ETF composition Questions for Saving Plan

[kcnalp]

Hi all,

I would like to take advantage of zero commission offered by my bank for ETF buying. This is my first time investing in ETF, and I would like to put 500 EUR/p.m into a saving plan.

Unfortunately the list of "Free" ETF is quite limited (~135 ETfs in total).

So I ended up with this list:

No.
ETF
TER %
Investment %

1
Lyxor MSCI World UCITS ETF
0.30
60

2
iShares EURO STOXX(DE)UCITS ETF - DIS
0.20
30

3
Vanguard EUR Eurozone Government Bond UCITS ETF - DIS
0.07
10

Is this reasonable? I would like to invest in Emerging Market instead of Govt. Bond but among those 135 only Lyxor MSCI EM ESG Trend Leaders UCITS ETF - USD (0.3 TR) and Franklin LibertyQ Emerging Markets UCITS ETF (0.55 TER!) are available.

I can also replace #1 with Amundi Index Solutions MSCI World Ex Europe ETF - EUR ACC (0.3 TER), since I already invested in EU STOXX anyway.

Any pointers are appreciated!

 

[inquisitivesoul]

@kcnalp > Vanguard EUR Eurozone Government Bond UCITS ETF - DIS

Effective YTM: -0.0%. Minus the management fees, you're just losing money on this turd.

Unless you want to bet rates are going to go even lower? Then you should go for longer maturities.

 

[kcnalp]

@inquisitivesoul Yes, I just realize that, I will probably not buy it in the end, Thanks for checking out

 

[tumin0]

@kcnalp If possible, I would recommend accumulating ETFs.

Are you also sure u want eu- govies in your portfolio?? Negative yields all over the place...

In addition, maybe going for the non-free ETFs is still beneficial given the high TER of the free - however that depends on your horizon, commissions style etc...

 

[kcnalp]

@tumin0 Hi, accumulating ETF is the one I'm looking too, if the tax arrangement (I live in DE) does not eat up all of the yield.

Govt bonds are there for 10% just to replace emerging market, if there is EM i'd go with that.

What is a reasonable range of TER? I thought 0.2 is okayish, is something lower expected?

I can go with TradeRepublic, to get more options for non-free ETF, and at 1 Eur/buy it's bearable, but it's new and App only, so I have reservation. What broker do you use?

Thanks for the insight!

 

[robertharris]

@kcnalp Do the comparison about TER and buying fees, I use Flatex and the buying fee for “Sparplan” is 1.50Euro per order and you get many more options.

Volume is an issue too and some ETFs are harder to buy/sell because they are not actively traded enough.

I looked at this bond ETF: https://www.justetf.com/en/etf-prof...roupField=index&from=search&isin=IE00B87G8S03 - looks much better...

 

[kcnalp]

@robertharris I am checking flatex as of now. I assume low volume will make the spread prices higher. I think I will not get bond ETF for now and focus on 100% World

 

[tumin0]

@kcnalp I use DEGIRO - which was already bought by flatex - for different reasons and I would not recommend it probably.

As said check flatex since u re in DE...

How did you come to the point to replace EM with eu govies??
I would say they are closer to a hedge for each other than a substitute..

 

[kcnalp]

@tumin0 I will check Flatex

> How did you come to the point to replace EM with eu govies??

I'm aware that they can be complete opposite, but I'm considering both as low proportion of my ETF (like 10% or less).

 

[julia736]

@kcnalp This is not a conventional asset allocation, but I would favour the Vanguard World Minimum Volatility over the Lyxor.

STOXX is a subset of world, so World + STOXX means you're doubled up on STOXX. I think you should have have quite a good reason for this.

 

[kcnalp]

@julia736 You are right, that is why I added I want to replace World with Amundi Index Solutions MSCI World Ex Europe ETF - EUR.

After several feedbacks I'm thinkin going to 100% World (i.e. MSCI ACWI). Does that make more sense to you?

Or maybe IShare MSCI World (80%) + EM (20%).

 

[julia736]

@kcnalp

After several feedbacks I'm thinkin going to 100% World (i.e. MSCI ACWI). Does that make more sense to you?

Or maybe IShare MSCI World (80%) + EM (20%).

Either of these are more or less standard passive allocations.

I prefer the latter - 20% emerging markets is a tilt, hopefully a small "returns booster".

 

[kcnalp]

@julia736 Yes, I'd like to have a slight tilt to Emerging Market.

Not sure if I should do it in the beginning, or later when i can allocate more monthly investment.

 

[julia736]

@kcnalp

I would like to invest in Emerging Market … but … only Lyxor MSCI EM ESG Trend Leaders UCITS ETF - USD (0.3 TR) and Franklin LibertyQ Emerging Markets UCITS ETF (0.55 TER!) are available.

Sorry, what's wrong with them?

A TER of 0.55% is not expensive.

 

[kcnalp]

@julia736 TIL, but most other ETF has TER < 0.5. I.e. Vanguard, iShare?

 

[julia736]

@kcnalp Most index trackers have TER below 0.5%, but index trackers are very cheap.

I pay a TER of 0.95% on most of my money because I believe that an actively managed fund is worth it. I don't have to beat the index for it to be worth it, I just need to reduce downside risk.

The questions are what do you want to invest in? and what's the cheapest way to get that?

Emerging markets are small and illiquid - this fund does not have a "high" TER just because the provider decided to charge more (clearly the market for funds is competitive), but it reflects the fact that it actually costs more to buy assets in Brazil and Nigeria. Exchanging currency is more expensive, too.

Because they're investor-owned, and because their popularity reduces their costs, Vanguard are able to offer a similar product incredibly cheaply, but that doesn't mean more expensive alternatives are unfairly priced. I'm pretty sure Vanguard were charging 0.3% or 0.45% for their emerging markets fund only a year or two ago.

Clearly you should go with whatever's cheapest, so you have to do the maths on whether the saving of buying the Vanguard fund is sufficient to justify the transaction fees that you'll pay your bank (or some other platform), but you should not be wholly driven by fees. A saving of 0.3% amounts to €30 per year per €10,000 invested, and an investment may earn the returns to make that worthwhile.

 

[kcnalp]

@julia736 I understand that investing emerging market has inherently higher cost, but naturally I compare these ETSs with other equivalent ETFs tracking similar index.

Clearly you should go with whatever's cheapest, so you have to do the maths on whether the saving of buying the Vanguard fund is sufficient to justify the transaction fees that you'll pay your bank (or some other platform), but you should not be wholly driven by fees. A saving of 0.3% amounts to €30 per year per €10,000 invested, and an investment may earn the returns to make that worthwhile.

Oh I think you might have just read my mind, I have been trying to compare between Vanguard and iShare; So in Comdirect I can buy Vanguard FTSE Dev. World and EM, by which both has joint TER of 0.14% (nice!), but I can only buy it at Comdirect which as 1.5% commision fee.

Meanwhile with iShares MSCI World + Emerging Market, I get joint TER of 0.55%, luckily at TradeRepublic transaction fee is nil or maybe 1.0 EUR flat fee after the promo runs out.

Based on pure math I should just just go with the latter, right? but just checked Vanguard TD is effectively zero (like 0.02%), while iShares are on 0.2-0.7%

After some more math, buying iShares still comes out as the cheapest and more theoretical yield. yet I cannot shake the feeling that there is more to Vanguard. Maybe because Comdirect is a bank and TradeRepublic is a fintech (with bank license ofc).

What is your take? sorry for the wall of text, just wanted to get more opinion.

 

[julia736]

@kcnalp A commission fee of 1.5% is €7.50 on every monthly investment of €500.

In absolute terms, that seems pretty reasonable - I'm with a couple of fixed-fee brokers, and they charge me about £5 or €7 on each transaction. I typically make transactions £5000 - £20,000, and I wouldn't like to pay 1% or more. The cost of providing a transaction is the same whether its €500 or €50,000, so these fees seem about fair - if you were investing only €50, you'd be glad to pay fees of only 75¢.

iShares are a perfectly reputable provider - I have used them in the past, and it may be that your bank gets a discount because they put a lot of business that way, like company pensions or something. iShares can make their money elsewhere and still be just as good for you as Vanguard would be.

 

[kcnalp]

@julia736 I see, we are coming from different financial scale As you can tell I'm making puny transaction compared to yours, so it is on my best interest that the individual transaction cost does not eat up the yield too much, seeing they are sized pretty close considering my total amount of investments per annum.

Thanks for sharing your experience with iShares, more reason to go for, it seems.

 

[evietheturtle]

@julia736

I just need to reduce downside risk.

A managed fund doesn't guarantee that... All it guarantees it that they take ~1 %point of your profits.