ETF Expert

There are always those who wish to know… "What If." For example, what if you could go back to January 1, 2007, and purchase 8 ETFs. Could you outperform the S&P 500 with less risk than the S&P 500?

(In Wall Street lingo, the investments should collectively have a "beta" that is lower than 1.0. A collective beta score below 1.0 may describe a portfolio with less risk than the S&P 500.)

Well, yes… vision is 20/20 in hindsight. Therefore, knowing that the S&P 500 would only manage a 2.5% gain through the first 8 1/2 months of 2007, we can put together a lower-beta, higher-octane ETF portfolio.

Assume that each of the following funds has an equal weight in the mythical — albeit realistic — portfolio:

This grouping has only three-quarters of the risk of Mr. Market (.76); yet, it produced more than twice the gains (5.26%) of the S&P 500 from 1/1/07 to 8/13/07.

Keep in mind, we are talking about beating Mr. Market with consumer staples, bonds, currencies and commodities. That’s low risk, indeed! In fact, only the tech sector component with a 12.5% weighting has more risk than the S&P 500 itself.

Skeptics might say that the Dow Jones Industrial Trust (DIA) earned 5.5%… why not just hold the Dow and the Dow alone? For the simple reasons that it: (1) has been exceptionally volatile, (2) represents nearly the same risk as the S&P 500, and (3) doesn’t have the diversfication that this "sleep-better-at-night" portfolio maintains.

Granted, 5.26% over 8 1/2 months may not seem worthy of singing your favorite tune. Yet it’s not too shabby in hindsight.

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.