A Better Way to Use BlackRock’s Core ETFs

Rather than invest in these funds, use them to find standout names

   

It’s one of the biggest questions for investors: Should I pick stocks, bonds and other assets on my own, or just put the money into a mutual fund or exchange-traded fund and let someone else sweat the details?

Let’s be perfectly clear: There’s no easy answer. No products are out there that let you set it and forget it for the next five, 10 or 20 years and guarantee financial stability and profit.

That said, I’ve started thinking about an ETF strategy for a least a portion of my portfolio, so I turned my attention to the BlackRock (NYSE:BLK) “core” strategy, which consists of investments in any or all of its 10 ETF funds designed to cover U.S. and international stocks, and a range of U.S. bonds.

What’s interesting is that of the 10 core ETFs BlackRock funds, five started up within the last six months, including all three international ETFs. So, I have no real history on which to make an investment decision for any of those funds.

In looking at the remaining four equity funds, I’ve used a five-year time horizon to take into account the rough 2008 market and see how the investments matched up to the S&P 500′s 12.45% return over the same period:

ETF Ticker Largest Holding 5-Year NAV Return Expense Ratio
S&P Total U.S. Stock Market ITOT AAPL 1.90% .07%
Core S&P 500 IVV AAPL 1.62% 0.7%
Core S&P Mid-Cap IJH REG 5.03% 0.15%
Core S&P Small-Cap IJR KRC 5.06% 0.16%
Source:iShares by BlackRock

InvestorPlace Editor Jeff Reeves swears you can be a bit of a dope and still earn 15% in the market, but the table belies the notion, at least in the longer-term run. In fact, if you invested your money in any of the iShares core funds listed you wouldn’t come close to even 7%!

What’s more, if you invest in the ITOT and IVV, you’re buying any number of the same stocks, including Apple, which is the biggest holding in each portfolio. That’s not particularly diversified.

If I’ve learned anything here, it’s that I should perhaps get out of my large-cap comfort zone and focus in on mid- and small-cap stocks because those two ETFs outperformed their larger-cap brothers.

Here’s a strategy: Go through the IJH and IJR, and review their top holdings, do some research and see how those stocks performed over the last five years. You might find some interesting individual ideas:

Kansas City Southern (NYSE:KSU, +152%), Church & Dwight (NYSE:CHD, +122%) and Rackspace (NYSE:RAX, 645%) are all in the top holdings at IJH.

Retail outlet mall manager and operator Tanger (NYSE:SKT, 645%), 3-D Systems (NYSE:DDD, +223%) and Brunswick (NYSE:BS, +122%) are right there near the top in the IJR.

It turns out that for me, the iShares Core’s best use is to point me in the right direction to do further research, but not much else.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AAPL.


Article printed from InvestorPlace Media, http://investorplace.com/2013/02/ishares-core-retirement-analysis-blk-aapl-itot-ivv-ijh-ijr/.

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