x
Breaking News
0

Meet The 3 Biggest ETFs of ETFs

By David FabianStock MarketsSep 13, 2017 04:54AM ET
www.investing.com/analysis/meet-the-3-biggest-etfs-of-etfs-200212975
Meet The 3 Biggest ETFs of ETFs
By David Fabian   |  Sep 13, 2017 04:54AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The “fund of funds” style is a portfolio tactic that has been used successfully for many large investment companies. Think about those target-date or target-risk funds in your 401(k). They are essentially a single mutual fund filled with 8-12 underlying funds to create a highly diversified investment strategy using varying asset classes.

It was initially assumed that this same dynamic would be readily embraced in the exchange-traded fund format as well. However, after several failed attempts, it’s becoming apparent that ETF investors want certain attributes within a “fund of fund” strategy that they can’t find elsewhere. The following three examples highlight the largest of this breed and how they have developed over the last decade.

The First Trust Dorsey Wright Focus 5 (NASDAQ:FV) is the largest of this class with $2.3 billion in assets under management and a unique stock-focused methodology. FV conducts relative strength assessments on a wide universe of sector and industry-based ETFs to determine the funds shows the strongest momentum. It then selects five of those top-ranked ETFs to make up its underlying portfolio and equally weights each component.

FV Daily Chart
FV Daily Chart

The result is a sector-rotation style fund built around a highly dynamic, rules-based index that can shift as often as monthly. FV charges a management fee of just 0.30% in addition to the acquired expenses of the underlying funds at 0.59% to implement the strategy.

The FV portfolio clearly checks all the boxes of low-cost, transparency, and a structured approach for fans of momentum or sector investing.

Another large example of the “fund of funds” style is the IQ Hedge Multi-Strategy Tracker (NYSE:QAI). As its name implies, this ETF is designed to track the broad performance of the hedge fund universe alongside low correlation to the equity markets. It’s multi-asset approach allows for long and short positions in stocks, bonds, currencies, and commodities according to its index mandate.

QAI has just over $1 billion in total assets and charges a management fee of 0.75% in addition to acquired fund fees of 0.22%. Many of its underlying assets are low-cost index funds from the likes of Vanguard and Blackrock (NYSE:BLK), which keeps holding expenses to a minimum.

The type of strategy implemented by QAI will most likely be sought after by institutional-type portfolios seeking to augment their traditional investment exposure with an alternative style.

The third largest of the group may be the easiest to understand. The iShares Core Growth Allocation (NYSE:AOR) recently crossed the $1 billion mark and touts a total net expense ratio of just 0.25% with underlying holdings included. AOR is the largest of a suite of target-risk portfolio models from BlackRock that span the gamut from conservative to aggressive.

Its underlying portfolio is a traditional 60/40 split of stocks and bonds composed from 10 of the iShares core ETFs. This includes both domestic and international exposure for both asset classes, which gives it a truly global reach. It can be used as either an all-inclusive portfolio solution with a highly diverse pool of assets or as a core holding alongside conventional index or active funds.

The Bottom Line

Many investors prefer to use individual ETFs as building blocks to create a cohesive portfolio solution. Yet in that framework, there are desirable attributes of owning a highly diverse multi-asset ETF for its risk framework or an unconventional strategy with a rigid investment discipline. One of the under realized features of these funds are their strict rebalancing and index methodologies that create more efficient tracking over time.

Whether you are an investment novice or swarthy veteran, there are many options to consider in this category to augment or immediately implement a well-rounded portfolio.

Disclosure: At the time this article was written, the author owned shares of AOR.

Original post

Meet The 3 Biggest ETFs of ETFs
 

Related Articles

Meet The 3 Biggest ETFs of ETFs

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
Write your thoughts here
 
Replace the attached chart with a new chart ?
Post
Post also to:
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
 
 
 
Add Chart to Comment
Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email