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Robo-Advisors Trump ETF Investments In Q3, But China May Hold The Key

Summary How we got here. Progress year-to-date. How the investments compare after the third quarter. What does the future hold? How we got here This series began with an article explaining that on January 23, I had invested $10,090 in Betterment, WealthFront, and the Vanguard Total Stock Market ETF (NYSEARCA: VTI ), with the intention of documenting their comparative performance. Some readers suggested the Robo-Advisors be compared to a broader field of investments; consequently, we added the Global X SuperDividend ETF (NYSEARCA: SDIV ) and the Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ). So, this is how the five investments are doing at the end of the third quarter. Progress Year-to-Date Looking at the chart, you can see that VEA got off to a good start, SDIV looked like it was going to do all right at first, then lost ground, and the two robo-advisors have been in a downward trajectory that, compared to the others looks more like a glide path than a crash landing. Finally, they were able to trump the others ending this quarter virtually tied for best outcome proving the adage: Any landing that the passengers walk away from is a good landing. (click to enlarge) How the investments compare after the third quarter Now that we’ve experienced a market downturn, the robo-advisor theory has been given a pretty good test. The real test will come with the next Black Swan. In our case, because we are nearing the end of the accumulation phase of our investment experience, the robo-advisors chose a conservative distribution of assets. Not surprisingly, they held their value better than the funds. Investment Q3 Closing Value Gain/Loss Percent Change Betterment 9,781.08 -$308.92 -3.16% SDIV 8,913.63 -1176.37 -13.20% VEA 9,527.92 -562.08 -5.90% VTI 9,463.48 -626.52 -6.62% WealthFront 9,576.03 -513.97 -5.37% What does the future hold? Pundits tell us that China did poorly in the third quarter and that China may not improve for the entire second half. This and certain exogenous factors promise a lackluster outlook for the real economy, but who is so bold as to predict the outlook for the investment markets? Whichever way it goes, I am kind of glad that some of my readers browbeat me into expanding the experiment adding the hedging properties of diversification. I feel pretty confident in predicting that automated asset managers will continue to attract investors and that traditional brokerages will continue to try to get out in front of the potential threat by offering automated investment advice. Additional disclosure: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the investments mentioned. Share this article with a colleague

The Robo-Advisor Experiment At The End Of The Second Quarter

Summary Good news from the robots. How the investments compare after 90 days. Other ways to pursue alternative investing. Good news from the robots The day SA published the last update in this series Betterment sent out a notice that was very welcome. Reading the robots’ tax harvesting policies one might conclude that those of us who are not investing $100K are being punished. The robots’ practice of telling the investor how large a savings was available made for an especially poignant longing for what might have been. After all, if they had the wherewithal to tell us a number, why not just apply it to our accounts. Happily, that is exactly what they decided to do. Early in April we Betterment investors received an email announcing the end of the $100K rule. And, within a week a similar announcement came in from WealthFront; although, WealthFront requires the client to opt in. For an account this small the difference will be negligible, but it gives the impression that there is some humanity in these robots. How the investments compare at the half This series began with an article explaining that on 23 January I had invested $10,090 in Betterment, WealthFront, and the Vanguard Total Stock Market ETF (NYSEARCA: VTI ), with the intention of documenting their comparative performance. Later we added in the Global X SuperDividend ETF (NYSEARCA: SDIV ) and the Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ). S o, this is how the five investments are doing at the half. Investment June 30 Closing Value Gain/Loss Betterment $10,068.26 -$21.74 -0.22% SDIV 10,168.67 78.67 0.77% VEA 10,569.99 479.99 4.54% VTI 10,180.43 90.43 0.89% WealthFront 9,932.29 -157.71 -1.59% Other Ways to Pursue Alternative Investing Our robo-advisors offer sort of a poor man’s approach to wealth management in which investors turn their assets over, not to a human advisor, but a robot asset manager. Firms offering this approach protest that human intervention is offered, but the basic premise is that investors get high quality automated asset management without the high fees associated with hiring a traditional asset manager. The algorithms employed by our robo-advisors are a refinement of an asset allocation model advanced in Modern Portfolio Theory over a half century ago. More recently proponents of behavioral economics have challenged the validity of this model. We began this experiment to determine empirically how well the model works. Because this model is generally available, variations have been offered for those who prefer a DIY approach to algorithmic asset allocation. One example, using the Zephyr AllocationADVISOR software, is found in a recent Seeking Alpha article titled Vanguard ETF Portfolio For The Moderate Investor. Two services that we have not researched thoroughly that are getting some attention are Personal Capital.com and Acorns.com. Additionally, traditional brokers are offering automated asset allocation services. Conclusion So far the robo-advisors have lost value and the other investments continue to gain. Still, we’re less that six months into the experiment, so it is too soon pick a winner. Disclosure: I am/we are long SDIV, VEA, AND VTI. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the investments mentioned.

New Alternative ETF Takes Income Generating Seriously

Income investors may look at alternative assets to garner attractive yields. ETF options that provide attractive dividends. Focus on the Global X suite of SuperDividend ETFs. By Todd Shriber & Tom Lydon Investors are still searching for ways to generate income. Home to asset classes including business development companies (BDCS), private equity, closed-end funds, covered call funds and others, the alternatives space is a credible source of high income and yields. Enter the Global X SuperDividend Alternatives ETF (NASDAQ: ALTY ) , which debuted today. ALTY is the latest member of Global X’s SuperDividend suite , becoming the sixth ETF in a group that includes well-known products such as the Global X SuperDividend ETF (NYSEARCA: SDIV ) and the Global X SuperDividend U.S. ETF (NYSEARCA: DIV ). ALTY tracks the Indxx SuperDividend Alternatives Index. The new ETF offers investors exposure to an array of income-generating asset classes including a 26.3% weight to real estate investment trusts (REITs), a 19.1% allocation to BDCs and private equity and an 8.5% weight to master limited partnerships (MLPs). The new ETF also features 11.6% weights to covered call strategies and mortgage- and asset-backed securities, according to Global X data . BDCs have increased in popularity among investors for one big reason: Tantalizing dividend yields. However, with Treasury yields on the rise, some high-yielding asset classes are proving vulnerable, meaning investors should take the time to assess positions in BDCs and the corresponding exchange traded funds. BDCs are closed-end investment companies created under the Investment Company Act of 1940 that invest in debt and equity of small public and privately-held companies. The companies essentially help fund small $5 million to $100 million businesses. Ever since the financial crisis, regulators have clamped down on traditional lenders and made it harder for businesses to access public capital, which has forced smaller business to take loans from BDCs. ALTY delivers on the income promise via of a fund-of-funds approach as top 10 holdings are other funds, including a 26.3% weight to the Global X SuperDividend REIT ETF (NASDAQ: SRET ) . SRET, by far ALTY’s largest holding, debuted in March. “As a result of their stable earnings, REITs have demonstrated less volatility than equity prices. Global REIT volatility from 2010 – 2014 was 15.3% as compared to 16% of S&P 500. This stability has contributed to higher risk-adjusted returns as observed by Sharpe Ratio. The Sharpe Ratio for global REITs in 2014 was 2.11 as compared to a Sharpe Ratio of 1.01 for S&P 500,” said Global X, citing Bloomberg data. Alternative assets have other advantages in addition to income-generating potential. “Alternatives are generally known for lower volatility compared to equities. ALTY’s index methodology seeks to further reduce volatility through its selection and weighting of components. Alternative income is often generated from sources with low correlation to equities and traditional fixed income, such as real assets, private equity, and derivative strategies,” according to Global X . However, those advantages come at a cost. As ALTY holds multiple asset classes across multiple funds, the new ETF’s expense ratio is 3.03%, which is high by the standards of most actively-managed mutual funds, let alone passively-managed ETFs. ALTY pays its dividend on a monthly basis. (click to enlarge) Charts Courtesy: Global X Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.