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On AdvisorIntelligence, we provide a list of low-fee index ETFs and index funds for all the asset classes where we believe there are robust/reliable index fund substitutes for the actively managed funds we own in the portfolios. It’s pretty straightforward to make these substitutions into our current portfolio asset allocations. We also publish index model portfolios that predominantly use index ETFs.
There are some asset classes and strategies where we don’t believe there are acceptable index ETF substitutes currently available. These include floating-rate loans, flexible income, arbitrage, and managed futures strategies. So we have selected actively managed funds for those allocations in our index models as well as our fully active portfolios.
We’ve looked at a few ETFs in the alternatives space, and there are a few problems:
Obviously actively managed trend-following mutual funds have demonstrated poor performance recently as well, but that’s a strategy-wide phenomenon since it’s been a poor environment for the strategy for much of the last three years. We still think these funds will perform reasonably well over the long term, and particularly well in extended bear markets.
—Jason Steuerwalt, CFA
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