ETFs and Asset Allocation - Morningstar
ETFs and Asset Allocation
Michael Rawson, CFA
ETF Analyst
michael.rawson@
? 2006 Morningstar, Inc. All rights reserved.
Increasing Acceptance of ETFs
¡°Anticipating that the U.S. Federal Reserve will resume large-scale
purchases of U.S. Treasury bonds and confronted with strong
domestic political pressure to spur growth and restrain a rising yen,
the Japanese central bank launched a bond-buying program. It said it
would spend 5 trillion yen ($60 billion) to buy government bonds,
corporate IOUs, real-estate investment trust funds and exchangetraded funds¡ªthe latter two a departure from past.¡±
From The Wall Street Journal 10/6/2010
2
? 2006 Morningstar, Inc. All rights reserved.
1
Agenda
¡Á
Introduction to ETFs
¡Á Overview of ETF Market
¡Á ETFs vs. Mutual Funds
¡Á Advantages and Disadvantages
¡Á
Asset Allocation
¡Á Strategic
¡Á Tactical
¡Á
Tactical Investing Ideas
¡Á
List of ETF Providers with a wide
selection of funds
3
ETFs: A Growth Story
¡Á
¡Á
Industry evolving beyond domestic equity
Democratization of ¡°difficult-to-access¡± asset classes
Source: Morningstar Direct Fund Flows
? 2006 Morningstar, Inc. All rights reserved.
4
2
iShares leads, but Vanguard is gaining¡
5
Ten Largest ETFs
Fund
Standard & Poor's Depositary Receipts
SPDR Gold Trust
iShares MSCI Emerging Markets Index Fund
Vanguard Emerging Markets Stock Index
iShares MSCI EAFE Index
iShares S&P 500 Index
PowerShares QQQ Trust
iShares Barclays TIPS Bond
iShares iBoxx $ Invest Grade Corp Bond
Vanguard Total Stock Market Index Fund
Ticker
SPY
GLD
EEM
VWO
EFA
IVV
QQQQ
TIP
LQD
VTI
Total Net Assets
(Billion)
78
55
45
36
35
23
22
20
15
15
6
? 2006 Morningstar, Inc. All rights reserved.
3
Funds with the Largest YTD Flows
Fund
Ticker
Vanguard Emerging Markets Stock Index
SPDR Gold Trust
PowerShares QQQ Trust
iShares MSCI Emerging Markets Index Fund
Vanguard Total Bond Market Index Fund
VWO
GLD
QQQQ
EEM
BND
Standard & Poor's Depositary Receipts
PowerShares DB US Dollar Index Bullish
iShares FTSE/Xinhua China 25 Index Fund
Financial Select Sector SPDR
SPDR Dow Jones Industrial Average ETF
Total Net
Assets Billion
36
55
22
45
9
SPY
UUP
FXI
XLF
DIA
78
1
9
5
8
YTD Flows
13.3
6.9
2.6
2.5
2.3
-8.8
-2.5
-1.5
-1.5
-1.3
7
What Are Exchange-Traded Funds?
¡Á In
a basic sense, most ETFs are investable indexes
¡Á Low-cost
and tax efficient investment vehicles
¡Á Availability
of myriad asset classes allows for efficient diversification
previously available only to large institutions
¡Á Mutual
Funds that trade like stocks¡
8
? 2006 Morningstar, Inc. All rights reserved.
4
What Are Exchange-Traded Funds?
¡Á But¡
¡Á Listed
on an Exchange like a stock or closed-end fund
¡Á Traded
Intraday
¡Á Allow
for stock-like strategies such as shorting and margin
investing.
9
How A Mutual Fund Works
10
? 2006 Morningstar, Inc. All rights reserved.
5
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