Invest in funds that hold other funds.
Exchange-traded funds have sucked up trillions of dollars in assets because of the simplicity they provide investors. With a single press of the “buy” button, you can gain exposure to thousands of stocks or hundreds of bonds, or track gold bullion, or invest in oil futures. But a few ETFs take things a step further. So-called “funds of funds” are funds that hold a number of funds to provide an all-in-one portfolio and in some cases shift around weights to adapt to different types of market environments.
First Trust Multi-Asset Diversified Income Index Fund (ticker: MDIV)
MDIV only holds one ETF, so it’s something of an aberration. However, it’s the market’s largest multi-asset ETF — a fund that invests in several asset classes, which is a popular place to find funds of funds — and it’s also typical of the class in that it focuses on high yield. The lone ETF holding is the Tactical High Yield ETF (HYLS), which provides all of MDIV’s junk bond exposure at 20 percent. Four other classes — real estate investment trusts, preferred stocks, master limited partnerships and equities — also are held at 20 percent apiece and combine for a 6.2 percent SEC yield.
Expenses: 0.68 percent, or $68 annually on every $10,000 invested
SPDR SSgA Income Allocation ETF (INKM)
The INKM is a more faithful representation of the “fund of funds” concept, with all but just more than 2 percent of the fund invested in a number of SPDR ETFs dedicated to yield. And you get almost everything in this fund, from REITs (RWR) to corporate bonds (LWC) to Treasury Inflation-Protected Securities (IPE). The SPDR S&P Dividend ETF (SDY), at 13.7 percent, is INKM’s largest holding and is part of a 30 percent equity exposure. Corporates are another 30 percent, and most of the rest is dedicated to high yield, hybrids and global real estate. INKM’s yield is more subdued, though, at 3.1 percent.
Expenses: 0.7 percent
Global X JPMorgan Efficiente Index ETF (EFFE)
You don’t have to target yield with multi-asset strategies, however. The EFFE instead aims to avoid the market portfolio, targeting 10 percent annualized volatility, “nearly half the long-term volatility of the U.S. volatility market,” according to the fund’s description. And EFFE’s underlying index currently boasts a beta of just less than 0.3. It does this by investing in just six ETFs currently, led by the Vanguard REIT ETF (VNQ) and iShares 20+ Year Treasury Bond ETF (TLT). It also invests in emerging-market bonds (EMB), investment-grade debt (LQD), gold (PHAU) and TIPS (IPE).
Expenses: 0.84 percent
iShares Core Conservative Allocation ETF (AOK)
iShares offers a few funds of funds that cater to a number of risk appetites, including the AOK — an ETF portfolio designed for more risk-averse investors that uses a roughly 70-30 split of fixed income to equity. The iShares Core Total USD Bond Market ETF (IUSB) provides the lion’s share of the fixed income exposure at more than 34 percent, and the iShares Core S&P 500 ETF (IVV), at 15 percent, is the largest equity holding. American assets are weighted at just 65 percent overall, so you get a little global exposure, too. All told, AOK is just 10 ETFs, a money market fund and a little cash.
Expenses: 0.24 percent
iShares Core Aggressive Allocation ETF (AOA)
Investors looking for the other side of the risk spectrum would be better off considering the AOA, which tips the scales heavily in favor of equity holdings (81 percent). Here, the IVV is the top holding, at 38 percent of the fund, and international equity shines via the iShares Core MSCI Europe ETF (IEUR) and iShares Core MSCI Pacific ETF (IPAC), at about 17 percent and 13 percent, respectively. There is some bond exposure via IUSG and a couple other funds, but overall this is a play on the relatively riskier yet higher-upside world of stocks.
Expenses: 0.2 percent
First Trust Dorsey Wright Dynamic Focus 5 ETF (FVC)
While EFFE and iShares’ core allocation funds are pretty concentrated, it doesn’t get much tighter than the FVC, which invests in just five ETFs at any given time. This is all part of a strategy that uses momentum to determine sector rotation and risk management; FVC uses its methodology to evaluate First Trust sector and industry ETFs twice a month, and then rebalances when funds fall out of and climb into the top five rankings. FVC is more or less evenly split among internet (FDN), energy (FXN), discretionary (FXD), staples (FXG) and utilities (FXU) stocks at the moment. FVC also can rotate in cash.
Expenses: 0.79 percent
Cambria Global Asset Allocation ETF (GAA)
GAA is one of a few ways to invest globally via ETFs. This Cambria fund tackles the U.S., developed international markets and emerging markets across 28 holdings from a number of providers. Top three holdings Cambria Emerging Shareholder Yield ETF (EYLD), Vanguard Total Bond Market ETF (BND) and PowerShares DB Optimum Yield Diversified Commodity Strategy Portfolio (PDBC) demonstrate the fund’s provider diversity. Currently, GAA is roughly half invested in the Americas, with 20 percent-plus allocations to Europe and Asia as well.
Expenses: 0.25 percent
Global X Permanent ETF (PERM)
Our last ETF is designed to be an all-weather fund, and it does so by splitting its investments evenly among stocks, long-term Treasuries, short-term Treasuries and gold and silver — a strategy that is beating the S&P 500 by 3 percentage points for the year. While the fund does hold individual stocks, it gets some equity weight from funds like the Vanguard Small-Cap ETF (VB). But right now, its biggest holdings are in Gold Bullion Securities Ltd Fund (GBS) and PHAU at 9.7 percent and 9.6 percent of the fund, respectively.
Expenses: 0.58 percent
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8 Great ETFs That Hold ETFs originally appeared on usnews.com
