In one of the last articles I asked for best financial advisors and recommended Robo advisors. In this article I want to introduce a valuable alternative to the Robo advisors.
The advantage of Robo advisors is
- low cost
- low initial capital
- portfolio distribution over different asset classes
- tax harvesting (some provider)
- rebalancing (some provider)
Because this financial branch is very new we don’t have a long track record, in particular we don´t know how they will perform in a crisis or a bear market.
Therefore, I want to present an exchange traded fund (ETF), which has some of the above mentioned advantages already included. This makes the investment very simple. Just buy this ETF and that’s it!
Some facts about the ARERO ETF
This etf is build by the german Professor Martin Weber and launch in 2008, just together with the biggest financial crises in the last 70 years. The ETF is called ARERO, which is an abbreviation of “Aktien” (stocks), “Renten” (bonds) and “Rohstoffe” (commodities) has a distribution over
- 60% stocks
- 25% bonds and
- 15% commodities.
They examine different asset classes from 1978 until 2007 and found, that this fraction should be the optimal distribution regarding return on investment and risk.
The stocks contain the MSCI Europe, MSCI North America, MSCI Pacific and MSCI Emerging Markets.
The bonds are represented by the iBoxx Sovereign Index and the commodities are represented by the DJ UBS Commodity Index Total Return 3 Month Forward.
The rebalancing takes place every February. The stock portfolio is weighted by the net domestic product instead of the market capitalization, which is more in common. The ETF doesn’t buy any other ETFs, instead he buys swaps. They say, that this is cheaper than to buy ETFs.
Let’s take a look at the performance of the ETF:
As you can see, it started with 94 Euro at 10/24/2008 and jumped over 100 Euro. In march 2009 it hit his lowest low with 84 Euro and raised until nearly 190 Euro and then went down again until approximately 150 Euro. This means, that he has gained approximately 60% since launch date.
Compare ARERO and MSCI World
Now let’s take a look how the value of the ETF developed compared to the MSCI Index and what about the risk.
You can see, that the ETF performed worse than the MSCI, but the Volatility was less and the drawdown in 2009. But remember, the etf does not copy the world stock market, instead it tries to reduce risk and to gain a good return on investment. And you should keep in mind, that we had a strong bull market over the last years.
If you take a closer look at the timeframe from January 2015 until today, you will see, that the ETF has less volatility than the MSCI world, but unfortunately a negative return of nearly 2%.
Comparison ARERO and mutual fund Carmignac Patrimoine A
I want to show you another comparison. Now between the ETF and a mutual fond, the Carmignac Patrimoine A Eur, which has a long and a good track record and invest worldwide in stocks and bonds.
This chart shows only the last 5 years, but it gives a good impression about the advantage of the etf (black line) to the mutual fund Carmignac Patrimoine A Eur (orange line). Although the management tries to improve the overall performance of the mutual fund, which is really good,, it is not able to beat the simple ETF in this timeframe.
And keep in mind the different costs:
Mutual fond Carmignac Patrimoine A Eur
Front end load: 4%
Management fee: 1.5%
Expense Ratio: 1.68%
Front end load: 0.0%
Management fee: 0.0%
Expense Ratio: 0.45%
The expense ratio includes the costs of the fund / ETF without the front end load and costs for buying and selling the fund / ETF.
I showed you a simple ETF, which has nearly all the advantages of the Robo advisors, but is simpler and has already a good track record.
Furthermore you can see a comparison of a good mutual fund, which is an exception, because most of them are worse than the index they want to beat, and this simple ETF, that shows still a good performance.
So, if you are looking for a really simple solution, this ETF ARERO is worth a closer look.
What about your impression?