Many investors are searching for the best ETF portfolio and two of the world’s leading investors, Warren Buffett and David Swensen, both reported their prescriptions. Below, see their performance versus the investable benchmarks:
Buffett & Swensen Portfolios
Over the past 5.7 years, the Buffett & Swensen ETF portfolios delivered 14% and 7% annualized, or 111% and 50% in total return. These unleveraged growth portfolios significantly underperformed the investable benchmarks.
S&P 500 and Treasuries
Over the past 5.7 years, long-term Treasuries (TLT) and the S&P 500 (SPY) delivered annualized returns of 2% and 16%, respectively. While long-term Treasuries have historically delivered critical portfolio protection, neither Buffett nor Swensen recommend using TLT.
For example, during the stock market crash from 2000 to 2002, TLT delivered a 47% gain while SPY fell 38%. TLT also delivered shocking relative outperformance in 2008, 2011, and 2014 with gains of 34%, 34%, and 27% respectively.
InvestableBenchmarks.com
Over the past 5.7 years, the Income & Growth (IG) investable benchmark returned 6% annualized, or 43% in total return. However, the Income and Growth 2x and 3x portfolios strongly outperformed with annualized returns of 16% and 24%, respectively, or 129% and 233% in total return.
In fact, the IG 3x total return of 233% is almost five times the 50% total return of Swensen’s ETF portfolio.
Income and Tech 3x
Last year, ETF PM launched Income and Tech 3x (IT 3x) for aggressive growth investors. Over the past 5.7 years, we estimate that IT 3x returned 38% annualized, or 523% in total return. Note, the IT 3x total return of 523% is also almost five times the 111% total return of Buffett’s ETF portfolio.
Still, IT 3x and the other leveraged investable benchmark portfolios are extremely volatile at times. These portfolios are available through a range of passive and active asset allocations, and we encourage investors to engage leverage slowly, and/or to employ ETF PM’s overriding risk controls.
Risk Parity
The asset allocations for the investable benchmarks are even more impressive when you consider their passive process and historical returns versus leading hedge funds. See the “risk parity” All Weather portfolio, run by Bridgewater, the world’s largest hedge fund manager.
In 2013, Bridgewater’s All Weather portfolio returned -4%, while IG 3x gained 29%. Many investors are now employing leverage in risk parity including AQR, and BlackRock, the world’s largest asset manager.
Bottom Line
Over the past 5.7 years, the investable benchmarks significantly outperformed the ETF portfolios recommended by Buffett and Swensen. Strategic diversification can be a free lunch and leveraged diversification can be a free retirement nest egg.
Still, investors must be mindful of the risks, regulatory issues, and misunderstandings concerning leveraged ETFs. As per Greek philosopher Heraclitus, “Life is Flux” meaning “all things change.” Given this truth, and the wide range of economic environments, the best ETF portfolio is certain to change over time.
See prior versions of this article: 4/18, 12/17, 11/17, 6/17, 10/16, 6/16, 3/16, 9/14, 6/14, 3/14, 12/13, 9/13, 9/12, 5/12, 4/10, 4/09.
Note: ETF PM is working to find the right strategic partner(s) to scale InvestableBenchmarks.com into an ETF of ETFs fund family. The investable benchmark portfolios are currently offered via separate client accounts.
Contact ETF PM to learn more.
