Roy, I'm curious, doesn't adding ETFs essentially just turn over part of the (Cabot Benjamin Graham Classic Value) portfolio to different managers? What would portfolio performance have been from 1/1/2009 without the ETFs?—Jon 6/3/10
Roy Ward: One of my primary reasons for adding ETFs to the Classic Value Model is to reduce volatility. I chose ETFs because they are less volatile. They include a basket of stocks that usually aren’t managed. The stocks are chosen to closely match an index rather than outperform the market or index.
The Classic Value Model would have increased 63.4% without ETFs during the period 1/1/2009 through 5/31/2010, which is somewhat better than the 50.7% with the ETFs. The Dow Jones Industrial Average increased 15.5% during the same period. I conclude that the ETFs hurt performance in advancing markets, but help performance during market weakness. In up and down markets, ETFs help lessen short-term volatility.
J. Royden Ward
Value Investment Specialist, Analyst and Editor of Cabot Benjamin Graham Value Letter
J. Royden Ward has been editor of the Cabot Benjamin Graham Value Letter since 2003. The Letter features The Wise Owl Model, the Classic Benjamin Graham Value Model and monthly Special Features. The Letter is directed to individual investors seeking a guide to profitable value investing. Roy has spent his entire career seeking strong investment returns for his clients. In 1969, he developed a computerized model based on formulas for a unique ranking system created by investment legend Benjamin Graham.
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