View: The Winning Ways of an ETF Wizard - Barrons.com

Ron Vinder grew wary of stock-picking almost as soon as he landed on Wall Street. It was 1988, and Vinder was hitting the phones 12 hours a day for Lehman Brothers, pushing the firm's favorite stocks. The long days earned him decent commissions but also the knowledge that clients weren't making much money.

Twenty-four years later, Vinder, now a leading financial advisor at UBS Financial Services, eschews individual stocks almost entirely. Instead, he relies on exchange-traded funds, using them to carry out carefully tailored asset allocations. "The more asset classes that you introduce into a portfolio, the less risk and the better the return you'll have over a long period of time," Vinder says with a quiet confidence.

Named to Barron's annual list of Top 100 Advisors in 2011, Vinder ranks 77th in this year's tally, with assets under management totaling $2.9 billion and a median account value of $25 million.

He explains his strategy to prospective clients right away, and his 110 clients have learned that he won't be calling with stock picks, or even to change allocations. "My whole investment philosophy is coming up with the right strategy and sticking to it," he says.

The approach can at times make clients antsy: Sitting back passively in the markets goes against human instinct. But as Vinder knows well, human instinct isn't always right. "Whenever an asset class does well, that's when individuals want to buy more," he points out. "And they want to sell what's doing poorly."

It's that kind of bad timing, coupled with high management fees and inefficient tax planning, that prevents most investors from even matching the returns of the S&P 500, he says.

Vinder builds portfolios in the same way that Moneyball hero Billy Beane crafted the overachieving Oakland Athletics: unbound by emotion or conventional wisdom, and armed with decades of historical data. Vinder determines a client's income needs and then uses his data to determine the asset combination with the highest return and lowest possible risk. The result is the "efficient frontier."

Once a year, Vinder's six-member New York-based team rebalances clients' portfolios, shedding some of the best-performing assets and buying more of the underachievers. "It kind of forces you to buy low and sell high, which is what everyone strives to do but doesn't," he says.

VINDER, 45, ARRIVED AT UBS in 2009, after four years at Merrill Lynch and 10 at Morgan Stanley. Today, he sits on the 23rd floor of IBM's former headquarters on Madison Avenue. From his corner office, the advisor has a bird's-eye view of midtown Manhattan and one of its busiest crossroads.

A few days before we visited Vinder at his office, the advisor had met a new client with approximately $30 million in assets. He built the 53-year-old a model that's 40% equities, 55% fixed income and 5% cash. That's the efficient frontier for this client; the average allocation across his client base comes to 50% equities, 43% fixed-income; 5% managed futures, and 2% cash.

The new client's stocks are split into small-, mid-, and large-caps, and further divided into growth and value categories—all through ETFs. In total, the portfolio uses 25 ETFs. Vinder looks for ETFs with the lowest possible fees, which means one less obstacle in matching the index's return.

The client gets exposure to traditional overseas markets through iShares MSCI EAFE (ticker: EFA). Emerging markets is split between the iShares MSCI Emerging Markets (EEM) and Vanguard MSCI Emerging Markets (VWO). Bond holdings include PowerShares National Muni Bonds (PZA), iShares iBoxx $ Investment Grade Corporate Bond (LQD) and the SPDR Barclays Capital High Yield Bond Index (JNK), which currently yields 7.1%.

There are no hedge funds in the mix and not much in the way of alternatives; he keeps up to 5% in managed futures accounts.

History bodes well for the approach. The average return from a diversified set of ETFs designed to track the markets returned 72% from 2002 through 2011, Vinder says. And that, of course, was a notably flat period for stock prices. Maybe the Lost Decade wasn't so hard to find after all. 

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