Sensible Perspectives

Sensible Financial’s Preferred ETFs

Posted by on June 27, 2017

Every year, Sensible Financial reviews each mutual fund holding to ensure that you are invested in the best possible funds consistent with your target allocation and investment strategy.

In defining “best”, we consider two primary criteria: (1) cost and (2) tracking error relative to our target indices.

1). There are three primary cost categories for mutual funds:

 ETFsMFsNotes
Fidelity$4.95$30DFA & Vanguard - extra $20 for buys
TDA$6.95$24DFA is only $9.99

2). We are very conscious of the underlying assets that ETFs and other mutual funds hold. Just because two ETFs hold the same name “emerging markets” does not mean that they necessarily have the same exposures. In choosing ETFs, we seek to minimize tracking error – the deviation between the index or target that the fund manager is seeking to match, and the benchmark Sensible Financial has selected.

This year, we made some changes in our preferred ETFs. Previously preferred ETFs are shaded orange, and new preferred holdings are shaded green. The non-shaded are other ETFs we considered. (Exp R is Expense ratio and B-A is bid ask spread).

ETFs

Below are preferred ETFs that we left unchanged – these are in orange. The non-shaded ETFs are other options we explored.

ETFs Chart 2

When we change our preferred funds, we do not immediately replace the new with the old. This would incur far too many gains in taxable accounts. Instead, we use the new ETFs for purchases of their respective asset classes, and trim the old ETFs for sells.

Our selection of ETFs, as well as mutual funds, is consistent with our low-cost investment philosophy that we believe best serves your financial needs. Expenses can change over time, so it is important that we assess our preferred holdings annually. Your advisor is readily available to discuss these changes. To speak with a member of the Sensible Financial team, click here.


Table 1
* We usually use DFA funds for “US Core Equity” and Non-US Emerging Equity” exposure – ETFs are used only when DFA is not an option.
** The float-adjusted index differs from the non-float-adjusted index in that it excludes securities that are held by corporations and other entities as long-term investments. The float-adjusted index is smaller.
Table 2
* We usually use DFA funds for “Non-US Developed Equity” exposure – we use ETFs for this exposure primarily when DFA is not an option.