All-World Portfolios - 4 practical examples

[macaron]

Here a google doc with some All-World portfolio examples. Do you have comments, suggestions or critics? What would you choose? Thank you.

Portfolio 1: It's a "homemade" All-World ETF + small cap of Emerging Markets. Here in Italy, a bank lets you buy ETFs without any transaction cost if you are under 30yo. Does it make sense to minimize TER (0,0949%) in this way?

Portfolio 2: World + Emerging with FTSE index. It's like VWCE but with a TER of 0,13%. Am I wrong if I give this much attention to TER? Should I prefer VWCE for size etc.?

Portfolio 3: World + Emerging with MSCI index. + Emerging small cap (eventually I can add World small cap with IUSN). Bigger size and more stocks than portofolio 2, but bigger TER

Portfolio 4 - 5 - 6: a single All-World ETF

 

[janetmal]

@macaron For portfolio 1, I would use the Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF Acc (0.15% TER). It's a bit cheaper than the one you have and you don't need the awkward 1.4% South Korea ETF sine it follows a FTSE index. Also, if you're going to split up the regions like that, it makes a lot of sense (IMO) to go with a synthetic ETF for the USA part. You will save a lot in dividend leakage.

Portfolios 2 and 3 don't make a lot of sense to me, unless you want to overweight emerging markets.

I would go either go with a tweaked version of portfolio 1 (see my comments) if you don't mind the complexity or with one of the portfolio 4-6 options.

 

[macaron]

@janetmal Thank you for the accurate answer. I would use that ETF for Asia Pacific, but I don't find it on justetf. I find it only with Distributing.

Yes, Portfolio 2 and 3 are for a better control if I don't want to follow the exact market capitalization. I can also add small cap in Portfolio 3.

You are right. Probably 4-6 are better and simple. Should I wait more information about Invesco or do you think VWCE is the right choice?

 

[janetmal]

@macaron The ISIN is IE00BK5BQZ41 and this is the link to justETF. Maybe it doesn't show up because of the domicile you have selected?

I suspect that Vanguard will have to respond to the recent fee reductions from other providers. Hopefully they will reduce the fee of VWCE and/or their LifeStrategy products soon.

 

[jrchristian]

@macaron - MSCI EM IMI already includes South Korea (MSCI classes it as EM, FTSE as developed)

- As other poster said, use a swap-based for US (iShares S&P 500 Swap seems to be best ATM, but also pretty young)

- include transaction costs from KIDs and add them to the TER (but this doesn't give you the complete picture as WHT and maybe other things also play a role, cf. iShares S&P 500 Swap outperforming the classic non-swap iShares S&P 500, while having higher TER + transaction costs)

- check also https://www.trackingdifferences.com/ for tracking differences compared to the index *after fees* -- which is different from how ETF issuers give them in the annual report; it's like an "effective TER" (if it's lower than the official TER + transaction costs, it outperforms its own stats, if it's negative, it even outperforms the index). Caveats: I noticed they use the arithmetic mean to calculate the main tracking difference stat they display, which seems wrong (should be geo), they don't yet have iShares S&P 500 swap, not to mention Invesco's new FTSE A-W.

- once you calculate TER + trans. cost (maybe modified by real-world performance via above), it's be good to have a weighted average of the costs

 

[macaron]

@jrchristian Wow! Thank you very much for this answer. I updated the document with transaction costs from KIDs. Later I'm going to read better what you wrote about tracking differences after fees. Very useful.

Also found SWRD instead SWDA. Is there a difference that justifies the 0,08% TER gap?

 

[jrchristian]

@macaron TER diff is 8bps, but actual diff is just a few bps:

• https://www.trackingdifferences.com/ETF/ISIN/IE00BFY0GT14
• https://www.trackingdifferences.com/ETF/ISIN/IE00B4L5Y983

I'd go for the better performing one, out of these two (I consider iShrs, SPDR, Vang top, Amundi, Invesco etc. must be clearly advantageous for me to choose them. I like Lyxor but some of their funds have been dissolved and converted to Amundi (after their acquisition), with investors absorbing transaction costs of the switch).

There might be further changes coming, after MSCI ACWI IMI dropped from 0.4 (I think it was?) to 0.17.

 

[macaron]

@jrchristian Very interesting.

I tried to update the document by adding Tracking Differences. Now should comparing the portfolios by the weighted average of TDs be better? Or am I doing something wrong?

And should I look for a TD closer to 0 for the long run (doesn't matter if positive or negative)?

 

[jrchristian]

@macaron TD can also be misleading. AFAIK global indices such as MSCI World assume the worst possible tax situation for an international investor, with no double taxation treaties with any of the countries. Irish ETFs have 15% WHT from US and Japan (the countries with the highest share, the third is UK which doesn't withhold, except UK REITS which are taxed differently). Beating the index then becomes a goal, rather than a benchmark for excellency. Luxembourg has 15% from Japan but effective 30% from US (can't make use of DTA for ETFs). Swaps are not affected but may have higher costs to implement, covering the difference (or maybe ETF issuer and swap counterparty just make more money).

 

[jrchristian]

@macaron @macaron, Check this out https://nbs.sk/_img/documents/_publik_nbs_fsr/biatec/rok2018/05-2018/06_biatec5_kuklisova.pdf.

I'm not sure it's 100% technically correct, but it says FTSE A-W and MSCI World (the indices, not the ETFs) receive different tax treatment: MSCI World assumes you are in LU, while FTSE A-W assumes you are in the US (which has 0% WHT from the US and better tax treaties than Ireland, e.g. 10% WHT from Japan vs 15%, 15% WHT from Switzerland vs 35%).

From the perspective of an Irish ETF, beating FTSE A-W should be harder than beating MSCI World.

 

[macaron]

@jrchristian You've given me too much useful information. Thank you very much! Today I've learnt a lot.

VWCE has an average (3 years) TD of 0,03%. Considering FTSE index taxed that way, VWCE must be even close to the index!

Now I don't know what portfolio to prefer. Should I sacrifice the small caps and go with VWCE?

 

[jrchristian]

@macaron VWCE & chill. No, wait, SPYI & untie. Or just FWRA, brah (cuz it's cheepah?).

 

[kaytiedid]

@macaron I am with Portfolio 5

 

[isabelle550223]

@macaron I would choose spyi and ignore rest