What is the go to ETF nowdays

[james2000]

Hello guys.

New to investing so I would like an advice or your opinion if possible. My current status: I am Czech, 27 y.o., have emergency fund of ~6months, have also like 2k euro in stocks of czech companies (that grew nicely over couple months, yay) which I plan to hold onto. I do not have any debts, or dependents and I am able to save a bit over 2k euro each month which I want to invest into ETF's with rather long term horizont (i am not sure what I am saving for, but I do not need the money now or in close future).

Now I opened an account at IKBR and I was studying about etfs and how this stuff generally works. I want to start investing with one ETF which has world index, is accumalative a preferably from big comapny (like Vanguard, Blackrock...). The fond I found are following:

1. Vanguard FTSE All-World UCITS ETF -> FTSE All-World index, Vanguard, TER 0,22%
2. SPDR MSCI ACWI IMI UCITS ETF -> MSCI ACWI IMI Index, StateStreet, TER 0.17
3. Ivesco FTSE All-World UCITS ETF -> FTSE All-World index, Investco, TER 0,15%
4. iShares MSCI ACWI UCITS ETF -> MSCI ACW, BlackRock, 0,20%

Now all these ETF's adhere to my requirements. But I am just super unsure on how to choose between them. From reading on this sub the Vanguard one seems to be the favourite, but I am not understand why exactly? Is it just because of the size of the funds? Coz if you want to go with the FTSE All-World Index, why just not choose Investco with lower TER? Or if you want to go with Big company, then you can choose Ishares from Blackrock with also a bit lower TER? Or is the difference in TER so negligible that it does not matter?

Thank you in advance for answers.

 

[christodoulos]

@james2000

From reading on this sub the Vanguard one seems to be the favourite, but I am not understand why exactly? Is it just because of the size of the funds? Coz if you want to go with the FTSE All-World Index, why just not choose Investco with lower TER?

It comes from the fact that for a few years, VWCE had the lowest TER for an ETF that tracks the FTSE All-World Index, and also certainly to some extent from the fact that Vanguard is extremely popular in the US, and in the English-speaking bubble of the internet, what is popular in the US is often automatically applied to other countries without any regard for the differences between countries.

But yes, you are right, there are currently better UCITS options than VWCE if you just want to hold a single fund with developed and emerging markets. SPYI if you want to include small caps in your portfolio, and FWIA if you don't.

Just note that while SPYI has nearly a billion AUM so it's highly unlikely that the fund would get closed, FWIA is a very new ETF and only has 60 million AUM so far, so it's a bit more risky from that perspective. However, given its cheap TER, I think it likely that it will grow rather quickly to a size that is safe to invest in. It has grown by about 15 million € per month over the past 3 1/2 months.

 

[james2000]

@christodoulos From what size would you consider fund unlikely to close? What happens anyway if fund closes? Do I just loose all the money?

 

[christodoulos]

@james2000

From what size would you consider fund unlikely to close?

Usually people say from 100 million € upwards is pretty safe. There is no definite number however, and there are also many ETFs with much less AUM that have existed for many years. Though again, I'd say the Invesco one should be pretty safe already given how quickly it is growing and that it's currently the cheapest FTSE All-World ETF, so it's unlikely that that growth will stop tomorrow.

What happens anyway if fund closes? Do I just loose all the money?

No, if a fund closes, then its assets are liquidated and you receive the money that your fund is worth at the time of closure. You don't lose any money (unless your ETF is in the negative of course) Depending on the country you live in, this can be a taxable event however, so it's best to try and avoid such closures, since you are basically forced to pay taxes on your profits from that fund.

Let's say you invest 10k in a fund, and in 5 years your fund is worth 12k. If the fund is then closed, you are forced to pay taxes on the 2k of profit you made. Let's say your capital gains tax is 30%, you would only receive 11.4k in total.

Similarly of course, if the fund closes during a market crash and your initial investment of 10k is only worth 7k at the time of closure, you only get 7k back. This is however less of a problem, since if you wanted to stay invested during the crash anyways, you can simply buy another similar fund at very little cost. You may lose maybe 50€ or so due to spreads, but in the grand scope of things this is less of a problem than capital gains tax.

 

[james2000]

@christodoulos Thank you for the detailed answer.

The taxes will have to be paid once i decided to close the position anyway right? The reason for going with accumulative fund is to avoid paying annual taxes. Also what about the case of just selling part of the portfolio, how are taxes calculated then?

 

[christodoulos]

@james2000

The taxes will have to be paid once i decided to close the position anyway right?

Correct, but if you are taxed when the fund closes, invest in a new fund, and then pay taxes again once you close that second position, you will have in total paid more taxes than if you had been able to have avoided the first fund closure.

The reason for going with accumulative fund is to avoid paying annual taxes.

Yes, although in some cases like Germany, accumulative funds and distributing funds are both taxed on their gains similarly, regardless of whether they are paid out of stay in the fund. So you even have to pay yearly taxes on accumulating funds here, which sucks.

Also what about the case of just selling part of the portfolio, how are taxes calculated then?

That depends on your country, every country in the EU does it differently. Here in Germany, if you partially sell a position, you sell your oldest shares first ("first in first out"), which in most cases means you will pay the highest amount of tax possible.

 

[james2000]

@christodoulos Damn, I hate taxes so much

 

[christodoulos]

@james2000 Yeah I hope it's at least a bit better in your country. Germany is really ridiculous for investors, you get pressed for every penny. But of course only us average earners, not the super rich. If you inherit 100k from your parents you have to pax taxes on it, but if you inherit a 50 million euro business from your parents you have to pay zero tax. ))

 

[lutheransamurai]

@christodoulos There’s still worse. Hello from Austria.

 

[james2000]

@christodoulos Afaik in the czech republic I do not pay any taxes on gains so at least that's nice but I will look into this more closely tomorrow.

 

[tutrinhatpro]

@james2000 also in CZ, you don't pay taxes on gains only if you hold a stock or fund for 2+ years

 

[uniquefuaxreal]

@james2000 I wouldn't only look at the TER, it's also important to check the spread and tracking difference.

Invesco's FTSE All-World ETF hasn't been around for awhile. The fund size is still relatively small, resulting in higher spreads. Vanguard FTSE All-World only has a spread of around 0.04% due to the huge fund size, while Invesco FTSE All-World has a spread ranging between 0.15-0.20% on the largest European exchanges.

SPDR MSCI ACWI IMI ETF is a good alternative though.

 

[james2000]

@uniquefuaxreal Is the TER such a big difference in the end though? I understand it that it's what I pay to the handler of the fund annually for the service. Not if I look into high sizes of my porfolio if I had say 2mil eur the difference between SPDR MSCI ACWI IMI ETF and Vanguard FTSE All-World UCITS ETF is 1k euro per year..

 

[lutheransamurai]

@james2000 TER is not the most important metric but Tracking Difference (Error) is.

I’d suggest you take either option 1 VWCE or option 2 SPYI. They’re both great ETFs with absolutely nothing to worry about.

 

[dingo99]

@lutheransamurai If you invest 1000eur monthly for 30 years, TER 0,15 vs 0,30 can make 60k in the end. I think it makes a difference.

 

[lutheransamurai]

@dingo99 Only that TER is not the sole metric to look at. Click the link from my previous post and read why TER doesn’t say anything about the costs. If your ETF has an excellent tracking error you might not pay any TER at all or considerably less. You cannot simply compare TERs to each other, you’d make a grave mistake ending up paying more over decades.

 

[koof]

@lutheransamurai Tracking difference is irrelevant in the long term, TER os what matters. If the tracking difference was lower than the TER over the last few years, it just means that the ETF happened to outperform the underlying index those years. But over the long term, some years it will outperform it, some it will underperform it. The average "result" will be the TER. Looking at tracking difference instead of TER is pretending past performance guarantees future results.

 

[evietheturtle]

@koof It depends. Good ETFs seem to have consistently low (or even negative) tracking difference because of tax optimizations, stock lending and stuff .

It's not only randomly affected by the stock sampling.

 

[dingo99]

@lutheransamurai I agree. but I wanted OP to be aware it can make a significant money difference. Best is to calculate it to everyone’s exact situation.

 

[sam088]

@james2000 I wouldnt Go with the Invesco - yet. Give it time to develop a reliable tracking difference.