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Efficient Asset Allocation for Individual Investors in the ETF World Cover

Efficient Asset Allocation for Individual Investors in the ETF World

Financial Planning Research Journal
Volume 8 (2022): Issue 1 (December 2022)
By: Riza Emekter,  Benjamas Jirasakuldech and  Robert Beaves  
Open Access
|Mar 2024

Figures & Tables

Lists and Characteristics of Exchange Traded Funds (ETFs) (June 2007 to December 2017)

TickerNameTotal Assets (million Dollars)Fund ObjectiveFund Geographical FocusFund Asset ClassFund StrategyMarket Cap FocusHistory Length (Days)
1SPYSPDR S&P 500 ETF TRUST272,676Large-capUnited StatesEquityBlendLarge-cap9107
2VTIVANGUARD TOTAL STOCK MKT ETF93,194Broad MarketUnited StatesEquityBlendBroad Market6063
3EFAISHARES MSa EAFE ETF85,325InternationalInternationalEquityBlendLarge-cap5985
4VEAVANGUARD FΓSE DEVELOPED ETF69,281InternationalInternationalEquityBlendLarge-cap3816
5VWOVANGUARD ELSE EMERGING MARKE68,452Emerging MarketsInternationalEquityBlendBroad Market4684
6QQQPOWERSHARES QQQ TRUST SERIES57,747Large-capUnited StatesEquityGrowthLarge-cap6876
7AGGISHARES CORE U.S. AGGREGATE53,629Aggregate BondUnited StatesFixed IncomeAggregateN.A.5215
8UHISHARES CORE S&P MIDCAP ETF44,841Mid-copUnited StatesEquityBlendMid-cap6433
9IWMISHARES RUSSELL 2000 ETF42,166Small-capUnited StalesEquityBlendSmall-cap6433
10IWDISHARES RUSSELL 1000 VALUE E41,631Large-capUnited StatesEquityValueLarge-cap6433
11IWFISHARES RUSSELL 1000 GROWTH40,961Lorg©-capUnited StatesEquityGrowthLarge-cap6433
12LQDISHARES IBOXX INVESTMENT GRA38,431CorporateUnited StatesFixed IncomeCorporateN.A.5642
13GLDSPDR GOLD SHARES35,343Precious MetalsGlobalCommodityPrecious MetalsN.A.4796
14VNQVANGUARD RETT ETF34,626Real EstateUnited StalesEquityBlendBroad Market4846
15TIPISHARES TIPS BOND ETF24,339Inflation ProtectedUnited StatesFixed IncomeInflation ProtectedN.A.5145
16BSVVANGUARD SHORT-TERM BOND ETF23,884Aggregate BondUnited StatesFixed IncomeAggregateN.A.3923
17VEUVANGUARD FTSE ALL-WORLD EX-U23,484InternationalInternationalEquityBlendLarge-cap3956
18VGKVANGUARD FTSE EUROPE ETF18,598European RegionEuropean RegionEquityBlendLarge-cap4684
19HYGISHARES IBOXX USD HIGH YIELD17,946CorporateUnited StatesFixed IncomeCorporateN.A.3922
20PFFISHARES US PREFERRED STOCK E17,653PreferredUnited StatesFixed IncomePreferredN.A.3934
21BIVVANGUARD INTERMEDIATE-TERM B15,303Aggregate BondUnited StatesFixed IncomeAggregateN.A.3923
22VBRVANGUARD SMALL-CAP VALUE ETF12,763Small-capUnited StalesEquityValueSmall-cap5089
23MBBISHARES MBS ETF11,859Mortgage-BackedUnited StatesFixed IncomeMortgage-BackedN.A.3948
24SHYISHARES 1-3 YEAR TREASURY BO11,261GovernmentUnited StatesFixed IncomeGovernmentN.A.5642
25IWSISHARES RUSSELL MIDCAP VALU11,125Mid-capUnited StatesEquityValueMid-cap6009
26IWOISHARES RUSSELL 2000 GROWTH9,188SmalkcapUnited StatesEquityGrowthSmall-cap6370
27IWPISHARES RUSSELL MIDCAP GROW8,615MidcapUnited StatesEquityGrowthMid-cap6001
28SHVISHARES SHORT TREASURY BOND8,057GovernmentUnited StatesFixed IncomeGovernmentN.A.4012
29TLTISHARES 20+ YEAR TREASURY BOND7,185GovernmentUnited StatesFixed IncomeGovernmentN.A.5642
30SLVISHARES SILVERTRUST5,454Precious MetalsGlobalCommodityPrecious MetalsN.A.4270
31RWXSPDR DJ INTERNATIONAL REAL E3,765Real EstateInternationalEquityBlendBroad Market4039
32EFGISHARES MSCI EAFE GROWTH ETF3,600InternationalInternationalEquityGrowthLarge-cap4536
33DBCPOWERSHARES DB COMMODITY IND2,292Broad BasedGlobalCommodityBroad BasedN.A.4354
34USOUNITED STATES OIL FUND LP2,077EnergyUnited StatesCommodityEnergyN.A.4288

The Performance of Optimized Portfolios Using The Modified Variance Covariance Matrix with the Shrinkage Technique (August 2012-Decemer 2017)

PortfolioReturnRiskSharpe Ratio
Lowest Risk/ReturnPortfolio 10.00000.1000-20.7570
Portfolio 21.00001.2000-0.9540
Portfolio 32.00002.5000-0.0880
Portfolio 42.90003.70000.1830
Portfolio 53.70005.00000.3130
Portfolio 64.60006.30000.3940
Portfolio 75.50007.50000.4500
Portfolio 86.90008.50000.5520
Portfolio 98.200010.40000.5760
Highest Risk/ReturnPortfolio 105.500016.50000.2040

Comparison of Performances of Optimized Portfolio and Individual Exchange Traded Funds Based on Actual Return (August 2012 to December 2017)

PortfolioReturnRiskSharpe Ratio
Panel A: Performance of Optimized Portfolio
Lowest Risk/ReturnPortfolio 10.00040.0012-18.3066
Portfolio 20.01770.0134-0.3074
Portfolio 30.03500.02680.4910
Portfolio 40.05230.04040.7544
Portfolio 50.06950.05400.8840
Portfolio 60.08680.06770.9608
Portfolio 70.10410.08181, 006l
Portfolio 80.12140.09941.0018
Portfolio 90.13870.12460.9387
Highest Risk/ReturnPortfolio 100.15600.18040.7441
Panel B: Performance of Individual ETFs
QQQPOWERSHARES QQQ TRUST SERIES16.200012.10001.1 600
IWFISHARES RUSSELL 1000 GROWTH13.80009.80001.1900
IWOISHARES RUSSELL 2000 GROWTH13.500014.10000.8000
IWPISHARES RUSSELL MID-GAP GROW13.2000l0.60001.0400
IJHISHARES CORE S&P MIDCAP ETF13.0000l0.90000.9900
VBRVANGUARD SMALL-GAP VALUE ETF12.400012.00000.8500
VTIVANGUARD TOTAL STOCK MKT ETF12.30009.60001, 0600
IWMISHARES RUSSELL 2000 ETF12.300013.40000.7500
SPYSPDR S&P 500 ETF TRUST12.20009.30001.0800
IWSISHARES RUSSELL MIDGAP VALU12.000010.00000.9900
IWDISHARES RUSSELL 1000 VALUE El0.90009.50000.9200
EFGISHARES MSCI EAFE GROWTH ETF7.500011.10000.4800
VEAVANGUARD FTSE DEVELOPED ETF6.400011,30000.3800
EFAISHARES MSCI EAFE ETF6.300011,60000.3500
VGKVANGUARD FTSE EUROPE ETF5.900012.80000.2900
VEUVANGUARD FTSE ALL-WORLD EX-U5.200011,40000.2700
VNQVANGUARD REIT ETF4.000013.20000.1400
VWOVANGUARD FTSE EMERGING MARKE2.500014.50000.0200
RWXSPDR DJ INTERNATIONAL REAL E1.200012.7000-0.0800
LQDISHARES IBOXX INVESTMENT GRA0.00004.90000.4400
SHVISHARES SHORT TREASURY BOND0.00000.l000-21,3300
SHYISHARES 1-3 YEAR TREASURY BO-0.10000.7000-3.2100
TLTISHARES 20+YEAR TREASURY BOND-0.400011, 0000-0.2400
MBBISHARES MBS ETF-0.40002.4000-1, 0600
BSVVANGUARD SHORT-TERM BOND ETF-0.50001,3000-2.0l00
AGGISHARES CORE U.S. AGGREGATE-0.50003.0000-0.9200
PFFISHARES US PREFERRED STOCK E-0.60004.5000-0.6300
HYGISHARES IBOXX USD HIGH YIELD-0.90005.1000-0.6100
TIPISHARES TIPS BOND ETF-1.20004.5000-0.7400
BIVVANGUARD INTERMEDIATE-TERM B-1.30004.3000-0.8l00
GLDSPDR GOLD SHARES-4.300015.8000-0.4l00
DBCPOWERSHARES DB COMMODITY IND-9.100014.7000-0.7700
SLVISHARES SILVER TRUST-9.800025.20000.4700
USOUNITED STATES OIL FUND LP-18.500029.0000-0.7l00

Out of Sample Forecast Performance of Optimized Portfolios Using The Average Optimal Portfolio Weights (August 2012-December 2017)

PortfolioReturnRiskSharpe Ratio
Lowest Risk/ReturnPortfolio 10.00000.1000-20.8870
Portfolio 21.30001.200C-0.7410
Portfolio 32.60002.30000.1840
Portfolio 43.90003.40000.4950
Portfolio 55.20004.60000.6510
Portfolio 66.40005.70000.7460
Portfolio 77.70006.70000.8220
Portfolio 89.20007.60000.9180
Portfolio 910.90008.70001.0080
Highest Risk/ReturnPortfolio 1011.700010.60000.8990

Optimal Allocation based on Average Weights in each ETFs for Efficient Corner Portfolios (August 2012 to December 2017)

TickerNamePortfolio 1 Low Risk/ReturnPortfolio 2Portfolio 3Portfolio 4Porlfolio 5Portfolio 6Portfolio 7Portfolio 8Portfolio 9Portfolio 10 Higt Risk/Return
1TLTISHARES 20+ YEAR TREASURY BOND 0.11000.16900.22900.28900.32000.26300.1210
2SHVISHARES 1G YEAR TREASURY BO0.99700.72100.50200.35900.23700.12000.02900.0020
3IWSISHARES RUSSELL MID-GAP VALU 0.01600.03200.04800.06400.08000.10000.10000.0930
4SHYISHARES 1-3 YEAR TREASURY BO 0.11800.17400.15200.10600.06000.02100.0020
5IWDISHARES RUSSELL 1000 VALUE E 0.01000.02000.03000.03900.04900.04600.0040
6IWPISHARES RUSSELL MIDGAP GROW 0.00400.00800.01200.01600.01900.01000.00300.0020
7IWFISHARES RUSSELL 1000 GROWTH 0.00200.00300.00400.00500.00500.00600.0020
8MBBISHARES MBS ETF 0.00200.00300.00500.00600.0030
9IJHISHARES CORE S&P MIDCAP ETF 0.00100.00200.00300.00300.00400.00400.0050
10LQDISHARES IBOXX INVESTMENT GRA 0.00100.00200.00200.00300.0020
11IIPISHARES TIPS BOND ETF 0.00100.00200.00200.0010
12QQQPOWERSHARES QQQ TRUST SERIES0.00100.06400.12400.18400.24500.30500.38300.51200.63900.7850
13SLVISHARES SILVER TRUST 0.1080
14GLDSPDR GOLD SHARES 0.00900.02100.03300.04600.05900.07700.10300.13700.0770
15IWOISHARES RUSSELL 2000 GROWTH 0.00100.00100.0020 0.0310

Historical Performances of Exchanges Traded Funds (August 2007 to December 2017)

TickerNameMeanStandard Deviation
1QQQPOWERSHARES QQQ TRUST SERIES11.400018.0800
2IWFISHARES RUSSELL l000 GROWTH8.030015.3500
3IWOISHARES RUSSELL 2000 GROWTH7.900020.1800
4IJHISHARES CORE S&P MIDCAP ETF7.720017.7100
5IWPISHARES RUSSELL MIDGAP GROW7.430C18.0600
6IWMISHARES RUSSELL 2000 ETF6.540019.6100
7VBRVANGUARD SMALLGAP VALUE ETF6.270019.6000
8VTIVANGUARD TOTAL STOCK MKT ETF6.190015.5900
9GLDSPDR GOLD SHARES6.060019.0600
10SPYSPDR S&P 500 ETF TRUST5.810015.0600
11IWSISHARES RUSSELL MIDGAP VALU5.660017.9600
12IWDISHARES RUSSELL l000VALUE E3.900015.7400
13TLTISHARES 20+YEAR TREASURY BOND3.550013.9300
14VNQVANGUARD REIT ETF2.330025.5100
15SLVISHARES SILVER TRUST2.130034.1 l00
16LQDISHARES IBOXX INVESTMENT GRA1,57007.7400
17TIPISHARES TIPS BOND ETF1.19006.3400
18BIVVANGUARD INTERMEDIATE-TERM B1.11005.5500
19AGGISHARES CORE U.S. AGGREGATE0.95003.7800
20EFGISHARES MSCI EAFE GROWTH ETF0.730018.6200
21MBBISHARES MBS ETF0.69002.9700
22BSVVANGUARD SHORT-TERM BOND ETF0.46002.4300
23SHYISHARES 1 -3 YEAR TREASURY BO0.38001.2800
24SHVISHARES SHORT TREASURY BOND0.06000.3300
25VWOVANGUARD FTSE EMERGING MARKE-0.280023.7500
26VEUVANGUARD FTSE ALL-WORLD EX-U-0.280019.9500
27VEAVANGUARD FTSE DEVELOPED ETF-0.630019.0900
28HYGISHARES IBOXX USD HIGH YIELD-1, 040011.5100
29EFAISHARES MSCI EAFE ETF-1.110019.2800
30VGKVANGUARD FTSE EUROPE ETF-2.170020.9500
31PFFISHARES US PREFERRED STOCK E-2.250019.1300
32PWXSPDR DJ INTERNATIONAL REAL E-3.950021.1800
33DBCPOWERSHARES DB COMMODITY IND-4.370020.6900
34USOUNITED STATES OIL FUND LP-15.200033.7700

Out of Sample Forecast of Optimized Portfolios Performance Using Historical Variance-Covariance Matrix (August 2012 to December 2017)

ReturnRiskSharpe Ratio
Panel A: Performance of Optimized Portfolio based on 60-Months Optimization
Lowest Risk/ReturnPortfolio 10.00000.1000-20.0670
Portfolio 21, 00001,3000-0.9660
Portfolio 31.90002.5000-0.1210
Portfolio 42.70003.80000.1470
Portfolio 53.60005.00000.2790
Portfolio 64.40006.30000.3600
Portfolio 75.50007.40000.4550
Portfolio 87.00008.50000.5720
Portfolio 98.0000l0.40000.5560
Highest Risk/ReturnPortfolio 105.500016.50000.2040
Panel B: Performance of Optimized Portfolio based on 40-Monfhs Optimization
Lowest Risk/ReturnPortfolio 10.00000.l000-20.7580
Portfolio 21.00001,3000-0.8730
Portfolio 32.00002.6000-0.0490
Portfolio 43.l0004.00000.2430
Portfolio 54.20005.30000.3810
Portfolio 65. 10006.60000.4330
Portfolio 76.00007.90000.4840
Portfolio 87.70009.20000.6010
Portfolio 98.900011.10000.60l0
Highest Risk/ReturnPortfolio 109.700014.40000.5230
Panel C: Performance of Optimized Portfolio based on Cumulative Optimization
Lowest Risk/ReturnPortfolio 10.10000.1000-17.3720
Portfolio 20.5000l.l000-1.4840
Portfolio 31.00002.3000-0.5110
Portfolio 41.50003.7000-0.1900
Portfolio 52.00005.0000-0.0420
Portfolio 62.50006.40000.0430
Portfolio 72.90007.80000.0890
Portfolio 82.40009.20000.0260
Portfolio 92.300011.00000.0110
Highest Risk/ReturnPortfolio 100.300015.6000-0.1220
Panel A: Performance of Optimized Portfolio based on Annual Optimization
Portfolio 10.00000.l000-I9.0260
Portfolio 20.80001,4000-0.9990
Portfolio 31,50002.7000-0.2540
Portfolio 42. l0004.2000-0.0260
Portfolio 52.70005.60000.0950
Portfolio 63.30007.00000.1660
Portfolio 74.30008.50000.2470
Portfolio 85.400010.40000.3110
Portfolio 95.800012.30000.2970
Portfolio 10-1.000020.3000-0.1560
DOI: https://doi.org/10.2478/fprj-2022-0004 | Journal eISSN: 2206-1355 | Journal ISSN: 2206-1347
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Language: English
Page range: 79 - 98
Published on: Mar 22, 2024
Published by: Financial Advice Association of Australia
In partnership with: Paradigm Publishing Services
Publication frequency: 2 issues per year
Keywords:
Exchange traded funds,
allocation,
efficiency,
portfolio optimization
Related subjects:
Business and economics,
Political economics,
Economic theory, systems and structures,
Business management,
Business management, other,
Industries,
Banks, financial service provider, insurers

© 2024 Riza Emekter, Benjamas Jirasakuldech, Robert Beaves, published by Financial Advice Association of Australia
This work is licensed under the Creative Commons Attribution 4.0 License.

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