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November 23, 2005 at 07:00 PM
The number of exchange-traded funds (ETFs) in operation is tiny compared to the number of mutual funds available to investors. Still, it’s possible to put together a diversified portfolio using only a handful of ETFs.
An ETF that tracks the S&P 500 index alone would provide broad exposure to the equity market, said David Braverman, a vice president with the company’s portfolio services unit. Investors could then add one fund that tracks an index of small-cap stocks, and another that does the same for mid-caps, he said.
There are very few ETFs that invest in fixed-income securities, “but I think you can put together an adequate portfolio with what’s out there,” Braverman said.
Of the 187 ETFs in operation as of the end of October, only six tracked bond indexes, according to the Investment Company Institute, the fund industry’s trade organization. Of the remainder, 132 invested in domestic stocks, and 49 bought shares of foreign companies. By comparison, there were over 8,000 mutual funds on the market, excluding money market funds.
Standard & Poor’s has put together a suggested portfolio of nine ETFs that invest in domestic and foreign stocks and U.S. bonds. The list of funds and the percentage of assets Standard & Poor’s recommends keeping in them appears in The Outlook, a weekly newsletter. The latest asset breakdown, which appeared in the November 2 issue, appears below.
For exposure to the S&P 500, the model portfolio includes S&P Depositary Receipts (SPY), or SPDRs. Mid-cap and small-cap stocks are represented by S&P MidCap Depositary Receipts (MDY) and iShares S&P SmallCap 600 Index Fund (IJR). The iShares fund is a product of Barclays Global Investors.
The list includes four Barclays ETFs that invest overseas: the iShares MSCI EAFE Index Fund (EFA), the iShares MSCI EAFE Index Fund (EFA), the iShares MSCI Emerging Market Index Fund (EEM), and the iShares MSCI Japan Index Fund (EWJ).
Bonds in the portfolio are represented by two other Barclays ETFs, the iShares Lehman Aggregate Bond Fund (AGG) and the iShares Lehman 1-3 Year Treasury Bond Fund (SHY).
