maybe etf selection isn't the way to go.  Maybe a better way to phrase the question is, are there any suggestions on a strategy that has a chance to achieve these conservative 4-5% real returns without being too active of an investor?  It could be following some type of newsletter where there is good reason to expect it will beat an index or at least avoid calamities, an ETF such as MOAT which tends to be more concentrated and has a value style, blindly building a pool based on value-investor picks, you name it.  Has anybody else solved this problem?  I kind of feel like I am looking for the holy grail.

[thepupil]

Maybe a better way to phrase the question is, are there any suggestions on a strategy that has a chance to achieve these conservative 4-5% real returns without being too active of an investor?    I kind of feel like I am looking for the holy grail.

 

unfortunately, there is no free lunch.

[AzCactus]

 

So maybe etf selection isn't the way to go.  Maybe a better way to phrase the question is, are there any suggestions on a strategy that has a chance to achieve these conservative 4-5% real returns without being too active of an investor?  It could be following some type of newsletter where there is good reason to expect it will beat an index or at least avoid calamities, an ETF such as MOAT which tends to be more concentrated and has a value style, blindly building a pool based on value-investor picks, you name it.  Has anybody else solved this problem?  I kind of feel like I am looking for the holy grail.

 

I can not speak for anyone else here but a 4%-5% real return is pretty much a 6%-7% return (assuming inflation is 2%).  I think the issue is that you are proposing this question when stocks are basically at an all time high.  So if the S&P returned say 6.5% for the next decade it would be at 3848 (or nearly double where it sits today).  I am unaware of a ETF that will achieve the suggested returns above without being active at all. 

 

If you have a significant AUM (as is suggested by your post) than you might want to consider having your money handled by a value investor who did well in 2008.

 

Best of luck to you.

 

David 

[CorpRaider]

Check these out: RPV, FNDB (VLUE if you want larger cap lower vol and fees), VIG, SCHD, QVAL, DVP.

 

Happy discuss further if interested.