Is the new V3AA the VWCE Killer?

[teenchristian16]

Hi there
I'm 20 y.o. and about to start my long-term investment journey.

I've done extensive research to find an all-world ETF that could be the core of my portfolio for the next 20+ year, and I concluded that VWCE would be fine.

However Vanguard just launched Vanguard ESG Global All Cap UCITS ETF (USD) Accumulating (V3AA) that seems to me a VWCE + Exposure to Small Caps.

The ESG rating doesn't bother me, I know that companies are filtered in a questionable way to say the least, but still not investing in Alcohol, tobacco, gambling, non-renewable energy and weapons is a huge plus for me

What do you think of choosing this ETF as the core of my portfolio instead of VWCE?
Right now the fund is still pretty small (18million €) but being a Vanguard fund I'm sure it will increase in size in the future

Here's a link to a Reddit post that describes V3AA in a more detailed way

https://www.reddit.com/r/BEFire/comments/mj5ur3

Here's the link to JustETF
https://www.justetf.com/it/etf-profile.html?0&isin=IE00BNG8L278

Thanks in advance to everyone for the help!

 

[michiqan]

@teenchristian16 why not 90% VWCE + 10% IUSN ?

you would have also the small cap, vwce is free on degiro and no strange ESG criteria.

If 10% of IUSN is a small amount for a monthly 500 euro total buy, just buy it once every 6 months.

 

[golden_sunrise]

@teenchristian16 Exclusion of weapons and nuclear power is a deal breaker for me

 

[matheww1]

@golden_sunrise Why is nuclear bad? Is a potentially life-saving MRI bad? It uses nuclear magnetic resonance.

Weapons ok, I agree, but nuclear energy, not necessarily.

 

[teenchristian16]

@matheww1 I know right? I think nuclear energy is the best resource we have to slow down climate change untill we develop renewable sources efficient enough to supply energy to the entire world and we convert cars/machinery/heating to use electrical energy instead of burning fossil fuel

 

[golden_sunrise]

@matheww1 no no, I am saying that I want it to be included in the index. Excluding nuclear from investments is bad and counterproductive

 

[arhcc]

@golden_sunrise Yes, this seems to shift allocation by a lot.

For example, the allocation of the largest constituent (Apple) in the indexes is:

• FTSE Global All Cap: 2.77%
• FTSE Global All Cap Choice (this index): 3.37%
• FTSE All-World: 3.10%

So if you buy V3AA instead of VWCE you'll be buying more of Apple.

I think I would buy FTSE Global All Cap if it was available, but I probably won't buy the "Choice" index.

 

[katie1987]

@teenchristian16 Liquidity might be an issue so why not start with VWCE and switch to V3AA when/if it becomes more popular? No one is forcing you to have just one ETF in your portfolio.

 

[csh97]

@katie1987 By the way, I remember exact same discussions about VWCE back in 2019. And the common resolution was to stick with IWDA + EIMI until VWCE is big enough. And that's worked flawlessly.

 

[dobehatendats810]

@katie1987

Liquidity might be an issue

How?

Doesn't the fund itself buy and sell positions to keep the price close to the net asset value?

 

[katie1987]

@dobehatendats810 This happens between the fund and their authorized participants. ETFs don't guarantee liquidity.

Investopedia has a great article.

 

[dobehatendats810]

@katie1987 This is what it says:

The trading volume of an ETF also has a minimal impact on its liquidity.

Also read this:

A common myth is that small ETFs or those with low trading volume are, by definition, illiquid. Thanks to arbitrage mechanisms that enable ETFs to continuously trade at or near intrinsic value, ETF liquidity is primarily determined by an ETF’s underlying securities. Therefore, small or thinly traded ETFs can, in fact, be highly liquid instrument

From https://am.jpmorgan.com/blob-gim/13...12894_Debunking-myths-about-ETF-liquidity.pdf

 

[wv1]

@dobehatendats810 That's not very clear to me. Is "the market" buying my ETF shares even though there are 0 trades volume on a particular day?

 

[katie1987]

@dobehatendats810 It doesn't work like that. If the fund itself were to buy and sell it would have to pay taxes and comissions for every transaction. Instead they swap stocks with authorized participants to keep price close to AUM, taking stock in and out of circulation. Swapping stocks is not a taxable event and that's why ETFs can track an index so closely.

Ceteris paribus more liquidity is better.

 

[dobehatendats810]

@katie1987 The fund buying and selling positions doesn't imply that it has to pay the same taxes and comissions as an average joe...

Like quoted above the idea that small or low trade volume ETFs have less liquidity is a myth.

 

[wv1]

@dobehatendats810 Thank you. So I guess it also makes no difference whether I buy the etf shares say, on the Italian or the German market or wherever.

 

[dobehatendats810]

@wv1 Right, it makes no difference

 

[hasanswers]

@dobehatendats810 If there’s not enough liquidity on the fund, you can find problems when buying/selling shares, because there will be less people available to buy shares from you or to sell them to you. Thus, the spread will be higher for you, and this can result in not filled orders too.

 

[dobehatendats810]

@hasanswers

A common myth is that small ETFs or those with low trading volume are, by definition, illiquid. Thanks to arbitrage mechanisms that enable ETFs to continuously trade at or near intrinsic value, ETF liquidity is primarily determined by an ETF’s underlying securities. Therefore, small or thinly traded ETFs can, in fact, be highly liquid instrument

From https://am.jpmorgan.com/blob-gim/1383272223898/83456/1323416812894\_Debunking-myths-about-ETF-liquidity.pdf

 

[veryconservative]

@hasanswers ETFs work differently