Is it wise to change this strategy? VWCE vs Portu

[workinprogress89]

Hello, I'd like to hear your thoughts on a current investment decision I'm facing. I'm from the Czech Republic and since 2018, I've been using a semi-passively managed investment platform, Portu.cz. I've set up a direct debit, and my money is allocated to one Portu strategy and one custom strategy.

My first portfolio includes:

• CSPX LN 44.1% IE00B5BMR087
• SXR7 GY 18.1% IE00B53QG562
• ZPRS GY 17.2% IE00BCBJG560
• XMK9 GY 8.8% LU0659580079
• AMEA GY 4.9% LU1681044480
• IS3N GY 4.9% IE00BKM4GZ66
• Cash 2%

My second portfolio contains:

• IUIT LN 20% IE00B3WJKG14
• 2B76 GY 15% IE00BYZK4552
• SEC0 GY 15% IE000I8KRLL9
• IEVD GY 10% IE00BGL86Z12
• ESP0 GY 10% IE00BYWQWR46
• HEAL LN 10% IE00BYZK4776
• IWMO LN 8% IE00BP3QZ825
• BATE GY 5% IE00BF0M2Z96
• IDPE LN 5% IE00B1TXHL60
• Cash 2%

Since 2018, my first portfolio has yielded an annualized return of 12%, and the second one 32% (although I've only invested in it for one year).

A significant issue I'm grappling with is the annual fee of 1% on the total portfolio volume.

Thus, I'm considering switching to a VWCE & chill strategy. However, when I backtested my Portu portfolio against VWCE, VWCE never outperformed Portu over the last ten years. This has led me to ponder whether it might be better to stick with Portu despite the fees.

Thanks in advance for any tips and ideas.

 

[mythicangel516]

@workinprogress89 OP just buy VWCE.

It’s very easy to construct a portfolio that outperforms in hindsight. Here: 100% NVIDIA. My portfolio outperforms yours by 20% annually.

Your intuition is wrong. Past returns of a portfolio are not correlated at all to future returns

 

[workinprogress89]

@mythicangel516 I understand. Thanks for the feedback. But I'm wondering if VWCE is too conservative and if a portfolio that, while costing 1% per year in fees, also historically outperforms VWCE by more than 1% per year would not be better.

 

[mythicangel516]

@workinprogress89 I’m not sure you understand.

a portfolio that, while costing 1% per year in fees, also historically outperforms VWCE by more than 1% per year would not be better.

Deep down you are taking a correlation for granted that is not true. You are thinking “historically outperformed” to mean “it will outperform”. But the data we have says otherwise. Take a time horizon. Say 10y. Here’s the question. If something over-performed in years x - 10, historically, does it keep outperforming in x + 10.

Your intuition is “yes” but from all the data we have the answer is “no”. There are some funds that will outperform, but you will quickly forget the ones that didn’t. As a concrete example, imagine you were investing in 2020. You look at the recent slayers. You would invest in these funds:

• ARK
• Baillie Gifford American
• Morgan Stanely US Growth Fund

Who had annualised returns in the 15%s or even 20%s in the past 5-10 years (imagining it from the year 2020). Their 2020 - current return is -50%. You would have avoided the worst performing fund of the decade “BGF World Energy Fund” which had returned -50% in the 2010-2020 timeframe. This went on to return +100% since 2020.

So just spare yourself the 1%, you are paying for past performance not future one.

 

[workinprogress89]

@mythicangel516 Alright, quite contraintuitive but I got your point now. Thanks for your time!

 

[evietheturtle]

@workinprogress89 The problem is that you can't see if the performance was due to luck or due to some systematic thing.

The first one seems like a normal World portfolio, would replace it with VWCE.

The second one is just focussing on the Tech sector, which did perform well in the last years... There wasn't much more management skill than "Hmm tech will probably do good". Which it might or might not continue to do. I would not continue investing in that... especially not for 1% fee.

Also keep in mind that they also did those backtests, and then picked the things which performed well so people think that they havea good fund... Try backtesting it only to the point when this strategy was started to see the "real" performance.

 

[emoore80]

@evietheturtle

I would not continue investing in that

Hi , Could you please expand why , in your opinion, Tech is not an interesting investment option for you ? or is your statement just linked to associated fees ?

 

[evietheturtle]

@emoore80 Tech is already a big part of the regular World index.

By investing only in it, I would arbitrarily ignore all other things.

It's like asking why invest in Tech ETFs when you can just buy Nvidia stocks?

 

[workinprogress89]

@evietheturtle Thanks for feedback. Second portfolio was purely based on nothing more than you wrote. I will stop contributing to that portfolio for sure.

Could you please elaborate more on that backtesting part? When I compared Portu strategy with VWCE, VWCE had worse result for more than 10 years. It's not about luck in my opinion. Or am I wrong?

 

[mimisqueeze]

@workinprogress89 You can lower the Portu fee to 0,6%.

Personally I have both Portu and VWCE. It's not diversification, I just like having the same egg in two baskets so to speak.

 

[evietheturtle]

@mimisqueeze Why portu though? It would be cheaper to go with another broker and buy SPYI or so.

 

[mimisqueeze]

@evietheturtle For me it's mostly not having to deal with currency exchange. Also even though it's not really logical, I find a Czech company more trustworthy, because I expect any negative publicity to reach me quicker. They seem to be very open about how they conduct themselves.

 

[evietheturtle]

@mimisqueeze You could still go through a local bank to buy an ETF.

E.g. where did you buy VWCE?

 

[mimisqueeze]

@evietheturtle Some banks offer that but usually there are higher fees and most don't let you buy specific ETFs.

I buy VWCE on XTB. Once a month when I buy I have to find out which fintech has the best conversion rate (Revolut, Wise, Curve) and then I use their card to transfer money through Paypal to XTB.

 

[david12340001]

@workinprogress89 Portu fees are laughably high, degiro or ibkr + vwce and chill.

 

[workinprogress89]

@david12340001 Yes. However investing on Portu is very easy with great UI. I am planning to invest to VWCE with XTB.

 

[bellman45]

@workinprogress89 No convenience is worth 1% of your assets.

 

[workinprogress89]

@bellman45 The only thing I'll have to think about is that it's very likely that a portfolio on a port will give me 1% or more more annual return than a global ETF? such as VWCE. Then the fee wouldn't matter, would it?

 

[neovincci]

@workinprogress89 You could also copy the portoflio from Portu into IBKR (or other broker). Just buy all the same ETFs. You would get the exact same performance but without the fee.

 

[jayjaynp]

@workinprogress89

Since 2018, my first portfolio has yielded an annualized return of 12%, and the second one 32% (although I've only invested in it for one year).

Wow, that sounds sustainable!