Does moderately overweighting Eurozone stocks as an Eurozone investor make any sense?

[dawn_ks]

I am an Eurozone investor (Germany) and recently learned that having a moderate home bias can actually make sense, at least for Canadians.

E. g.,

- Ben Felix

,

- Canadian Couch Potato https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/,

- Vanguard https://www.vanguard.ca/content/dam/intl/americas/canada/en/documents/CHBP_062023_V8_secure.pdf and

- The Poor Swiss https://thepoorswiss.com/de/home-bias-portfolio/.

The reasons are lower costs, less currency risks and tax advantages. The latter is not the case for Eurozone investors, I think.

I am now contemplating 80% Vanguard FTSE All World (IE00BK5BQT80) and 20% iShares Core MSCI EMU (IE00B53QG562) for the risky part of my portfolio. Does that make any sense to you?

Especially the tracking differences of the iShares Core MSCI EMU in favor of the ETF holder are remarkable, 0,439% p. a. on average since 2014.

 

[seekinghiswisdom]

@dawn_ks You should have a negative home bias actually. Your job, real estate, and cash possessions are all in euros. You thus already have an home bias if you consider your wealth in an hollistic manner. I do the opposite : overweight US to compensate for living, working, and owning possessions in Europe.

 

[petalpusher]

@seekinghiswisdom This exactly. Also, The US can do 21st century tech and manufacturing, Europe mostly cannot.

We need a couple more ASMLs, more babies 10 years ago, more high skill immigrants and all of Africa’s resources.

 

[anubiscoria]

@seekinghiswisdom I like the way you think

 

[jsis]

@dawn_ks Lower costs should come with an asterisk. It really depends on your country but in general EU ETFs are just a bit lower TER than world ETFs while country index tracking ETFs might be way higher

 

[debslabs]

@jsis More about taxes, like on dividends. Dividends in the US are taxed pretty heavily for foreign investors IIRC, given they domestically have tax advantaged accounts.

 

[meshaa]

@dawn_ks No, selecting specific countries is the same as selecting specific stocks. I have now idea what will perform and what will not, so I buy them all

 

[leentee1525]

@dawn_ks It makes no sense to have home bias, don't believe anybody who tells you otherwise. Of course, invest in EURs and don't play with foreign currencies, but investing more in European stocks than their share of the world market because you live there makes no sense. You already live in Europe, have a job in Europe, and earn in EURs, possibly own a home or rent in the EU, you already have enough exposure. It makes no sense to invest more in Europe beyond its share in a world or developed world index.

 

[jayjaynp]

@leentee1525

don't believe anybody who tells you otherwise

You mean don't believe anybody but trust RandomEuroGuy on Reddit?

That apart is your statement backed by some evidence or is it a personal opinion?

I too by listening to RR had the idea that half home bias half International had better performance in backtests in the mentioned studies.

 

[dawn_ks]

@jayjaynp Yes, it is an empirical observation, however there is no theoretical rationale, so far

 

[leentee1525]

@dawn_ks That's wrong, it's not an opinion nor an observation. Home bias makes no sense financially. You referenced Ben Felix in your post, here's another video of his:

 

[dawn_ks]

@leentee1525 Give me a break with your dogmas. Your Ben Felix video does not say that moderately overweighting your home country does not "make sense". Look at Vanguard's findings and my initial Ben Felix video (it has a time stamp) in which he talks about the Anarkulova et al. paper. There is evidence that a moderate home bias is smart for Canadians and other non-US investors. So yes, it is an empirical observation

https://preview.redd.it/bv6k1qowr0i...bp&s=c61e056e05d03bd18f59761401123f9ae289d273

 

[leentee1525]

@jayjaynp Personal opinion. Do your research, and do whatever you like with your money.

 

[dawn_ks]

Just discovered this reddit post of Ben Felix. Having a home bias is not that stupid as many think

https://www.reddit.com/r/Bogleheads/s/43D7vgoF3e

 

[anubiscoria]

@dawn_ks One of the points on the RR podcast was that if you're home country performs well, then so will your currency, so international holding will look like they perform worse. In which case - get a hedged etf? Invesco do a nice S&P 500 that can be euro hedged (E500) and you don’t pay withholding tax as it’s pathetic swap.

They also talk about the risk of war and disruption. But couldn’t some of that happen at home as well. Possibly a reason for a slight tilt away from EM and the pacific?

 

[dawn_ks]

Was hoping for a discussion on a higher niveau. Maybe backed by some serious empirical evidence

 

[dawn_ks]

For all those intellectuals who say that the alternative to US only is poverty

https://twitter.com/i/web/status/1757097284188139573