2019 Analysis of Fund Families on the Marotta Buy List

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After looking at how poorly the fund families on the Ameriprise “Full Participation” list scored, I decided to review the use of various fund families by our own Investment Committee.

Our Investment Committee goal is to select funds based solely on their usefulness in building client portfolios. We are not compensated by any funds, and we switch funds without any hesitation if we find a better offer. We believe you, as a client, deserve investment advice from a firm where you don’t have to second guess where their loyalties lie.

We believe this policy helps mitigate the conflict of interests inherent when a firm receives compensation based on the sale of specific securities or investment products. We do not receive any payments or commissions from fund or insurance companies.

As fee-only financial planners, our only compensation is the fee our clients pay. As a result, we have every incentive to keep your fund and brokerage costs as low as possible in order to keep the returns you receive as high as possible.

Here are the fund families used in our current Buy List along with the approximate use in Marotta portfolios.

Fund Family Rank out of 150 Average Expense Ratio Approximate Use in Marotta Portfolios
Vanguard 12 0.10% 46.68%
Schwab 7 0.12% 26.27%
BlackRock / iShares 31 0.29% 16.61%
State Street / SPDR 9 0.17% 8.64%
DFA (Dimensional) 14 0.34% 1.27%
Invesco 94 0.59% 0.54%


The approximate use in Marotta portfolios is estimated by measuring the percentage directly invested in funds that are on our Buy List. Our Buy List is the list of funds we would purchase for clients who come to us all in cash. Our Buy List represents about 75% or more of our current holdings.

The remaining 25% includes funds previously on our buy list where we have now selected a slightly better fund or positions that clients held before they began working with us for investment management which, because of potential capital gains taxes or other transaction costs, are best not sold.

About 73% of our selected investments are from the fund families of Vanguard and Schwab with average expense ratios of 0.10% and 0.12% respectively.

About 83% of our selected investments are invested with a fund family ranked in the top ten percent (15 fund families) of the 150 fund families according to Morningstar.

The two fund families which are not among the top ten percent of the Morningstar rankings are BlackRock / iShares and Invesco.

It is hard to find inexpensive country specific funds. We utilize BlackRock / iShares in our freedom investing strategy when we cannot find another fund family with a better offering.

As a part of our freedom strategy, we have the following BlackRock / iShares exchange traded funds on our Buy List: iShares MSCI Singapore (EWS), iShares MSCI Switzerland (EWL), iShares MSCI Australia (EWA), iShares MSCI Ireland Capped (EIRL), iShares MSCI Chile Investable (ECH), iShares MSCI Netherlands (EWN), iShares MSCI New Zealand (ENZL), iShares MSCI Sweden (EWD), and iShares MSCI United Kingdom (EWU).

Most of these country specific iShares investments have an expense ratio of about 0.47%. We would prefer them to have a lower expense ratio, but we believe that country specific investing will result in a significantly better return which will justify the additional expense.

Whenever possible, we use a factor-based country specific fund from State Street with a lower expense ratio. These funds include: SPDR Solactive Canada ETF (ZCAN), SPDR Solactive United Kingdom (ZGBR), SPDR Solactive Germany ETF (ZDEU), and SPDR Solactive Hong Kong ETF (ZHOK) each now with an expense ratio of just 0.20%. We prefer the SPDR Solactive funds from State Street and would switch to their funds if they included the countries we are looking for. We are only currently using iShares MSCI funds for lack of a better option.

I noticed that BlackRock / iShares is one of the companies willing to pay-to-play at firms such as Ameriprise. As a fiduciary, I would prefer iShares would stop paying 0.20% to play on platforms such as Ameriprise and instead just lower their expense ratio by 0.20% from the current 0.47% down to a more competitive 0.27%.

The final fund family on our Buy List that is not among the top ten percent is Investco, with just 0.54% of our invested funds. Investco has an average expense ratio of 0.59%. We rarely use these funds, but when we do, it is because they have no transaction fee when trading them at Schwab. Using no-transaction-fee funds allows very small accounts to be better diversified as we can buy a single share without paying any transaction cost. We call this technique of purchasing small positions of funds that do not have a transaction cost the “Rocks and Sand” technique.

The funds we use at Invesco include: Guggenheim Equal Weight Energy (RYE), PowerShares Emerging Markets Soverign Debt (PCY), Guggenheim Equal Weight Heathcare (RYH), SPDR International Real Estate (RWX), Guggenheim Equal Weight Technology (RYT), Guggenheim Equal Weight Materials (RTM), and SPDR Global Real Estate (RWO). Of these, eight funds, four have an expense ratio of 0.40%, three of 0.50% and one of 0.59%.

As an example, a single share of Vanguard Energy ETF (VDE) can be purchased for $89.05. Since an equity trade costs $4.95 at Schwab, purchasing a single share of VDE costs an extra 5.56% on account of the $4.95 trading cost. Meanwhile a single share of Guggenheim Equal Weight Energy (RYE) can be purchased for $50.07 and Schwab waives the transaction costs.

RYE does have a higher expense ratio at 0.40% as opposed to the 0.10% expense ratio of VDE. Buying RYE and paying the extra 0.30% per year is better than paying $4.95 for small investments. Larger investments, on the other hand, justify paying the transaction fee and purchasing VDE instead. If $3,300 is held for two years, the extra cost of 0.30% would be $9.90 and would equal transactions costs to buy and sell. Any investment larger than $3,300 or held longer than two years would benefit from paying the transaction cost and purchasing VDE.

So although we do use the Invesco funds, we use them sparingly in accounts with very small balances to save the transactions fee and diversify the account because it is better for clients.

The Marotta Investment Committee typically builds portfolios with average expense ratios of about 0.24%. We usually don’t even consider funds with expense ratios above 0.50%. Keeping fees low is one of the best indicators of superior future returns.

You should review the expense ratio of your investments. If your account includes funds with expense ratios greater than 0.50% or funds from inferior fund families, consider switching financial advisors. Perhaps your financial advisor does not even know that lower cost funds exist because their firm utilizes pay-to-play agreements.

Photo by Dose Juice on Unsplash

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President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.