Published on Friday, Feb. 12, 2010 7:01PM EST Last updated on Sunday, Feb. 14, 2010 6:21PM EST
ETFs are like investing power tools – you can build something to last with them, or dismember your portfolio.
A good instruction manual would help, and that's just what you're reading right here. Three investing pros have been enlisted to show you how they build portfolios with exchange-traded funds. Observe and then apply what you're learned to your own situation.
ETFs in simple terms are index-tracking mutual funds that you buy and sell like a stock. They cost much less to own than conventional mutual funds, and you can buy or sell them at any time during the trading day (funds can only be sold at end-of-day prices). ETFs are also very clear in their holdings and mandate, which simplifies the portfolio-building process.
The problem with ETFs is that there are so many different products today, including lots of overlap in the all-important Canadian equity and Canadian bond categories. To keep things simple, then, the three investing pros were asked to build their portfolios using no more than six ETFs.
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The only other requirement was that the experts use three set asset mixes: 80 per cent stocks and 20 per cent bonds, for aggressive investors; a 50-50 split for middle-of-the-road investors; and a mix of 20 per cent stocks and 80 per cent bonds for risk-averse investors who still want a bit of stock market growth.
ETF Portfolio Blueprints
We asked some experts to build three different kinds of portfolios using six or fewer exchange-traded funds of any type. Here's what they came up with. Note: These portfolios are examples only. You'll need to do your own research to find a mix right for you.
Our experts:
Ioulia Tretiakova, vice-president at PUR Investing
Christopher Young, financial adviser with Manulife Securities
Adrian Mastracci, portfolio manager with KCM Wealth Management
The Safety-First Portfolio: (20% stocks, 80% bonds)
Ioulia Tretiakova:
| ETF | Ticker | Weight % | ||
| iShares CDN Bond Index Fund | XBB | 40 | ||
| Claymore 1-5 Yr Laddered Government Bond ETF | CLF | 40 | ||
| iShares CDN Value Index Fund | XCV | 5 | ||
| iShares CDN MSCI EAFE Hedged to C$ Index Fund | XIN | 5 | ||
| iShares CDN S&P 500 Hedged to C$ Index Fund | XSP | 5 | ||
| PowerShares DB Commodity Index Tracking Fund | DBC* | 5 | ||
| *listed on the New York Stock Exchange; all other ETFs are TSX-listed | ||||
Christopher Young:
| ETF | Ticker | Weight % |
| Claymore 1-5 Yr Laddered Corporate Bond ETF | CBO | 30 |
| iShares CDN Short Bond Index Fund | XSB | 25 |
| iShares CDN Government Bond Index Fund | XGB | 25 |
| Claymore Cdn Fdmtl Index ETF | CRQ | 10 |
| iShares CDN MSCI EAFE Hedged to C$ Index Fund | XIN | 10 |
Adrian Mastracci:
| ETF | Ticker | Weight % |
| GIC Ladder: 1-5 years | 80 | |
| iShares CDN LargeCap 60 Index Fund | XIU | 10 |
| ishares CDN Financial Sector Index Fund | XFN | 10 |
The 50:50 Portfolio: (50% stocks, 50% bonds)
Ioulia Tretiakova:
| ETF | Ticker | Weight % | ||
| iShares CDN Bond Index Fund | XBB | 50 | ||
| iShares CDN Composite Index Fund | XIC | 15 | ||
| SPDR S&P 500 ETF | SPY* | 10 | ||
| Vanguard Euorpe Pacific ETF | VEA* | 10 | ||
| Vanguard Emerging Mkts ETF | VWO* | 5 | ||
| PowerShares DB Commodity Index Tracking Fund | DBC* | 10 | ||
| *listed on the New York Stock Exchange; all other ETFs are TSX-listed | ||||
Christopher Young:
| ETF | Ticker | Weight % |
| Claymore 1-5 Yr Laddered Corporate Bond ETF | CBO | 25 |
| iShares CDN Short Bond Index Fund | XSB | 25 |
| Claymore Cdn Fdmtl Index ETF | CRQ | 20 |
| iShares CDN MSCI EAFE Hedged to C$ Index Fund | XIN | 20 |
| Claymore Broad Emerging Markets ETF | CWO | 10 |
Adrian Mastracci:
| ETF | Ticker | Weight % |
| GIC Ladder: 1-3 years | 50 | |
| iShares CDN LargeCap 60 Index Fund | XIU | 15 |
| Claymore Cdn Fdmtl Index ETF | CRQ | 10 |
| iShares CDN S&P 500 Hedged to C$ Index Fund | XSP | 15 |
| iShares CDN MSCI EAFE Hedged to C$ Index Fund | XIN | 10 |
The Aggressive Portfolio: (80% stocks, 20% bonds)
Ioulia Tretiakova:
| ETF | Ticker | Weight % | ||
| iShares CDN Corporate Bond Index Fund | XCB | 20 | ||
| iShares CDN SmallCap Index Fund | XCS | 20 | ||
| SPDR S&P 500 ETF | SPY* | 20 | ||
| Vanguard Euorpe Pacific ETF | VEA* | 20 | ||
| Vanguard Emerging Mkts ETF | VWO* | 10 | ||
| PowerShares DB Commodity Index Tracking Fund | DBC* | 10 | ||
| *listed on the New York Stock Exchange; all other ETFs are TSX-listed | ||||
Christopher Young:
| ETF | Ticker | Weight % |
| Claymore 1-5 Yr Laddered Corporate Bond ETF | CBO | 20 |
| Claymore Cdn Fdmtl Index ETF | CRQ | 20 |
| iShares CDN SmallCap Index Fund | XCS | 10 |
| iShares CDN MSCI EAFE Hedged to C$ Index Fund | XIN | 30 |
| Claymore Broad Emerging Markets ETF | CWO | 20 |
Adrian Mastracci:
| ETF | Ticker | Weight % |
| GIC Ladder: 1-2 years | 20 | |
| iShares CDN LargeCap 60 Index Fund | XIU | 20 |
| Claymore Cdn Fdmtl Index ETF | CRQ | 15 |
| iShares CDN S&P 500 Hedged to C$ Index Fund | XSP | 20 |
| Claymore US Fundamental ETF - US$ Hedged | CLU | 10 |
| iShares CDN MSCI EAFE Hedged to C$ Index Fund | XIN | 15 |
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