Paul Merriman concludes that "rebalancing could be a huge mistake." Perhaps, although it could also turn out to be a huge benefit. Then again, it's more likely that rebalancing's effects will fall somewhere between those two extremes for most portfolios. In any case, Merriman's focus is sensible, even if his conclusion is extreme. You just can't spend too much time thinking about rebalancing. Even if you decide to shun it completely, which Merriman comes close to advocating for equity strategies, your rebalancing choices are likely to be critical factors for driving portfolio results through time.
The glitch, of course, is that the optimal rebalancing strategy is unknown in real time. We know what would have worked had you applied it rigorously in the past. But it's never really clear how the rear-view mirror will inform our analysis going forward. In my book Dynamic Asset Allocation, I reviewed a
The Mid Cap Growth style ranks eighth out of the twelve fund styles as detailed in my Style Rankings for ETFs and Mutual Funds report. It gets my Neutral rating, which is based on aggregation of ratings of 10 ETFs and 360 mutual funds in the Mid Cap Growth style as of July 16, 2013. Prior reports on the best & worst ETFs and mutual funds in every sector and style are here.
Figure 1 ranks from best to worst the eight Mid Cap Growth ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated Mid Cap Growth mutual funds. Not all Mid Cap Growth style ETFs and mutual funds are created the equal. The number of holdings varies widely (from 19 to 541), which creates drastically different investment implications and ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated
Picking from the multitude of style ETFs is a daunting task. There are as many as 42 in any given style and at least 223 ETFs across all styles.
Why are there so many ETFs? The answer is: because ETF providers are making lots of money selling them. The number of ETFs has little to do with serving investors' best interests. Below are three red flags investors can use to avoid the worst ETFs:
I address these red flags in order of difficulty to overcome. Advice on How to Find the Best Style ETFs is here.
How To Avoid ETFs with Inadequate Liquidity
This is the easiest issue to avoid and my advice is simple: Avoid all ETFs with less than $100 million in assets. Low levels of liquidity can lead to a discrepancy between the price of the ETF and the