One of Canada’s most-read personal finance columnists is The Globe and Mail’s Rob Carrick. He recently used artificial intelligence (AI) to create a portfolio of ETFs to buy and hold in under 20 seconds.
Carrick was using the 1,300 ETFs listed on a Canadian stock exchange. So, it won’t be of much use to Americans. However, the columnist found that AI can be useful for generating investing ideas. I would agree.
So, I thought I’d do the same for an American audience. No matter my entry prompts, AI gave me three equity ETFs, with one being a fixed income. Read on for the ChatGPT results.
iShares Core S&P 500 ETF (IVV)
If it’s good enough for Warren Buffett, the iShares Core S&P 500 ETF (NYSEARCA:IVV) should be good enough for any investor.
In Berkshire Hathaway’s (NYSE:BRK.B) 2013 Shareholder Letter, Buffett discussed cash proceeds in his will.
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.),” Buffett wrote. “I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
In fact, Apple (NASDAQ:AAPL) is the largest holding of IVV with a 7.48% weighting. Because it is cap-weighted, Apple is also the largest market cap at $3.05 trillion.
IVV tracks the performance of the S&P 500. It charges 0.03%, or $3 per $10,000 invested. Vanguard’s S&P 500 ETF is the Vanguard S&P 500 ETF (NYSEARCA:VOO), also charging 0.03%.
ChatGPT recommended a 45% weighting.
iShares Russell 2000 ETF (IWM)
The second equity holding in the 3-ETF ChatGPT portfolio is the iShares Russell 2000 ETF (NYSEARCA:IWM), which tracks the performance of the Russell 2000 Index. The index comprises approximately 2,018 of the smallest market capitalizations in the Russell 3000.
So, whereas the IVV has an average market cap of $219.7 billion, IWM’s is considerably smaller at just $2.2 billion. The largest holding for IWM is Super Micro Computer (NASDAQ:SMCI), with a 0.58% weighting and a $16.8 billion market cap.
From a returns perspective, Buffett’s option (IVV) has a 10-year annualized total return of 12.53%, 458 basis points higher than IWM. The fact that IWM charges 0.19%, 6 times that of IVV, has something to do with the difference in performance.
However, it pays to have a good portion of small-cap stocks in even the most straightforward portfolio over the long haul. Adding 2.5% to IWM’s weighting, ChatGPT has it at 22.5%.
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
The third and final ETF is the fixed-income component of ChatGPT’s 3-ETF portfolio. The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) has a 30% weighting.
LQD tracks the performance of the Markit iBoxx USD Liquid Investment Grade Index, a collection of U.S. dollar-denominated investment-grade corporate bonds for sale in the U.S. Each name in the index has a 3% cap. It’s rebalanced monthly.
The average yield to maturing of the 2,636 holdings is 5.37%, with a weighted average coupon of 4.03% and a weighted average maturity of 13.25 years. The top three industries by weight are banking (23.97%), consumer non-cyclical (17.67%), and communications (12.31%).
Banks comprise six of the top 10 holdings, accounting for 21.1% of the ETF’s $36.9 billion net assets.
LQD has a trailing 12-month yield of 3.74%, more than double the S&P 500 yield. It charges a reasonable 0.14%.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
