by Josh Stelzer
Since our release of the new Snider Method ETF Portfolio, we have received several calls with interest in implementing the new strategy. The new strategy takes the time tested Traditional Snider Method and implements the use of low-cost ETFs, along with a new allocation system. While we have no reason to stray from the Traditional Snider Method, the new ETF portfolio can offer other values depending on your objectives. Below you will find a list of popular questions that we have been receiving regarding this new strategy.
How does the ETF portfolio work?
Unlike the standard Snider Method, the allocation of funds is not as straight forward and well defined. Screening for just ETFs, as well as volatility, liquidity, and suitable investments is difficult. In the ETF Portfolio we eliminate leveraged, inverse, and actively managed ETFs. We also stretch the position diversification limits since one security can provide immediate diversification.
Typically, our ETF Portfolios hold a large position in a major index (Ex. Dow Jones, S&P 500, NASDAQ, and others). This is considered the “core” position. Sector, industry, or country specific ETFs round-out the remaining portion of the account. The combination creates a “Core / Satellite” approach to cover a majority of the market as well as add volatility and income. Once the allocation is made, the standard Snider Method rules apply. Only positions closing and volatility/liquidity changes create the need for a re-allocation.
What value do ETFs add to the Snider Method?
We feel this strategy fits well for clients who are slightly more risk averse, but still seek portfolio income. Since ETFs consist of a basket of stocks, the risk of bankruptcy is dramatically reduced. Historically, we have only experienced a handful of bankruptcies in the Snider Method; however, we’ve found the reduction of this risk has helped certain clients sleep better at night.
What impact does this new ETF strategy have on yields?
Lower risk does come at the cost of lower income. We do not expect these portfolios to perform up to the same cash-flow objectives of the normal Snider Method. But, for investors who may not need to maximize the income from their portfolio, a lower risk strategy could be ideal.
What size of an account works best with the new strategy?
ETFs are actually not new to the Snider Method. Back in 2009, we implemented a new change to the Lattco selection process which allowed the use of ETFs in smaller portfolios. The goal was to reduce the company specific risk with owning one or two stocks in a small account, and replace those stocks with self-diversified ETFs.
While we definitely analyze these portfolios on a case-by-case basis, we typically see that an overall portfolio of $100,000 to $500,000 can be a great fit with the new strategy. While accounts over the $500,000 threshold often have enough positions in the account to provide proper diversification, the ETF portfolio can still make sense if the client’s income need can be fulfilled with this new strategy.
Can I implement this strategy in the account I currently manage myself?
The current ETF portfolio is only available to Asset Management clients due to the limitations within Lattco. The screening of these ETFs for Snider Method suitability is a much more complicated process. Secondly, these portfolios have a non-traditional allocation method using the “Core / Satellite” approach which must be actively managed on an ongoing basis. We are always happy to consult with you on the possibility of transitioning toward this style of management in your portfolio.
How do I get started?
First and foremost, we want to make sure that the new strategy fits within your objectives. We encourage you to give us a call if you have any questions regarding the implementation of this new strategy and we will be happy to take a look at your account. If you have would like to learn more, please give me a call at 972-746-4291 and I will be happy to provide you with additional information. You can also learn more at SniderAdvisors.com by clicking here.