Expense ratio and math

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Expense ratio and math

Postby lifeisagame » Sat Nov 24, 2012 4:18 am

Hi,

I'm going to start my investment, i'm french so things are a bit different.

Let's say my allocation will be like 30% bonds 70% equity

And my equity share is like (so the 70%) :

54% Stoxx Europe 600
27% SP500
19% Emerging market


The only Emerging market that i can have acces have an expense ration of something like 0.62%, i think it's clearly expensive and i wonder if it's valuable.
Is the diversification bring more value ?

Also, i wonder what is the math :
0.10% expense ration more make you loose how much x% of your expected % interest.
Since it's compose interest i guess it depend about how many years, let's say for 20 years, 30 years and 40 years.


Also should i concern about the bad european situation since i got a lot of equities there or i should just don't care ?


i read somewhere that Dr Swensen said, that Europe will probably crash wich make me kind of nerveous.

Any though ?


Thanks
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Re: Expense ratio and math

Postby Call_Me_Op » Sat Nov 24, 2012 8:52 am

0.62% is not too bad for emerging markets. I think it's still worth it, but be aware that many international funds already have emerging markets exposure.

Expense ratio reduces total return, so 1% expense ratio reduces return by about 1%.
Best regards, -Op

"In the middle of difficulty lies opportunity." Einstein
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Re: Expense ratio and math

Postby gt4715b » Sat Nov 24, 2012 9:45 am

I think you should have the Emerging Market exposure and 0.62% is not too bad. More importantly, do you have access to any broader equity funds? I'm worried that:

1. Lack of Regional Diversity: You're only invested in 600 stocks in Europe and 500 stocks in the US. Do you have a fund that covers the entire developed market (including Asia and Canada)? Note that Europe is only 57% of the developed market capitalization.

2. Lack of size diversity: The Stoxx Europe 600 and S&P 500 indices cover the largest stock in their respective region. This leaves you overweighted to large cap stocks relative to the total market. Do you have funds that cover small cap stocks at least for Europe and the US? I would add at least enough small cap stocks so you have a total market weighting.


Overall, I think your weightings are Ok if modified as:

54% Developed Markets, covering Asia, Canada and large and small stocks
27% US, covering large and small stocks
19% Emerging Market
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Re: Expense ratio and math

Postby lifeisagame » Sun Nov 25, 2012 6:51 am

So how can i diversify more.

What indice tracking the asia and canada, and how can i fix the small cap underweight problem ?
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Re: Expense ratio and math

Postby sscritic » Sun Nov 25, 2012 7:07 am

lifeisagame wrote:What indice tracking the asia and canada, and how can i fix the small cap underweight problem ?

The only Emerging market that i can have access

If there is an index that you don't have access to, it doesn't matter. So let's turn the question around. What indexes do you have access to besides the three you currently have? I don't know what is available on the Bourse,* but you should.

* See how out of date I am; I still call it the Bourse.
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Re: Expense ratio and math

Postby HongKonger » Sun Nov 25, 2012 8:27 am

Have you looked at iShares France? It appears you can access small caps for both developed and emerging markets that are domiciled in Dublin and Germany through them. Blackrock has been reducing expense ratios recently so they might be lower than you think. However, if they are in US$ thats one issue, plus I don't know if there might be any withholding taxes on dividends.
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Re: Expense ratio and math

Postby lifeisagame » Mon Nov 26, 2012 12:58 pm

I can track all of these, not sure if i put some that useless since i'm new to this.

CAC40
DOW JONES EURO STOXX 50
ETF EURO STOXX SMALL CAP (ESM)
ETF FTSE 100 (C1U)
ETF FTSE 250 (A250)
ETF MSCI CHINA - B (CC1U)
ETF MSCI EASTERN EUROPE EX RUSSIA (CE9)
ETF MSCI EM ASIA B (AASU)
ETF MSCI EM ASIA (AASI)
ETF MSCI EM LATIN AMERICA (ALAT)
ETF MSCI EMU (CMU)
ETF MSCI EMERGING MARKETS - B (AUEM)
ETF MSCI EMERGING MARKETS (AEEM)
ETF MSCI EUROPE EX EMU (CU9)
ETF MSCI EUROPE MID CAP (CEM)
ETF MSCI EUROPE (CEU)
ETF MSCI PACIFIC EX JAPAN - B (CP9U)
ETF MSCI USA (CU2)
ETF MSCI WORLD EX EMU (CM9)
ETF MSCI WORLD (CW8)
ETF NASDAQ 100 (ANX)
ETF S&P 500 (500)
Russell 1000 (USD) (ERD)
Low Carbon 100 Europe (ECN)
ETF TSEC Taiwan (EUR) (EEW)
ETF Hong Kong (HSI) (HSI)
ETF India (INR)
ETF Japan (JPN)
ETF Korea (KRW)
ETF LevDAX (LVD)
ETF MSCI AC Asia-Pacific exJapan (AEJ)
ETF MSCI EM Latin America (LTM)
ETF MSCI EMU Small (MMS)
ETF MSCI Greece (GRE)
ETF South Africa (FTSE JSE TOP 40) (AFS)
PowerShares FTSE RAFI Developed Europe Mid-Small Fund (PWD)
SPDR MSCI Europe Small Cap ETF (SMC)
DAX (DE) (SDX)
DJ EuroSTOXX MidCap (DJMC)
STOXX Europe Small 200 (DE) (EXX)
STOXX Europe Mid 200 (DE) (GXM)
STOXX Europe Large 200 (DE) (GXL)
STOXX Europe 600 (DE) (SXP)
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Re: Expense ratio and math

Postby sscritic » Mon Nov 26, 2012 1:18 pm

By MSCI WORLD EX EMU do you mean the Amundi ETF MSCI World ex EMU with an expense ratio of 0.35% or another one?
http://www.trustnetoffshore.com/Factshe ... FV7&univ=E

Yes, you do. That is what the CU9 tells me:
http://www.bloomberg.com/quote/CU9:IM

And MSCI WORLD (CW8) is also an Amundi fund:
http://www.bloomberg.com/quote/CW8:IM
with an expense ratio of 0.38%
http://www.trustnetoffshore.com/Factshe ... FV6&univ=E

I will stop, but these are much more diversified than the funds you have now. Perhaps you could update your list with more complete names (for the American reader who is unfamiliar with these funds) and their expense ratios.

P.S. trustnetoffshore shows an expense ratio of 0.45% for AMUNDI ETF MSCI EMERGING MARKETS A, not 0.62%, but then their numbers may not be the same as yours.
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Re: Expense ratio and math

Postby lifeisagame » Mon Nov 26, 2012 1:52 pm

I didn't go for Msci WOrld index because the one i have access to is a sythetic fund.

Actually, for france people, if you want a good taxe advantage( around 15% less taxe on capital gain) you get almost only synthetic index fund.

I find out only one physical index fund, iShares STOXX Europe 600 (DE) (SXP) (ISIN DE0002635307).
I also though, for currency risk purpose i can overweight that index fund, another reason for that is that is a physical index fund, and the fact that many would not go for a synthetic index fund scare me a bit.

That's why i decide to not go for a Msci World index synthetic fund for 100% of my equity portfolio but go for the ishare stoxx europe 600 who would be around 54% of my equity.

That's the way to keep my ration of synthetic fund lower as possible, but maybe i'm all wrong, no idea.
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Re: Expense ratio and math

Postby lifeisagame » Wed Nov 28, 2012 2:51 am

So maybe i can resolve this by adding a msci world index fund in my portfolio ?

like 15% Msci world
49% stoxx Europe 600
22% SP500
14% Emerging market



?
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Re: Expense ratio and math

Postby lifeisagame » Fri Nov 30, 2012 2:59 am

Ok, i got another Idea.

What if i invest in
40% Eurostoxx Europe 600 http://fr.ishares.com/fr/pc/produits/EXSA
60% World MSci index http://www.bloomberg.com/quote/CW8:IM

For my equity, the goal here is to get a lower ration of synthetic index fund the msci index fund is synthetic and the other one is not.
Also it would reduce the currency risk.

My portfollio would be like that
30 % French governement bond
28% http://fr.ishares.com/fr/pc/produits/EXSA
42% http://www.bloomberg.com/quote/CW8:IM



What do you think about it ?

Or should i change the ratio ?
I'm still having 42% of my portfollio who is a synthetic fund, it seem too much ?
Any idea for get less exposure to the the syntetic fund ?

Thanks
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Re: Expense ratio and math

Postby lifeisagame » Sun Dec 02, 2012 12:11 pm

Page 100/101 from the book "The Bogleheads' Guide to investing" :

"Overseas investments---holdings in the corporations of other nations----are not essential, nor even necessary, to a well-diversified portfolio. For investor who disagree---and there are some valid reasons for global investing----we recommend limiting international investments to a maximum of 20% if a global equity portfolio".


It's said that US stock represent about half the value of world stocks, with foreign stoks representing the other half. that foreign stocks offer diversification and possibly higher returns, but they also carry more risk in form of political instability, weak regulation, higher transaction costs, and different accounting pratices. (p.100)

That's also said that foreign stock are 2 ivestments- one in stock and one in currency. (p.100)

Ok fine, but i'm european and i guess it's just a US point of view and for a European point of view it's a different affair.

I'm european, should i get a maximum of 20% foreigner stock or it really doesn't work like that.
Should i get a maximum of 20% non Us stock or it's really doesn't work like that?

Since around 50% of the global stock market is US, you guys suffer a lot less about currency risk than i do (i'm french).

Do you have any idea about what should i do?
Or do you know some references (internet website, articles, books, watever).


Thanks
lifeisagame
 
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Re: Expense ratio and math

Postby Call_Me_Op » Sun Dec 02, 2012 2:16 pm

lifeisagame wrote:Page 100/101 from the book "The Bogleheads' Guide to investing" :

"Overseas investments---holdings in the corporations of other nations----are not essential, nor even necessary, to a well-diversified portfolio. For investor who disagree---and there are some valid reasons for global investing----we recommend limiting international investments to a maximum of 20% if a global equity portfolio".


I, and some others, disagree with this. I don't know what is the basis for this position, but it flies in the face of diversification. The issues of (slightly) higher expenses and currency risk do not seem compelling to me. Betting all of your money on one country's stock performance when there are dozens of countries among which to spread risk just doesn't sound to me like a prudent strategy. Hopefully, I can take this position and still be considered a Boglehead.
Best regards, -Op

"In the middle of difficulty lies opportunity." Einstein
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Re: Expense ratio and math

Postby Default User BR » Sun Dec 02, 2012 3:49 pm

Call_Me_Op wrote:I, and some others, disagree with this. I don't know what is the basis for this position, but it flies in the face of diversification. The issues of (slightly) higher expenses and currency risk do not seem compelling to me. Betting all of your money on one country's stock performance when there are dozens of countries among which to spread risk just doesn't sound to me like a prudent strategy. Hopefully, I can take this position and still be considered a Boglehead.

One doesn't need a better example than Japan. In 1990 the Nikkei was flying high with the economy fueled by multinational companies doing much of their business outside the country. Japanese investors could well decide that they had no need of holdings internationally. Yet it all came crashing down and never has really recovered. A solid holding of international stocks would have been a very useful diversification.


Brian
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Re: Expense ratio and math

Postby lifeisagame » Tue Dec 11, 2012 2:39 am

Is the http://www.bloomberg.com/quote/CW8:IM tracking all the world equity market ?

Is it representative about the Large, Middle< Small Cap of the world market ?


Is the synthetic replication isn't too awfull ?

I mean let's say if i want a world equity tracker i get no choice. Everything outside europe is in synthetic replication.

If i go for one physical replication for one tracker hors euro i have to pay something like 13/15% additional tax on capital gain.



I guess going for the synthetic one must get a better result than with a physical one + 13/15% additional tax on capital gain ?


Nobody seem like to get opinion about this one.
Does somewhere on the internet, book, or watever a place where i can know about this ?



thanks
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