![]() If I’m completely wrong about my concerns for balanced allocation ETFs, that should be positive for AOM. But iShares double-dipping appears to be as acceptable to the marketplace as it is in the hedge fund business, which is a mystery to me. There are spots in the market where one can get away with that, but I don’t think balanced portfolio allocation is one of them.Īdd in the fact that iShares tacks on an additional 15 basis point fee to own this very transparent mix of other iShares ETFs that does not change very often, and I’d expect more pushback from the investment community. To my disappointment, many investors are still doing that. This all conspires to make “traditional” stock-bond allocations very risky, if all you do is look back at past returns. That includes index funds, high-frequency traders, day-traders, and others. I think the way markets operate today has changed, thanks to media hype, social and otherwise, and a new batch of market influences that frankly don’t care what they are buying and selling. Suffice it to say that expecting bonds to deliver the combination of decent yield and falling rates on a secular basis is asking for the near-ideal conditions for bond investors from 2009-2021 to resume. I’ve written plenty of articles in Seeking Alpha under Modern Income investor that cover my beliefs and the rationale for them, after 37 years in the investment industry trenches. This could be a very long list, but I’ll avoid getting too “preachy” about my long-standing criticism of the traditional stock-bond allocation mix. This ETF also pays a quarterly dividend, so shareholders get some cash distributed on a regular basis. So, if an investor is drawn to that, AOM makes that happen. In addition, this ETF does effectively target a 40%/60% stock bond portfolio. Their backing is always a strength to me. The firm put ETFs on the map and offers several innovative and useful funds. I am a fan of Blackrock’s iShares unit, even if I am not a fan of AOM. Rating scale: A = Excellent, B = Good, C = Fair, D = Weak, F = Poorįor a detailed description of MII's proprietary technical rating system, see disclosures at bottom of this report. The other 5 ETFs round out the portfolio with non-US bonds, mid cap and small cap stocks, and a tiny money market position. Those 3 positions make up about 85% of AOM. Another 22% is invested in an iShares S&P 500 ETF, and 13% is in an iShares International stock ETF. So, about 20% of AOM is in government bonds. Nearly 50% of AOM is invested in an iShares bond ETF that itself is about 40% allocated to government bonds, with the rest invested in bonds that have some degree of credit risk. The goal is to achieve a moderate allocation that tracks the S&P Target Risk Moderate TR USD index, a 40% bond / 60% stock benchmark. ![]() StrategyĪOM invests across 8 iShares ETFs, making it an ETF-of-ETFs, the equivalent of a fund-of-funds in the mutual fund or hedge fund arenas. But I do, and so I am assigning a Sell rating to AOM. Unfortunately, nearly $1.4 billion in investor assets don’t see it that way. That look-through aspect means that ETFs that are constructed too simply, and add on unnecessary fees, are just not very useful. One of the great things about ETFs is that they are highly-transparent vehicles. The other problem is that AOM doesn’t do anything that most investors can do themselves. Those rates are likely to fluctuate wildly in the coming years, and that transition from what bonds were to what they are is a challenge I don’t think many investors (especially retirees and pre-retirees) have quite accounted for yet. Now, they are essentially another type of stock, thanks to the market’s response to a new era of higher interest rates. Bonds used to be predictable and profitable. First, the role of bonds in a so-called “balanced” portfolio has changed and may not change back for a while. I see two problems with the approach of this ETF and its 3 siblings, which target Conservative, Growth and Aggressive allocation objectives. In asset mix terms, that translates to a 40% stock and 60% bond allocation. In the case of AOM, that is a “Moderate Risk” allocation. Similar to target date mutual funds, these ETFs aim to deliver what the issues consider to be a target asset allocation for investors with a certain type of risk tolerance. NYSEARCA: AOM is one of a set of four ETFs offered by industry giant iShares for about the past 15 years.
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