Investing in ETFs: Core portfolio holdings

Investments » Investing In ETFs: Core Portfolio Holdings

Not so long ago, in 1993, the exchange-traded fund, or ETF, made its debut in the U.S. It was a puny new runt on the investing block, staring up at the behemoth known as the mutual fund.

But ETFs have matured and are now the investment of choice for many people.

ETF assets soared from $161.7 billion in March 2004 to $1.71 trillion in March 2014, according to the Investment Company Institute -- an annual growth rate of about 26 percent. But ETF assets are still dwarfed by mutual funds' $15.23 trillion of assets as of March.

A recent study by Vanguard concludes that investing in ETFs has grown popular due to several factors, including their lower costs and greater trading flexibility when compared with mutual funds.

Bankrate asked five professional money managers to offer their take on core portfolio holdings that all investors should own. Following are their recommendations.

Recommended core ETF portfolio holdings by Nathan Kubik, CIMA

Tactical strategies

Kubik's firm changes its mix of ETFs by regularly overweighting or underweighting styles based on market cycles. The firm prefers investing in ETFs with broad market exposure, such as the Russell or S&P funds that own stocks from many companies.

The firm also overweights or underweights sector or industry ETFs, again based on the market cycle.

Kubik says the above portfolio makes sense for investors with $30,000 or less, and those who do not want to take a tactical approach to investing.

"The reason the size of the portfolio matters is due to transaction costs," he says. "The benefits for being tactical with an investment strategy can be eroded by too many transaction costs if the total portfolio size is not large enough."

Kubik's list of recommended funds changes as people have more money to invest. For example, for investors with between $30,000 and $60,000, he would drop the large-cap and small-cap funds and replace them with value funds (both large-cap and small-cap) and growth funds (both large-cap and small-cap). He would also add an actively managed bond fund that targets bonds with a specific duration, credit and structure.

For investors with more than $60,000, Kubik would add:

  • A sector overlay to overweight the industries based on the market cycle.
  • In some market conditions, additional exposures may be added to real estate, emerging markets, high-yield and other funds.


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