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I am trying to put together a portfolio and I am looking at ETF index funds. As i cover the different sectors, in the past I have had small, mid cap and large cap funds/etfs with both Growth and value offerings. As I look at those options I also see Blended index funds. Is there an advantage in having blended index ETF's instead of both the growth and value etf index funds? What are the advantages either way?

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Value vs Growth vs Total Market

In certain times, Value outperforms S&P 500 outperforms Growth (e.g. 2012-2014). In other times, Growth outperforms S&P 500 outperforms Value (e.g. 2015 YTD).

The takeaway is the if you just invest in S&P 500 (that includes some value and some growth), your outcome is very similar to holding 50% Value + 50% Growth.

Unless you know under what circumstances one may outperform another, and you can predict that those exact circumstances will happen in the next 6 months, you are better off with 100% SPY or 100% VTI.

There is no point of buying 6 ETF (that resembles VTI) that even you are uncertain whether the combination outperforms SPY/VTI in the long run.

More ETF means more brokerage fee. Non-SPY means larger spread and less liquidity. Specialized ETF means higher expense ratio.

If, in the past 5 years, your strategy does outperform SPY/VTI and you don't feel your time wasted, then by all means you can continue to use 6 ETF.

ETF Compared

Sectors

As for sector ETFs, they have high expense ratio. So you must guess the correct sectors that outperform. The process of "guessing" is very straightforward in the industry using relative and absolute momentum measures. Believe it or not, even buying 5 top performing sectors (past 3 months) as equal weight portfolio has outperformed SPY in the past.

There are ETFs that already did all the "guessing" work for you.

FV is an ETF on NASDAQ that chooses 5 sectors which the manager "thinks" they will outperform.

Momentum

  • +1 - you mentioned trading costs. Good. When I researched this some time back, I recall seeing an S&P ETF with .25 expense, but the growth and value each had .40% expense from the same ETF manager. In my opinion, the long term extra annual expense negated the ability to balance the fund allocations each year. Today I know that VOO sports a .05% expense, but VOOG (Large Cap Growth) is .15%. – JoeTaxpayer Aug 15 '15 at 15:27

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