A.I.M. For Exchange Traded Funds

[Toofuzzy]

New ETF Provider

Wisdomtree.com is a new provider of ETFs that are based on a fundemental index. Stocks are then USUALLY weighted by dividends.
That means you can have a VERY large company that pays no dividend and it will NOT be in the funds. Two companies with the same share count and the same dividend / share will have the same weighting even if one has double or triple the market cap.

Orriginally when I switched to ETFs I was choosing between diversifying by STYLE (large, small, growth, value, forien) or INDUSTRY. It was thought industry diversification would give more swings which AIM likes and that they wouldn't move all together. I don't know that it worked out exactly like that.

The funds I used were: (all from I-shares)
ibb,iyc, iye, icf,iyg, iyh, iyj, iym, iyw, efa

This proved to be a little too much diversification for the size of my account (trades relatively small)

I then thought about what I would use with style funds and have reccomended these to a few other people.

IVE large value
IWN small value
EFA forien
ICF REITS
SHY or CHY for bonds

Invest 20% in each and rebalance once / year at most

Using some closed end funds that have a payout even if they DON'T have earnings (they may payout capital)mixed with ETFs I came up with:

RSP equal weighted large cap ETF
GAB closed end mid cap
RMT closed end micro-cap
EFA forien ETF
ICF REIT ETF
CHY, EAD, MSD, HYB closed end bond funds

I would invest 15% in the first four and 20% in the last two (5% in each of the bond funds) and rebalance at most once/ year.

And then Wisdomtree came along with funds based on a fundemental index that meets some quality values. From this index they pick the companies that meet the funds STYLE, either large, small, forien, Europe, Japan, etc

They have 20 funds and from those I have come up with a portfolio of 7 (10% each)plus a REIT ETF (20%)and a bond fund(10%). The weighting could be modified slightly to give more of a US market tilt.

DHS High Yield Equity ( market cap >200 million)
DES Small Cap Dividend ( smallest 25% of index)
DEW High Yield Europe (market cap > 200 million)
DFE Small Cap Europe (smallest 25%)
DNL High Yield Japan (market cap > 200 million)
DFJ Small Cap Japan (does not include largest 300 companies)
DNH High Yield Pacific x Japan (market cap > 200 million)

All the above funds are dividend weighted as I explained above. In addition the High Yield funds only include the 30% of stocks that have the highest DIVIDEND YIELDS from the base index.

Inaddition I would include:
ICF REIT ETF
CHY closed end bond fund

Again I would rebalance this portfolio at most once / year.

The above portfolios COULD be AIMed and then maybe be rebalanced VERY infrenquently (less that once every 5 years)

I mainly wanted to talk about Wisdomtree funds above and their fundemental indexing which they and a few other index fund providers have been starting to provide.I also wanted to include my thought process in building a portfolio.

It is thought that a capitalization weighted index fund has you buying more of the stocks that are already overpriced, whether they are in a style fund like the S+P 500 or and industry fund.

Toofuzzy