USCI United States Commodity Index Fund

With close to 1,500 ETFs trading today, the industry has expanded into a host of niche sectors and markets. Options now exist that give investors exposure to everything from soybeans or Malaysian stocks, to companies in the solid state drive industry or Chinese bonds.

However, broad market funds giving exposure to a host of sectors are still leading the pack when it comes to popularity and assets under management. In light of this, many issuers have targeted this slice of the market, looking to bring new choices in order to give investors easy ways to build a complete portfolio with just a handful of Exchange-Traded Products (read Real Return ETF Investing 101).

In fact, one could easily build a well diversified portfolio—that includes exposure to global stocks, bonds, and commodities—with just three ETFs. This technique could be perfect for investors who often find themselves meddling in their portfolios too much or for those who would prefer a low trading strategy instead.

Beyond this, a mixture of the following three could also serve as a great benchmark for current portfolio performance, since it includes such a diverse mix of asset classes and geographic regions, making it a pretty decent global barometer of return (see more in the Zacks ETF Center).

So for these investors seeking either a truly ‘lazy’ portfolio or a better yardstick to measure up returns against, a mix of the following three exchange-traded funds could be a very easy way to gain global exposure across asset classes irrespective of geography:  

Vanguard Total World Stock ETF (VT)

For holdings across a variety of sectors, cap levels, and nations, VT is a nearly unbeatable choice in the ETF world. The fund tracks the FTSE Global All Cap Index and has average daily volume of about 175,000 shares while expenses are quite low at 22 basis points a year.

The portfolio consists of nearly 750 stocks in total and is quite spread out among industries. In fact, six segments make up at least 10% of assets while there is also a good mix between growth and value as well (read The Comprehensive Guide to Total Market ETFs).

Large caps do dominate the fund, accounting for nearly 80% of assets, but the fund does a great job of spreading out capital across nations. America makes up just less than 50% of assets, while Europe accounts for about one-fourth of the total, and Asia makes up another 20%. This ensures a pretty well diversified fund that goes across borders and still provides a decent—but admittedly small—holding in emerging market securities.

Madrona Global Bond ETF (FWDB)

For complete bond exposure, FWDB remains a top choice, and one of the true globally diversified bond funds out there. The product is an actively-managed fund, seeking to beat out the BarCap Global Aggregate Bond Index on a price and yield performance basis.

This fund, thanks to its active management, implements a much more dynamic allocation system, holding bonds from 12 distinct groups. The portfolio managers also use a yield-curve analysis on a class by class basis in order to give a forward looking element to the bond fund (read The Best Bond ETF You Have Never Heard Of).

 This results in a portfolio that is tilted towards American corporate debt as this segment makes up about 27% in terms of investment grade securities. However, a number of other types of debt, including high yield corporate, MBS, short-term government debt, emerging market bonds, and TIPS, all receive at least 5% of the total exposure as well.

Investors should note that from a year-to-date look this has crushed the BarCap Aggregate Bond Index from a price performance perspective. However, the yield may be a little light for some, coming in at 2.8% in 30 Day SEC terms.

Meanwhile, the net expense ratio of 1.15% is rather high when compared to the index-based counterparts in the space. Additionally, volume is quite low so wide bid ask spreads could be seen in this product.

Nevertheless, its global diversification is unmatched, especially when comparing it to other, more popular bond ETFs. Due to this, it stands out—even when taking into account its high fees and low volume—as a great way to obtain global bond exposure in a single ticker.

United States Commodity Index Fund (USCI)

For investors seeking total commodity access, one can easily achieve this with USCI. This fund tracks the SummerHaven Dynamic Commodity Index Total Return, and while it is somewhat pricey at 95 basis points, it does have a solid volume of 78,000 shares a day (see Is USCI the Best Commodity ETF?).

The product’s unique methodology is what really makes it stand out though, as the benchmark consists of 14 futures contracts at any one time, of a possible 27. Furthermore, the fund chooses the 14 by first picking seven based on the backwardation of the futures curve, while the remaining seven are chosen based on their trailing 12 month performance. These commodities are then equally weighted and rebalanced and reconstituted on a monthly basis.

This approach insures that the fund has diverse exposure across a variety of commodity types and that no one sector dominates the risk return profile of the fund. USCI’s research also shows that this can result in lower levels of volatility as well, as evidenced by trailing 10 years of volatility figures when compared to similar indexes.

At time of writing, the fund consists of nearly 40% agricultural commodities, 29% energy, 14% industrial metals, and 14% precious metals. Additionally, the product does collateralize its investment with a short-term T-bill, so the rate from this does help to defray some of the cost as well.

Also, investors should note that a K-1 will be necessary due to the product being structured as a partnership. This may require a little bit of a headache at tax time, but given the solid performance of the fund over long time periods, it could be worth it for most investors (if this is a huge issue for you look at ETNs in the space instead).

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MADR-FWD GLBL (FWDB): ETF Research Reports
 
US-COMMODITY IF (USCI): ETF Research Reports
 
VANGD-TOT W STK (VT): ETF Research Reports
 
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