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By Jason Stipp | 04-14-2011 02:00 PM

Under the Hood of Our Hands-On and Hands-Free Portfolios

Morningstar's Paul Justice outlines the recent activity and look of the ETFInvestor newsletter portfolios, including an emphasis on larger-cap value names.

Jason Stipp: I'm Jason Stipp for Morningstar. It's ETF Investing Week on Morningstar.com, and today we're checking in with Morningstar ETF expert Paul Justice, he's the director of North American research, to find out how Morningstar ETFInvestor's portfolios are positioned.

Thanks for joining me, Paul.

Paul Justice: Thanks for having me.

Stipp: So, you folks run a newsletter, an investment newsletter, called ETFInvestor. You have two model portfolios in that newsletter, real-money portfolios: One is called the Hands-Free and one is called the Hands-On.

Before we get into how they're positioned, can you explain what is the difference between these two portfolios and what they're meant to accomplish?

Justice: Well, I think this is a case where the name actually indicates a lot of what they do. You think of the Hands-Free Portfolio, this is something that we intend to hold most of the things in there forever. This is a very passive portfolio where we're constructing an asset allocation, giving people ideas of products that they can use passively for the long-haul to make sure that they're getting the most of the ETF market. And using ETFs passively, you're really capitalizing on the low cost and tax efficiency of ETFs. So, we help you choose the ETFs that will give you the proper exposure, mainly on a market cap basis, that's going to help you over the longer haul if indexing is something that you subscribe to.

Stipp: Would you say that that's more of a strategic portfolio, so kind of an asset allocation and not necessarily trying to take advantage of inefficiencies in the market, but just have a good allocation and get set and let it go?

Justice: Exactly. We're not making any tactical bets in there ... Well, there are some slight ones in there whenever we think that there is something that's really out of whack in the market. But for the most part, we don't want to over-think the situation in this portfolio. This is something that somebody who really wants to only look at their portfolio maybe once a year, this is something that they could consider, do some annual rebalancing, consider their own asset allocation and then let it reap.

Stipp: What kind of time horizon are you guys looking at for that particular portfolio?

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