I am retired and take educated guesses on all things financial.

May 24, 2008

May 24, 2008: PowerShares Autonomic Growth NFA Global Asset Portfolio: Yes

A rule of thumb is that managed diversified Funds for long term holding survive a three year wait and see period to provide the investor with data to support a manager's competence prior to accumulation. I have violated this practice and purchased a position in PowerShares' Autonomic Growth NFA Global Asset Portfolio on May 23rd, three days after its inception. I wrote a brief article two weeks ago on the three managed ETFs of ETFs PowerShares was going to introduce, waited, studied their model, and decided that this ETF, ticker symbol PTO, was a nice initial fit into my Speculative Portfolio for now. If the ETF performs as I anticipate, it will be transferred into my Permanent Portfolio as a core holding.

PowerShares Autonomic Growth NFA Global Asset Allocation is based on the New Frontier Global Dynamic Growth Index (primarily consisting of PowerShares ETFs). The ETFs and their weightings are chosen through a proprietary and patented Resampled Efficiency process - only backtested for now, but which looks good based upon the present portfolio mix. The process is designed to maximize returns and minimize risk, something we have all been told before - I prefer to let the portfolio speak for itself.

Long term balanced funds used to contain a large majority of U.S. stocks and bonds. No longer. PTO's ETF mix is 49.36% International Equity, 41.14% Domestic Equity, 7.88% Fixed Income and 1.81% Commodity/Currency as of May 23rd. This 21st Century Model will be adjusted slightly on a quarterly basis, or more frequently if markets become volatile and a higher risk than warranted by the Resampled Efficiency process occurs. This managed ETF does not need a "hot hand" to excel. It is a disciplined model-based approach which should serve the investor well over time.

The ETF mix of PTO is as follows on May 23rd: (PS=PowerShares)


PFA - PS Dynamic Developed International Opportunities 22.60%
PEH - PS Dynamic Europe Portfolio 7.71%
EEM - iShares MSCI Emerging Markets 4.69%
VWO - Vanguard ETF Emerging Markets 4.67%
PUA - PS Dynamic Asia Pacific Opportunities Portfolio 4.63%
VEA - Vanguard Europe Pacific ETF 3.03%
VGK - Vanguard ETF European 2.00%


PJF - PS Dynamic Large Cap Portfolio 12.96%
PWJ - PS Dynamic Mid Cap Growth Portfolio 4.66%
PWV - PS Dynamic Large Cap Value Portfolio 4.38%
PWB - PS Dynamic Large Cap Growth Portfolio 4.02%
PWY - PS Dynamic Small Cap Value Portfolio 3.37%
PWT - PS Dynamic Small Cap Growth Portfolio 2.87%
PWP - PS Dynamic Mid Cap Value Portfolio 2.53%
RWR - SPDR DJ Willshire REIT ETF 2.32%
VNQ - Vanguard ETF REIT 2.31%
FZI - PS Zacks Micro Cap Portfolio 1.20%
PJG - PS Dynamic Mid Cap Portfolio 0.52%


PCY - PS Emerging Markets Sovereign Debt Portfolio 1.64%
LQD - iShares iBoxx $ InvesTop Investment Grade Bond Portfolio 1.42%
PLW - PS 1-30 Laddered Treasury Portfolio 1.23%
BWX - SPDR Lehman International Treasury Bond ETF 1.18%
MBB - iShares Trust Lehman MBS Fixed Rate Bond Fund 0.86%
TIP - iShares Lehman TIPS Bond Fund 0.76%
PHB - PS High Yield Corporate Bond Portfolio 0.51%
TLT - iShares Lehman 20+Year Treasury Bond Fund 0.23%
SHY - iShares Lehman 1-3 Year Treasury Bond Fund 0.05%


DBO - PS DB Oil Fund 0.58%
DBV - PS DB G10 Currency Harvest Fund 0.53%
DGL - PS DB Gold Fund 0.51%

Trading at $14.88/share, just a notch above NAV, PTO has an expense rate of 0.25% plus the expense of the ETFs. I calculate the total expenses to be in the neighborhood of 0.79%, which is acceptable to me considering the asset mix. As with most ETF startups the market value is tiny, a paltry $1.5m. The ETF has had decent volume for a new Fund this week. Although jumping in on Friday may have indicated an itchy trigger finger (and some cash yearning to be put to work) on my part, I liked the mix, method and company standing behind the ETF. Over the past thirty-six years of investing, I recall buying securities for my Speculative Portfolio with less chance of success. A managed ETF such as PTO may well allow me to take risk with less risk.

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