Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

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Messner8000
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Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby Messner8000 » Sun Jul 16, 2017 2:22 pm

My wife has a ROTH IRA that is 100% invested in a fund called ALPS Equal Sector Weight ETF (EQL). The expense ratio of the fund is .48. My plan (as I have already done with all of my holdings) is to sell the entire fund and then purchase shares of Vanguard Target Retirement Fund with a 80/20 AA. (For my portfolio, I purchase the individual funds myself to get Admiral shares but track the Target Retirement Fund positions, but since her portfolio is less than $30,000, I think it makes sense to just buy into the Target Retirement Fund until her portfolio is above $30,000 and she can get Admiral shares).

Anyway, her ROTH is handled by her parents' financial adviser who has had it all invested in this one fund for many years. My plan is to leave the guy (who doesn't charge us anything, but still....) and sell the shares as described above, but since my wife has had this account for about a decade and is trusting me when I say it is a good idea to sell that ETF and follow my suggested approach, I thought I'd check on this board to see if there is anything I should be considering before making this trade (since I'm a newbie to the DIY approach). Like...is there a reason I would want 100% of a ROTH IRA in an Equal Sector ETF? The amount is about 6-7% of our entire portfolio, which is currently in an 80/20 stock/bond AA.

My thinking is that the fund expenses, while at .48 aren't bad, are still higher than Vanguard, and my proposed approach is more diversified. Thanks in advance for any thoughts/advice! (For what it's worth, we are in our 30s).

MotoTrojan
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby MotoTrojan » Sun Jul 16, 2017 3:06 pm

Google said ER is 37 basis points but either way, the question is whether or not you believe in an equal-weight approach.

Also if you're already at your AA, this would increase bonds. Maybe replace this with Total Stock Market (US). Do you hold international?

Roth is max growth so I prefer to do stocks only, and bonds in tax-deferred.

Messner8000
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby Messner8000 » Sun Jul 16, 2017 6:37 pm

To answer your question, right now my portfolio is a simple three-fund approach: about 50% Total Stock Market (VTSAX), 30% Total International Stock Index (VTIAX) and 20% Total Bond Market Index Fun (VBTLX). So I plan to sell the Equal Sector Weight ETF and just use the money to buy the above holdings so that it matches the rest of the portfolio. To be honest, being a fairly new DIY investor (previously just had someone else handle it), I don't know enough to know if I believe in an "equal weight approach"!

gwrvmd
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby gwrvmd » Sun Jul 16, 2017 8:33 pm

Don't be afraid of the "equal weight approach"
The Guggenheims S&P 500 Equal Wt ETF (RSP) is a commonly used investment.
Generally it means that midcaps will have a greater effect on the asset than if it was capitalization weighed in which case large capitalization stocks would have a greater effect........Gordon
Disciple of John Neff

pkcrafter
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby pkcrafter » Sun Jul 16, 2017 9:14 pm

Anyway, her ROTH is handled by her parents' financial adviser who has had it all invested in this one fund for many years. My plan is to leave the guy (who doesn't charge us anything, but still....)

Doesn't charge? Maybe, but I've never heard of it before. Maybe it's a contingency of your parents agreement since the advisor doesn't do anything at all with your wife's acct, or her parents are paying the advisor.

Where is the Roth held?

Does your wife have any interest in investing? How is she on risk? I'd say yes, move the Roth and buy a TR fund and just hold it for a couple of years. If the advisor really isn't making any money off of the account, he will probably be glad to get rid of it.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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in_reality
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby in_reality » Sun Jul 16, 2017 9:29 pm

gwrvmd wrote:Don't be afraid of the "equal weight approach"
The Guggenheims S&P 500 Equal Wt ETF (RSP) is a commonly used investment.
Generally it means that midcaps will have a greater effect on the asset than if it was capitalization weighed in which case large capitalization stocks would have a greater effect........Gordon


It's true. I also believe you get value exposure.

Before keeping it though, I'd want to have a look at its methodology. Going over the history of the fund shows it has underperformed total market, while Vanguard's small cap value, Schwab's Fundamental Index and Guggenheim's RSP all out performed it.

What is EQL doing differently such that it doesn't behave like other funds that load on small value?

You can see this in Morningstar here.

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

Messner8000
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby Messner8000 » Mon Jul 17, 2017 8:31 pm

Thanks for the thoughts. To answer pk's question, the fund is with Fidelity but I'm thinking of moving it to Vanguard, and the only reason we didn't pay for the adviser is that it's that my wife's parents use the adviser (and pay his 1% commission :() and as a "perk" he "manages" this small amount of my wife's money. My wife has no interest in investment-related stuff and just trusts that I won't mess anything up!

MotoTrojan
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby MotoTrojan » Mon Jul 17, 2017 9:59 pm

Messner8000 wrote:To answer your question, right now my portfolio is a simple three-fund approach: about 50% Total Stock Market (VTSAX), 30% Total International Stock Index (VTIAX) and 20% Total Bond Market Index Fun (VBTLX). So I plan to sell the Equal Sector Weight ETF and just use the money to buy the above holdings so that it matches the rest of the portfolio. To be honest, being a fairly new DIY investor (previously just had someone else handle it), I don't know enough to know if I believe in an "equal weight approach"!


Sounds like you can't go wrong either way. At 6-7% of the portfolio though, you won't notice the likely small difference in performance (in either direction) so I'd vote for simplifying, especially given it's in Roth so no capital gains to think about.

Your AA sounds great, assuming 20% bonds feels right. Little high on International for my taste, but Vanguard agrees with you!

acanthurus
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby acanthurus » Tue Jul 18, 2017 2:49 am

in_reality wrote:What is EQL doing differently such that it doesn't behave like other funds that load on small value?

It's equal sector weight, but cap weighted within each sector, so it won't show nearly as much mid/small cap tilt as RSP equal weight indexes.
http://www.alpsfunds.com/overview/EQL

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celia
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby celia » Tue Jul 18, 2017 3:14 am

I'm confused. Who does your wife want as her agent to act on her behalf? She can't have more than one person/entity or they will keep changing each other's choices.

Did she fund her Roth herself or did her parents? If her parents did, they may have certain expectations you're not aware of. Maybe it helped them get to Flagship status (or the equivalent elsewhere). She should ask her parents for clarification first. You may not want to rub your in-laws the wrong way.

I have something like this setup with my adult kids. Together, all of our assets make us eligible for a higher status and save on investing costs. I want them to control their own money but if they or a significant other just moved an account elsewhere, I would be on the phone to them to see what was going on (that they were aware and ok with the changes).

Messner8000
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Re: Selling Wife's Equal Sector Weight ETF - any landmines I'm missing?

Postby Messner8000 » Tue Jul 18, 2017 7:02 am

Thanks again for your thoughts. In response to your question, Celia, it's actually pretty simple (and I think somewhat common). My wife (who is in her mid-30s) has always socked a little away in a ROTH since she started working, and her parents' adviser has always invested those little amounts each year for her free of charge (since he gets paid a bunch for managing her parents' money). We have no real connection to him (we don't care if we leave him) and her parents don't care if we leave him (e.g., they don't need her money for any sort of status), and I suspect the adviser would be happy not to have to manage the little amount we have with him. My wife and I were recently married and this question is just one of the many areas we are consolidating our previous lives. Basically, she trusts that I will do the right thing with our money :)


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