Passive Investors - ETF Portfolio Discussion

This thread is for passive investors / Bogleheads to discuss their portfolios. I couldn’t really find a good thread on this and unlike stock picking I don’t think it makes sense to have a load of separate threads as presumably the discussion will be broadly relevant.

If there is interest I’ll try and update semi-regularly with my positions and thoughts, but I’m keen for others to also share their portfolios, thoughts or questions. Here are few discussion points based on decisions I’ve had to think about.

  • Geographic weightings - are you following a global index or tilted towards a particular country?
  • Sector weightings - are you following a particular industry sector?
  • Asset Classes - how are you split between Equities / Fixed Income / Cash?
  • Factor weightings - are you tilted towards a particular factor?
  • Passive/Active - what fraction of your portfolio is passive ETFs?
  • Timing - are you buying regularly (dollar cost averaging) or waiting for a particular timing?
  • ETF choices - thoughts on ETF decisions where these track the same/similar indices

Please be careful to avoid providing investment advice when giving feedback (provide considerations rather than recommending a particular strategy)

General resources on passive investing / indexing: (for anyone wondering what this is all about)

The Active vs Passive Investing Debate - The Plain Bagel on Youtube

Reasons To Avoid Index Funds (ETFs) - Ben Felix on Youtube

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So my portfolio is a bit of a mess at the moment but this is what I’m thinking of adjusting to. I already hold these ETFs but the weightings are bit messed up where I’ve tried to balance out some of my individual stocks.

Proposed ETF portfolio:

Ticker Name Tilt TER Weghting
£VAGP Global Aggregate Bond Fixed Income 0.10% 20.00%
£VVAL Global Value Factor Value 0.22% 15.00%
£WLDS MSCI World Small Cap Small Cap 0.35% 15.00%
£CSP1 S&P 500 US 0.07% 30.00%
£VEUR FTSE Dev Europe Europe 0.10% 7.50%
£VFEM Emerging Markets Emerging 0.22% 7.50%
£ISF FTSE 100 UK 0.07% 5.00%

Reasoning

  • Fixed Income - I’m still a bit worried about pull back in the markets, but I don’t want a big cash position. If we see a big correction in equities (-25%) I will sell this and move to equities.
  • Value / Small Cap - I want additional exposure to these factors as I believe they should offer greater returns based on the extra risk
  • Locations - Basically rebuilding an all world index at a lower cost (0.11% vs 0.22%) and omitting a few locations I’m happy to reduce exposure to (Japan, ANZ)

Here’s how my current portfolio breaks down:

Asset Class Weighting
Equities 69.75%
Fixed Income 15.21%
Cash 15.04%
Active/Passive Weighting
ETFs 69.22%
Individual Stocks 30.78%
Geography Index Current Portfolio Proposed Portfolio
US 57.60% 65.77% 59.10%
Europe 14.00% 9.97% 14.63%
UK 4.00% 10.20% 7.75%
Emerging 14.00% 11.02% 14.63%
Japan 7.60% 2.22% 2.85%
Other 2.80% 0.82% 1.05%

I’m open to any feedback/thoughts on this as I’m still not 100% decided on what to do.

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What’s the return on the fixed income?

It’s only 1 year old so unfortunately there isn’t much history, but it’s up 4.5% over the year - but they are quite expensive right now. The US is the largest constituent (I currently also have a US corporate bonds ETF as well)

You can see historic returns for the US equities, corporate bonds and government bonds here:

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Nice, thanks for sharing!

I have a few stocks but my long term strategy revolves around ETFs and a few investment trusts. I expect I will build in bonds and REITs over time too and will probably always have a few stocks. From an ETF/IT perspective though below is what I’m building…

Developed Markets ETFs/Trusts - 40%

  • Scottish Mortgage Investment Trust - 20%
  • MSCI World Small Cap - 20%

Sector Specific ETFs - 30%

  • Global Clean Energy - 10%
  • Cloud Computing - 10%
  • Healthcare Innovation - 5%
  • AI and Robotics - 5%

Emerging Markets ETFs - 25%

  • Vanguard Emerging Markets - 10%
  • India - 5%
  • Eastern Europe Inc Poland and Russia - 5%
  • Latin America inc Brazil - 5%

Frontier Markets - 5%

  • Investment trust in Africa - 5%

I expect this will always make up at least 60% of my overall portfolio for the next 10/20 years but as mentioned will diversify into bonds and REITs I expect. I’m 29 so a long way to go!

Would love feedback.

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Looks good to me mate. I personally prefer Japan and Pacific over Europe.

I would consider adding some satellite ETFs for specific sectors or themes.

I like the make up of your portfolio. I am also considering to dip into Scottish Mortgage if there is a correction.

Can I ask how you have invested into Africa?

Yeah SMT has been great. It’s gone up 30% in the past couple of months!

So far… I haven’t! Tbh I’m waiting on something to come up on FT, I’m probably a couple of months away from building that part so just monitoring the weekly uploads. Also think its worth doing an investment trust on Africa as its one of the few I would want actively managed.

Is that on Freetrade?

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Similar to TimeInTheMarket’s question… Which Trust is it?

I don’t have a specific one in mind yet, need to do some more research… realised my response ^ can read like I had a specific one

There are some interesting ones here https://www.morningstar.co.uk/uk/news/168206/5-top-performing-middle-east-and-africa-funds.aspx

I’m still early stages in research though and its the last thing I’m going to be adding so still a couple of months away.

Still need to find a LATAM one on here too. I don’t want to just do Brazil

I like this, I actually forgot to mention my MSCI India ETF in my first comment but I will retain some extra allocation to India within EM in my portfolio.

Just for balance I’ll give you some bearish feedback on why I have made slightly different choices, don’t take this as a slight though, overall I still think you’ve made good choices.

Regarding the sector ETFs I’m not such a fan - If I feel like a particular stock does well within a sector I’d rather just go with that and if I don’t know enough about the sector to pick a winner then I probably don’t know enough to say the market is irrationally undervaluing it. This might seem hypocritical as I’ve picked some factor tilts, but at least in theory there should be a risk premium on that factor exposure which you don’t get on sectors.

While I’m convinced we will see massive growth in Africa, especially Nigeria, I’m sceptical of corruption and not confident that local-listed companies will benefit.

Eastern Europe inc Russia is too heavy on Energy for my liking, it’s probably just my bias but I’m hoping the accelerated move to renewable will weaken those positions. I’m also worried about the continued brain drain from some European countries with regressive politics.

What made you choose SMT over a passive fund?

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Is there something in particular that makes you want such a big Latam allocation? LATAM only makes up 1% of the global market yet you have a 5.5% weighting

Unless there is something you particularly want to avoid couldn’t you just increase your overall Emerging allocation? EM does cover a lot of LATAM countries but Brazil and Mexico make up 86% of LATAM so the others are very small.

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First of all I really appreciate you taking the time to give me this feedback! You’ve made some really interesting points and great to have someone critique it like this.

Totally get it on the sector ETFs. I guess the rationale behind my choices was trying to predict what’s going to be huge in 5, 10, 20 years and they were the themes I came back with. Honestly, I spent a lot of time trying to pick the right stock but I don’t know enough about any of the themes other than I think they are the future. I rated my chances of picking the winners as slim so decide ETFs were the way forward. If I didn’t do this, I would likely increase my weighting in the Developed Markets piece.

Eastern Europe, agreed very reliant on energy. I think (and again looking into my crystal ball here) that over time things will improve in a lot of the core countries and they will become a bigger hub for things such as shared services centres etc. Great points on LATAM and something I’ll give more consideration too. I haven’t done as much research on that beyond Brazil and Mexico so maybe you’re suggestion is the right way to go.

Africa is the one that I think is the big long term winner. Some of the countries are primed for growth. Granted some have a lot of corruption but I think trusts will be aware of that and will manage that risk. Its a lot more developed in some areas than people give it credit for but generally speaking there is room for growth and maturity across pretty much every industry.

SMT… great track record and I think they will do well in the future. Despite the whole woodford piece I quite like they have unlisted stocks. One of my bigger holdings is also Draper Esprit so I don’t have as big an aversion to unlisted stock. Cue the woodford-esque scandal on SMT now…

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I guess the rationale behind my choices was trying to predict what’s going to be huge in 5, 10, 20 years and they were the themes I came back with. Honestly, I spent a lot of time trying to pick the right stock but I don’t know enough about any of the themes other than I think they are the future. I rated my chances of picking the winners as slim so decide ETFs were the way forward.

My thoughts are the same. The risk is too high to pick a few individual winners in a given emerging theme. Personally I’m happy to give up these potential gains for diversification in the given area

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Thematic ETFs often divide opinion. I am for them but believe they should be a smaller part of your portfolio. I have thematics in cloud, automation, robotics, health and energy and they are about 20% of my investment portfolio. 70% is in Index trusts (not on Freetrade). Then the last 10% is individual stocks.

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Why do you feel they should be a smaller part?

My portfolio is currently 90% ETF (core portfolio) 10% individual stocks (high risk high reward stocks).

Stock ETF:

S&P 500 20%
FTSE 100 10%
Emerging Markets 10%
Japan 5%
FTSE 250 5%
Pacific ex-Japan 5%
Euro Stoxx 5%
India (spare cash from rebalancing)

Bond ETF:

Global Agg Bond 35%
Fallen Angels 5%

To give you a flavour in individual stocks in remainder of portfolio:

Bellway Homes
Sorrento Therapeutics
Wells Fargo
Southwest Airlines
Expedia

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I know I’m not the person you responded to but I made a similar point about sector ETFs further up so wanted to flesh it out.

My reason for avoiding them is that by picking an industry sector you are basically saying “I believe market is irrationally undervaluing this industry” in order for it to offer better than average expected returns. I don’t feel like I know enough to make that claim about any sector.

I’m very confident those sectors will grow, but so is almost everyone else it seems. All I hear people talk about in business is Cloud This, AI-That, datascientist this, Automation that. Everyone is expecting these sectors (Tech, healthcare, green energy) to grow in the future and that expectation is baked into the prices, that’s why they have such lofty valuations.

Here’s a super simplified example to illustrate my logic:

ETF P/E
Cloud Computing ~100
S&P500 ~28
Global Equity ~20

So cloud computing needs to grow 5X relative to the global index to reach ‘fair’ value and almost 4X relative to the S&P500. So now if I want to pick it I don’t just need it to grow, I need it to grow 6X more than the index and that’s harder for me to make a call on.

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@Cameron, thanks for the post and starting this new thread. I am new to FT, and to investing in general; however, I’ve found your post and subsequent replies below to be very much in line to my current thinking and what I will be pursuing. So thanks again for sharing thoughts and reasoning.

I also see you posted a few videos from Ben Felix, which I really like. What are other sources of information you use regularly?

Cheers,

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