AOK ETF Review – iShares Core Conservative Allocation ETF

AOK is a conservative ETF from iShares that is part of their line of Core Allocation ETFs, which provide a globally diversified, multi-asset portfolio in a single fund. But is AOK a good investment? I review it here.

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AOK ETF – What, How, and Why

AOK is the iShares Core Conservative Allocation ETF. It is part of iShares' line of asset allocation ETFs called Core Allocation Funds that launched in 2008. AOK has a little over $700 million in assets, making it the least popular fund in this family.

These are called “asset allocation ETFs” because they hold a diversified mix of different assets in one single fund based on a set asset allocation, which is a ratio that illustrates the relative weight of each asset type. For AOK, that ratio is 30/70, meaning 30% stocks and 70% bonds, which iShares calls a “conservative” allocation. This makes AOK most appropriate for very risk averse investors. Interestingly, this is roughly a risk parity allocation for stocks and bonds.

Whereas a target date fund shifts that asset allocation based on an increasingly conservative glidepath, the allocation of this fund stays static over time.

ETFs are usually a single-asset product, but each fund in this line of Core Allocation ETFs from iShares uses 7 of their own index funds to construct a globally diversified basket of stocks and bonds:

IVV – iShares Core S&P 500 ETF
IDEV – iShares Core MSCI International Developed Markets ETF
IUSB – iShares Core Total USD Bond Market ETF
IEMG – iShares Core MSCI Emerging Markets ETF
IJH – iShares Core S&P Mid-Cap ETF
IAGG – iShares Core International Aggregate Bond ETF
IJR – iShares Core S&P Small-Cap ETF

The relative weights of these assets align with their global market cap weights at any given point in time.

AOK's current exposure looks like this:

16% U.S. Large Cap Stocks
1% U.S. Mid Cap Stocks
0.4% U.S. Small Cap Stocks
10% ex-US Developed Markets
4% Emerging Markets
59% Total U.S. Bond Market
10% Total International Bond Market

Exposure like this with one ticker was historically only available with a mutual fund. These Core Allocation Funds provide a well-diversified index portfolio in a single ETF wrapper, all at a relatively low fee of 0.15%. I discussed here that ETFs offer greater flexibility, accessibility, control, and tax efficiency compared to mutual funds. As far as I know, these are the only broad, low-cost asset allocation ETFs available.

This simplicity of a one-fund portfolio can be extremely valuable for the index investor who wants to be completely hands off. You don't have to worry about choosing investments and you don't even need to do any rebalancing because the fund does it for you.

These products massively decrease the mental and logistical effort required in portfolio management, and more importantly, mitigate the investor's own behavioral biases like recency bias, performance chasing, and loss aversion. It is actually well documented that investors who hold balanced allocation funds tend to outperform investors who try to manage everything themselves.

These Core Allocation Funds even have their own proprietary indexes, each for a different target level of risk. For AOK, that's the S&P Target Risk Conservative Index. The index is rebalanced semiannually in April and October.

AOK ETF Performance

Going back to their inception in 2008, here is a performance backtest of AOK compared to its sister funds through 2022:

Notice how AOK had the lowest volatility and smallest drawdowns during this period.

Is AOK a Good Investment?

So is AOK a good investment? Maybe.

As usual, that will depend on your personal goal(s), time horizon, and risk tolerance, and specifically whether or not those things align with a 30/70 portfolio of global stocks and bonds.

Like I noted earlier, AOK and rest of the iShares Core Allocation Funds provide a great single-fund solution for the hands-off global index investor at a relatively low cost. For those reasons, they even get the stamp of approval from staunch Bogleheads even though they aren't Vanguard products.

Conveniently, these ETFs are also portable if you ever decide to switch brokers, whereas a target date mutual fund might not be. They don't offer any magical tax efficiency different from their constituent components, but of course we would consider them to be more tax-efficient than a mutual fund, making them potentially attractive for taxable space.

AOK could of course be used as one's entire portfolio, or it could be held as a core of stocks and bonds alongside other assets like gold.

AOK should be available at any major broker, including M1 Finance, which is the one I'm usually suggesting around here.

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Disclosure: None.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.