The June 2019 optimal portfolios are now available to subscribers of ETFMathGuy. So, just log in and select your discount broker.
You can now view the June 2019 optimal portfolios for the five discount brokers analyzed by ETFMathGuy. These portfolios cover nearly 1,500 ETFs currently offered commission-free from Ameritrade, ETrade, Fidelity, Schwab and Vanguard.
In all cases, we applied our rigorous portfolio construction process to produce the current portfolios. So, we encourage you to browse through these portfolios to review the following characteristics:
- Allocation of bond versus stock ETFs in the optimal portfolio
- Turnover from the previous month or months
- The effect of risk level on the overall portfolio risk statistics
- The increase in expected return as risk level increases
We hope you find these portfolios educational!
Where are the ESG funds in the 2019 optimal portfolios?
In our mid-April post, we updated the database used by ETFMathGuy to include the expanded list of commission-free ETFs offered by five discount brokers. We also mentioned one of the most popular themes to hit the ETF landscape, called Environmental, Social and Governance (ESG) investing. For example, Vanguard offers two of these ESG funds.
These two ETFs carry an expense ratio of 0.12% and 0.15%, respectively, consistent with Vanguard’s low-cost philosophy. So, why aren’t these funds appearing in the current portfolios developed by ETFMathGuy?
The short answer is that our portfolio construction process requires a sufficient return history. Based on our backtesting results, we identified an optimal sample period of several years. Unfortunately, the two Vanguard ETFs noted above have only existed since September 18, 2018, or about the last 8 and a half months. Consequently, this history is simply too short for our optimization model to generate portfolios that satisfy investor return expectations.
So, is ESG investing worthwhile?
This is an excellent question! In fact, based on a recent Wall Street Journal article, other experts in the industry shared our concern about a short return history.
“Many of these ESG ETFs are relatively young and have not had a chance to prove if they can demonstrate strong performance”
Todd Rosenbluth, senior director of ETF and mutual-fund research at CFRA
What does this mean for you? Well, if you are an investor focused on using your beliefs to guide your investment decisions, you may find this short history acceptable. However, here at ETFMathGuy, we prefer to make evidence-based decisions. So, we look forward to analyzing longer return histories that may show how ESG funds could be part of an optimal portfolio.
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