Passive Investors - ETF Portfolio Discussion

Looks nice and simple!

You could cut the cost a bit by breaking VWRL into its components.
VWRL costs 0.22% but is essentially 90% developed (0.12%) and 10% emerging (0.18%)

One observation from me is that you’re overweight USA which is currently one of the most expensive markets but could always still outperform the rest of the world. (who knows)

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Do you want additional exposure to the US markets? VWRL already has heavy exposure (over 55%!!!) to the USA anyway, so, what would be the reason to add even more exposure to that?

I can understand your additions of small caps and emerging in addition to VWRL, but I would ask the question on VUSA. Note; I’m not saying drop it, if you want that additional exposure, go ahead, but be aware of how much exposure you’ve already got, and consider whether that additional number is worthwhile?

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Ramin put a good video on the difficulties of stock picking over the weekend which is worth a watch.

It has a few very interesting statistics to illustrate why the skew in returns (median<mean) leads to a random (non-diversified) selection of stocks typically underperforming a broad index.

The Freetrade Baggers project is actually an interesting case study in this as it shows similar patterns on a tiny scale (a small number of stocks providing the bulk of returns).

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Yes fascinating to see how that FT baggers portfolio performs over the next few years. I was aware of the research before the video but it clearly summarised how such few stocks drive market returns and also the sheer quantity of companies that go -100%. I think it’s both luck and skill which lets one pick a 10 bagger. My view is that the “skill” element is the long term patience to invest in a company one believes will grow exponentially whilst also accepting that there is a higher probability that the company can fail/severely underperform.

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I am currently trying to understand which market will be better in horizon > 5 years, so focusing on 3 different areas and planning to look into it after.

What are your thoughts?

US Market (60% of whole money)

  • #VUAG 60%
  • #IDTG 40%

EU Market (20% of whole money)

  • #VERX 60%
  • #VETY 40%

UK Market (20% of whole money)

  • #CUKX 60%
  • #VGOV 40%

So your 60/40 equities/bonds split is reasonable assuming it fits with your situation & goals. US is about equal weighting so no comment there, but you are heavily overweighed to Europe especially UK.

What’s missing?
So there a few big omissions, maybe these are intentional but you may want to consider them:

Corporate Bonds:
Your bonds are 100% government and you might want to consider some corporate / total bonds funds (if you haven’t already), this would probably increase risk but also yield.

Emerging Markets
By avoiding EM you are reducing risk, but also missing out on the compensation you receive for that risk.

Equities - You’d pay about 5X earnings for EM equities, compared to 20X for Europe or 25X for US. (e.g. VFEM)
Bonds - You’d get maybe ~5% yield on EM bonds, compared to <2% on US 20Y (e.g. VEMT)

Mid / Small Cap
All your equities are large cap, so you don’t have any exposure to medium / small companies - might be worth considering if you want to add that exposure in

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@Cameron thanks for your review.

  1. What is your vision for proportion US/EU/UK/EM?
  2. My personal opinion is that now we are in bubble so I want to have as much safe bonds as possible. I understand that right now I might be wrong :slight_smile:
  3. I might add EM Stocks but from my point of view VFEG is better than VFEM, what do you think?
  4. As of now I do not want to move into mid/small cap as I do not see much future for them.

Also from my perspective, in any crysis rich becomes richer and the poor get poorer, so I still belive that old Europe + USA will be still in front of other countries.

Mine is pretty neutral, although I’m overallocated to EM (largely at the expense of Japan, and very slightly under on Asia ex and Europe).

I agree EM won’t fare so well in a crisis, but I have to balance that risk vs the risk of paying 25X earnings on developed equities, which is historically not a great bet either.

Everything I see just screams “look at this massive bubble” at me, from asset prices, rampant speculation in all sorts of areas and often hysterical retail sentiment. This might seem like a contradiction as I am 100% equities and overweight on the riskiest areas (EM, Value and Small cap).

My bigger concern than a bubble popping and asset prices collapsing is that this is a persistent trend and asset prices stay high and expected returns stay low for the coming decade(s). I’m in my late 20s and I still need to fund the other ~80% of my retirement so while a -30+% correction might hurt my current holdings it would probably actually let my realise my financial goals sooner (because I’d be buying more at a lower price).

My current (risky) position is a hedge against a crash not happening and expected returns staying ~3% (the worst case scenario for me). I think this is a good example of why financial planning is a very personal decision.

Agreed, accumulating is much simpler to manage (I think VFEG wasn’t on the app when I picked or I missed it)

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Same thinking here. People have been telling me we are in a bubble and a big crash is incoming since 2018, if I had listened to them back then, my portfolio would be at least 30% smaller today.

If you are in it for the long term, then I think it is riskier to try to time the market with allocations. In 20-30 years a 50% drop in the first 5 years of investing won’t matter at all.

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@Cameron thanks again for you opinion.
I’ve decided to modify my portfolio to the following - include EM to portfolio and decrease UK → reduce to single #VEUR

US Market (60% of whole money)

  • #VUAG 60%
  • #IDTG 40%

EU + UK (18% of whole money)

  • #VEUR (or #SMEA) 60%
  • #VGOV 40%

EM (22% of whole money)

  • #VFEG (or #EMIM) 60%
  • #VEMT 40%
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Is there any replacement for this ETFs, mb with lower TER? That’s all except IDTG vanguard ETF so I just feel smth wrong with my choice :wink:

Hmm sorry I forgot to consider that. I think the Blackrock (iShares) alternatives are actually cheaper (e.g. 18bps vs 22bps for Emerging Markets). It’s probably worth just searching each and checking in the app. When I have some time maybe I’ll pull the list of FT passive ETFs and post a list with the Acc/Dis options and the TER for each so there’s a simple reference for people to look at.

One thing to consider is that iShares track MSCI indices and Vanguard track FTSE indices. I think that’s mostly of little consequence but there are cases where it becomes relevant if you mix. MSCI consider S. Korea EM while FTSE considers it DM, so you could get duplications or omissions if you mixed and matched (e.g. Vanguard Developed + iShares EM would duplicate Korea exposure)

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I’ve edit my post to include iShares alternatives.

As an additional note for Emerging Markets - China is a growing (not now, haha) market but all investing including passive one with ETF is not quite legal from China’s government point of view and can be stopped in any moment, as it was with Yahoo - as we don’t own directly stocks, we own stocks of offshore firm which has rights to own company from China

https://www.chinaaccountingblog.com/weblog/alibaba-and-the-disappearin.html

Palantir just bought $50.7M of gold bullion (and invested in some SPACS).

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Hi Cameron,
That ETF Portfolio DNA link doesn’t appear to be working - ‘server not found’. Anyhow, curious to know how your portfolio’s going. Hopefully you’ll give us a quarterly update at the end of the month. :slightly_smiling_face:

Yeah it’s a shame the ETF Portfolio DNA APIs seem to have closed, looks like they are favouring enterprise clients now:

We are currently focused on handling enterprise clients. We have decided to discontinue the personal/ professional offering. The data you see is not being updated.

So here’s my portfolio update. I’ve simplified this a bit instead of showing all the ETFs I’ll just list ‘tilts’ which make up 37.29% of total - the rest is basically recreating VRWL using underlying Vanguard regional ETFs. If I remade it now I’d just use 2 ETFs for the global bit: 1 developed and 1 emerging, then I’d add tilts to that to make it more simple.

I’ve made very few changes to the portfolio really: I’ve recently added more EM exposure (with EMIM) and bought separate funds for Turkey and Korea just as contrarian / value bets outside of that I just rebalanced the other Vanguard regional funds to better match VWRL.

Ticker Name Current Weighting Performance (3M) Performance (6M) Performance (9M)
LON:WLDS iShares MSCI World Small Cap 11.41% 3.45% 5.27% 14.93%
LON:IWFV iShares World Value Factor 11.40% 2.12% 2.43% 16.53%
LON:EMIM iShares MSCI Emerging Markets 6.21% -3.82%
LON:INRG Clean Energy 3.33% 0.08% -5.63% -16.70%
LON:IKOR iShares MSCI Korea 2.40% -8.29%
LON:ESPO VanEck Gaming 1.68% -4.91% -2.28% -1.79%
LON:ITKY iShares MSCI Turkey 0.88% 8.81%

Generally it’s not been a great 3 months for this - in fact all of my main tilts have underperformed.

China has seriously hurt the EM and I’ve been buying that quite aggressively recently to overweight it and falling rates have hurt Value quite a lot - no plans to change either though.

Portfolio Performance (3M) Performance (6M) Performance (9M)
Selected ETFs 2.89% 6.29% 11.11%
VWRL 4.25% 9.20% 12.79%
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Is this to access the reduced management fee compared to VWRL. If so do you have your list, my SIPP should be with Freetrade in a few weeks and this is my planned approach, can I copy your homework?

I’m guessing you use VWRL as your benchmark?

Yup the DM + EM combination is cheaper than VWRL.

It also has the added advantage of potentially getting better prices through rebalancing. For example say I top up this month and EM is down slightly, so I end up buying slightly more to rebalance. The next month DM is down a bit and I end up buying slightly more to rebalance - overall I end up buying each when they are slightly cheaper.

Yup this is exactly what I did for my SIPP, all I did was go here:

And then get a weighting of ~90% DM and ~10%EM which costs 13bp with Vanguard vs 22bp for VWRL.

Yeah I should probably use the accumulating version VWRP but sadly lots of my ETFs are distributing as well (because FT didn’t have accumulating when I bought them) so it’s a bit more like-for-like.

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Thank you so much @Cameron - you’re fast becoming the go to for all things ETF’s.

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