Boglehead in Europe/Netherlands

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Boglehead in Europe/Netherlands

Postby Makane » Sat Jun 29, 2013 7:51 pm

Esteemed Bogleheads :D

I just finished reading the Bogleheads’ Guide to Investing and checked the EU investing tab on the wiki. I am still left with a lot of questions as to implementing the Boglehead investing strategy in Europe. While I live in the Netherlands, I think Europeans will share some similar problems in finding index funds / ETF's and finding out a suitable asset allocation. I noticed a couple of Dutch bogleheads posting on this forum before, not sure if they are still around, but I would love to discuss our local situation with anyone interested.

Question 1. What funds / ETF's are suitable to the European situation?

The cheapest Vanguard fund access I could find in the Netherlands are with Meesman (NL), an index-investor brokerage firm.
  • Meesman Global Stock Index Fund (=Vanguard Global Stock Index Fund (Investor share, EUR)) - 0.50% TER
  • Meesman European Stock Index Fund (=Vanguard European Stock Index Fund (Investor share, EUR)) - 0.50% TER
But this seems a little bit expensive when compared to directly buying the related Vanguard USD denominated ETF's:
  • Vanguard Total International Stock ETF (VXUS) - 0.15% TER
  • Vanguard FTSE Europe ETF (VGK) - 0.12% TER
    The Vanguard Brokerage Account allows for free ETF trading, but I do not know whether this is available for non-US investors.
    • Opening an account through Today's Brokers (NL) could make transaction cost $5.00 per trade.
    • When opened directly with their parent company Interactive Brokers in the US, it could be lower.
    • When holding with Meesman, I invest in Euro. However, when holding with Vanguard USD denominated ETF's, I invest in USD. I assume investing in USD would give me currency risk? Should I hedge against that currency risk? The cost of valuta-exchange, transaction commissions and currency risk hedging might not outweigh the cost of higher annual TER with Meesman.
A third option could be to invest in Vanguard Euro denominated ETF's, but the options seem more limited than with Vanguard USD denominated ETF's. Still, these would be options:
  • Vanguard FTSE All-World ETF (VWRL) - 0.25% TER
  • Vanguard FTSE Developed Europe UCITS ETF (VEUR) - 0.15% TER
Question 2. What asset allocation is suitable to the European situation?

If I understand correctly, the general advice for US investors is to hold ~80% US indices, and ~20% international indices.
This could be home bias (as the US is approximately 50% of global market cap), but could also be vested in currency-risk.
  • Should a European investor hold ~80% European indices, and about 20% international indices?
  • I'm leaning more towards 100% international indices, invested in EUR, but could this adversely affect currency risk?
Question 3. What can one do about inflation in the European situation?

Apparently there is a "Vanguard Eurozone Inflation-Linked Bond Index Fund", but the Minimum initial investment would be 100.000 (EUR).
  • Are there other options? Did I miss some really suitable Vanguard / other Euro denominated ETF's?
  • How would one know how much of total assets should be allocated to Eurozone Inflation-Linked Bonds?
Thank you, bogleheads, for this cosy community. I can not wait to get to know all of you. :beer
Sorry for any stupid questions on my behalf, I know little, but crave knowledge.

Makane
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Re: Boglehead in Europe/Netherlands

Postby zaboomafoozarg » Sun Jun 30, 2013 12:45 am

Welcome! Hopefully someone from the EU will be able to help more specifically with your questions.

Regarding question 2 - Vanguard's recommendation for US investors' international stock allocation is 20% to market cap, or anywhere in between. On a recent poll we had here, quite a few people said they're using the market cap weight. So market cap weight would probably be a good starting point for you, and if you'd prefer to remove some currency risk, you could look at increasing the EU and/or NL portion of your asset allocation.
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Re: Boglehead in Europe/Netherlands

Postby Hanseat » Sun Jun 30, 2013 7:39 am

Hello Makane,

Makane wrote:Esteemed Bogleheads :D

I just finished reading the Bogleheads’ Guide to Investing and checked the EU investing tab on the wiki. I am still left with a lot of questions as to implementing the Boglehead investing strategy in Europe. While I live in the Netherlands, I think Europeans will share some similar problems in finding index funds / ETF's and finding out a suitable asset allocation. I noticed a couple of Dutch bogleheads posting on this forum before, not sure if they are still around, but I would love to discuss our local situation with anyone interested.

Question 1. What funds / ETF's are suitable to the European situation?


Personally I have to admit that I do not see any advantage in the "Meesman"-approach. Whilst I have no idea whether it is practical to go the Vanguard-route for an EU-investor today (it wasn't when I set up my investment plan), I would consider buying ETFs from Ishares and/or DBX-Trackers. Their expense ratios are significantly lower than those offered by the "Meesman"-funds and - depending on the specific fund - even cheaper than the Vanguard ETFs.

[*]When holding with Meesman, I invest in Euro. However, when holding with Vanguard USD denominated ETF's, I invest in USD. I assume investing in USD would give me currency risk?


No. The currency risk originates from the currency area of the companies inside the ETF basket, not the nominal currency used for the price listing of the ETF (Example: ETF India; it makes no difference for you, whether the price of the ETF is listed in EUR, USD or GBP).

Should I hedge against that currency risk? The cost of valuta-exchange, transaction commissions and currency risk hedging might not outweigh the cost of higher annual TER with Meesman.


You would not forego the currency risk by choosing Meesman (cf. above) and no - I would not recommend hedging the "real" currency risk.


If I understand correctly, the general advice for US investors is to hold ~80% US indices, and ~20% international indices.
This could be home bias (as the US is approximately 50% of global market cap), but could also be vested in currency-risk.


I would recommend a standard market capitalization based approach. When speaking about currency risk, I would also suggest considering the inherent risk of your own currency and regard your investments outside the Eurozone area as a tool of managing this risk.

Question 3. What can one do about inflation in the European situation?


Buy gold :D

If you really want to go the "Linked Bonds"-road, you might want to consider this ETF DE000A0HG2S8 .


Bye
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Re: Boglehead in Europe/Netherlands

Postby Makane » Sun Jun 30, 2013 1:49 pm

zaboomafoozarg wrote:(...) if you'd prefer to remove some currency risk, you could look at increasing the EU and/or NL portion of your asset allocation.


Thank you for your reply, zaboomafoozarg!

Since the Eurozone uses one currency, I see no possible benefit to increasing the Dutch portion of my asset allocation. It would only tilt my portfolio towards a small country with several dominating economic sectors and lacking in others, which is in no way representative of the bigger European or World economy.
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Re: Boglehead in Europe/Netherlands

Postby Makane » Sun Jun 30, 2013 2:09 pm

Thank you for your reply, Hanseat!

Hanseat wrote:Hello Makane,

Personally I have to admit that I do not see any advantage in the "Meesman"-approach. Whilst I have no idea whether it is practical to go the Vanguard-route for an EU-investor today (it wasn't when I set up my investment plan), I would consider buying ETFs from Ishares and/or DBX-Trackers. Their expense ratios are significantly lower than those offered by the "Meesman"-funds and - depending on the specific fund - even cheaper than the Vanguard ETFs.


Thanks, I will look into ETFs from Ishares and/or DBX-Trackers.

Hanseat wrote:I would recommend a standard market capitalization based approach. When speaking about currency risk, I would also suggest considering the inherent risk of your own currency and regard your investments outside the Eurozone area as a tool of managing this risk.


The standard market capitalization based approach seems most reasonable to me as well.
Still, since the global index is dominated by the U.S., what good will doubling of the U.S. equity market do me if the dollar halves in value compared to the Euro?

Hanseat wrote:Buy gold :D

If you really want to go the "Linked Bonds"-road, you might want to consider this ETF DE000A0HG2S8 .


I do not believe that gold is an investment, nor that it can reliably hedge any kind of risk.
The ETF you mentioned looks good, but it is predominantly French bonds, with a side dish of German bonds.
Maybe there is something better diversified available? I just googled a bit but could not find any good inflation linked bond index etf's.

Thanks for your advice!
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Re: Boglehead in Europe/Netherlands

Postby Hanseat » Sun Jun 30, 2013 2:44 pm

Hello Makane,

Makane wrote:Still, since the global index is dominated by the U.S., what good will doubling of the U.S. equity market do me if the dollar halves in value compared to the Euro?


None. But in the end it will amount to a zero-sum game once you consider the opposite constellation - the U.S. equity market halves, but the dollar doubles in value compared to the Euro?
(In the end I would base the regional asset allocation on an analysis of your personal situation and take into account that a market capitalization based approach might be useful to balance regional risks stemming from other areas - like the development of your local/national real estate market, job market, social security system etc.)


Makane wrote:Maybe there is something better diversified available? I just googled a bit but could not find any good inflation linked bond index etf's.


FR0010174292 includes Italy as well, but still offers no real diversification. However, I am not entirely sure whether the goals of true diversification and limiting the regional area to the Eurozone are compatible. For real diversification I would recommend DE000A0RFED7 - the fund might appear to be a bit US/UK-heavy, though. But so is the linked bond market...
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Re: Boglehead in Europe/Netherlands

Postby Makane » Sun Jun 30, 2013 3:23 pm

Hanseat wrote:FR0010174292 includes Italy as well, but still offers no real diversification. However, I am not entirely sure whether the goals of true diversification and limiting the regional area to the Eurozone are compatible. For real diversification I would recommend DE000A0RFED7 - the fund might appear to be a bit US/UK-heavy, though. But so is the linked bond market...


Thanks. Sorry, I meant diversification within the EU. But yes. Holding European bonds really isn't what I actually would want to do given the circumstances in the last years. I just can't think of another way to hedge against inflation. I'm open to suggestions. :happy

I'm curious as to which ETF's you are using and how you allocated your portfolio? No need to type it up if you feel uncomfortable posting it here, ofcourse. :beer
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Re: Boglehead in Europe/Netherlands

Postby Makane » Sun Jun 30, 2013 3:35 pm

European Boglehead ETF List:

On the basis of EU boglehead investing, it looks like it could be really helpful to have a list of possible investment vehicles. This list is by no means inclusive.

I pay special attention to the ETF being:
1. an ETF (since TER's on funds are usually way higher)
2. accumulating dividends within the ETF (at least in the Netherlands it will give a tax advantage, in some other states it does as well)
3. low TER

Global Market ETF list:
#1. Vanguard FTSE All-World ETF (EUR) | VWRL
-ISIN: IE00B3RBWM25
-0.25% TER
-2380 companies (51% very large cap, 35% large cap, 14% medium cap)
-Looks properly market cap weighted

#2. Think Global Equity UCITS ETF (EUR) | TGET
-ISIN: NL0009690221
-0.19% TER
-Accumulating: No. Pays dividends.
-Only 250 companies. 70% in large cap stocks. No Japan. No emerging markets.

AMUNDI ETF MSCI WORLD EUR.
-ISIN: FR0010756098
-0.38% TER
-Accumulating: Yes
db x-trackers MSCI World TRN Index UCITS ETF
-ISIN: LU0274208692
-0.45% TER
-Accumulating: Unknown.
iShares MSCI World (Acc) (IE) (EUR) | IWDA
-ISIN: IE00B4L5Y983
-0.50% TER
-Accumulating: Yes

European Versions of TIPS
#1. iShares Euro Inflation Linked Government Bond UCITS ETF (IBCI)
-ISIN: IE00B0M62X26
-0.25% TER
-Contains 77% French and 23% German AAA / AA government bonds.
-Physical replication

#2. iShares Euro Inflation Link Bond UCITS ETF
-ISIN: IE00B3VTQ640
-0.16% TER
-Contains 51%French, 34% Italian, 15% German government bonds.
-50% 10+ YR maturity

Amundi ETF Euro Inflation (EUR) | CI3
-ISIN: FR0010754127
-0.16% TER
-Benchmark: Markit iBoxx EUR Inflation Linked
Lyxor EuroMTS Inflation linked ETF
-0.20% TER
-Swap replication
db x-trackers iBoxx EUR Inflation Linked TR ETF
-0.20% TER
-Swap Replication

Terrible Ideas :twisted:
CS ETF (IE) on iBoxx EUR Inflation Linked (EUR) | CSBILE
-Front-end load: 6%
-TER:0.28%
-Back-end load: 3%
-Ahhh yes, Swiss banking. They have to pay those palaces with someone's money I guess.
Last edited by Makane on Mon Jul 01, 2013 6:10 am, edited 16 times in total.
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Re: Boglehead in Europe/Netherlands

Postby Hanseat » Sun Jun 30, 2013 3:44 pm

Makane wrote:I'm curious as to which ETF's you are using and how you allocated your portfolio? No need to type it up if you feel uncomfortable posting it here, ofcourse. :beer


LU0274211217 DBX EuroStoxx 50 ca. 6%
LU0292107645 DBX MSCI Emerging ca. 25%
LU0274208692 DBX MSCI World ca. 12,5%
DE000ETFL342 ETFlab MSCI Emerging ca. 6%
DE000ETFL102 ETFlab MSCI Japan ca. 5%
DE000ETFL094 ETFlab MSCI USA ca. 12,5 %
DE000A0D8Q49 Ishares Select Div USA ca. 10%
DE0002635307 Ishares Stoxx Europe 600 ca. 6%

Rest:
Portuguese Stock market ETF
Greek Stock market ETF

In the end the current portfolio construction probably does not make sense for most of the readers.
1. However, the portfolio structure originates from a major change in the domestic tax law (in a nutshell: capital gains tax-free in eternity for all the funds bought before x; afterwards 25% on all the capital gains -> you wanted to have index funds "converting" dividends into capital gains by means of a Swap/Total-Return-construction and you wanted to bet your money on several horses - because once the ETF provider dissolves the fund...
2. Country ETF: Bet against all the gloom and doom concerning the Eurozone respectively reversion to the mean (I am not an orthodox follower of the "the price is right theory" and yes, I have to admit that I look at the CAPE/PE10).
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Re: Boglehead in Europe/Netherlands

Postby Makane » Sun Jun 30, 2013 6:10 pm

Are there any other European Bogleheads frequenting this forum?

What are your considerations or thoughts about currency risk and asset allocation?

What ETF's are you using? Do they accumulate dividends? What are their TER's?

Are you doing anything to counter Euro inflation?

:beer
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Re: Boglehead in Europe/Netherlands

Postby perpetualbond » Sun Jun 30, 2013 7:06 pm

Hi Makane,
For now; did you consider the Think Global Equity UCITS ETF?
It's not prefect in the sense that it holds only 250 companies, equal weighted and rebalances once a year.
However, it is good from a tax point of view, it's domiciled in the Netherlands, pays dividends but has had a tax-ruling which allows you to deduct dividend tax from your income tax. TER is good at 0.20%.
Also, I found www.justetf.com to be the perfect site for screening EU based etf's.
I'm from the Netherlands too and ran into the same issues that you do.
It's pretty late now, bedtime, but will definitely contribute more to this thread later:)
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Re: Boglehead in Europe/Netherlands

Postby Makane » Sun Jun 30, 2013 7:27 pm

perpetualbond wrote:did you consider the Think Global Equity UCITS ETF?
It's not prefect in the sense that it holds only 250 companies, equal weighted and rebalances once a year.


Welcome perpetualbond! Good to have you with us. Have a beer! :beer

So far I am not very impressed with the ETF's I found with low TER's suitable for us Europeans. There's always something wrong with it, if you read into the details. :wink:

I just looked up "Think Global Equity UCITS ETF (EUR) | TGET" and added it to the list. This one seems a bit better, but 70% of the 250 companies are all among the largest cap stocks on the planet. Also, if it is using market cap weighting, why does it not hold emerging markets, and what is it doing holding 20% in Japanese stocks? I always find great discrepancies between different fund/ETF providers in their "market cap weighting".

Actually, the Vanguard ETF looks a bit better: "Vanguard FTSE All-World ETF (EUR) | VWRL". It is a bit more expensive with 0.25% TER, but covers 2380 companies (51% very large cap, 35% large cap, 14% medium cap) and it looks properly market cap weighted for our planet (incl. ~5% emerging / ~8.5% Japan).
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Re: Boglehead in Europe/Netherlands

Postby Makane » Mon Jul 01, 2013 12:06 pm

For European investors:

All Vanguard ETF's available on LSE, NYX and SIX distribute dividends, usually every quarter.

For Dutch investors:

Dividend tax on these ETF's is withheld by Vanguard.
Your dividend tax can be (partly) reclaimed when you file your tax forms in Box 3.
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Re: Boglehead in Europe/Netherlands

Postby allsop » Mon Jul 01, 2013 12:56 pm

Makane wrote:Are there any other European Bogleheads frequenting this forum?

What are your considerations or thoughts about currency risk and asset allocation?

What ETF's are you using? Do they accumulate dividends? What are their TER's?

Are you doing anything to counter Euro inflation?

:beer


There is, you know, a large part of EU that is not part of the Euro zone nor pegged to Euro, having floating exchange rates....

I am a Swedish based investor in an EU country that is a small country but not a member of Euro zone, thank God.

A BH in Sweden can find low cost funds with TER less than 0.3 covering essentially large cap blend (S&P 500, ACWI, etc) but tilting to a reasonable small cap (or value) is not there yet.

Most of my fixed income is in insured CDs yielding about 3% with consumer inflation less than 1%, and held in taxable.

About 97% of equity is international.
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Re: Boglehead in Europe/Netherlands

Postby Epsilon Delta » Mon Jul 01, 2013 4:21 pm

You should be careful about talking about European investing*. There are 28 different countries, with different legal systems and customs, and only a fairly thin overlay of EU regulation. Some of the countries share common features, but there are a lot of differences and many of them matter to investors.

* Or indeed European anything. My German friends are fond of saying things like "In Europe we do it this way, ... " to which I respond "You may do it that way in Bavaria, but I've lived in Europe and we didn't do that, heck we didn't even speak German."
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Re: Boglehead in Europe/Netherlands

Postby perpetualbond » Mon Jul 01, 2013 5:48 pm

Hello again:)

Makane wrote:I just looked up "Think Global Equity UCITS ETF (EUR) | TGET" and added it to the list. This one seems a bit better, but 70% of the 250 companies are all among the largest cap stocks on the planet. Also, if it is using market cap weighting, why does it not hold emerging markets, and what is it doing holding 20% in Japanese stocks? I always find great discrepancies between different fund/ETF providers in their "market cap weighting".

70% large caps seems ok to me. It doesn't hold emerging markets because some 'global' etf's don't?! As for the 20% in Japan: I guess the Japanese stocks have outperformed and the next rebalancing will probably lower this %.

(
Makane wrote:db x-trackers MSCI World TRN Index UCITS ETF
-ISIN: LU0274208692
-0.45% TER
-Accumulating: Unknown.

This etf also doesn't have any emerging markets exposure. It is the largest fund (over 2bn in AUM) and accumulating (no dividends).

I also found iShares MSCI World Minimum Volatility.
0.30% TER, accumulating, optimized sampling, fund size 82m, currency unhedged.
That's the lowest of all accumulating etf's, but I'm not sure about whether I like the minimum volatility part?! The MSCI World Minimum Volatility index overweights utilities and consumer staples.
Apparently it would have given higher returns and lower volatility over the last 10 yeras but I'm still not convinced? Anyone knows more about this?

In the end I'm just a bit confused about all these options as none of them really stands out.
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Re: Boglehead in Europe/Netherlands

Postby galao888 » Wed Jul 03, 2013 10:37 am

@ European Bogleheads,

I find it increasingly difficult to match the three-fund-portfolio from an European investors perspective.

For the equity part I go with (as I prefer the full-replicated versions):

- ishares MSCI World
- ishares MSCI Emerging Markets
- ishares Stoxx Europe 600

However, I really struggle with the bond/fixed income part. Cash Accounts pay around 1,5% p.a. at the moment without any volatility - that matches what any of the AAA Government Bond ETFs would currently achieve. So, I am using the Cash Account as my 'fixed income' part of the portfolio at the moment.

Any ideas on the bond/fixed income part for the portfolio?
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Re: Boglehead in Europe/Netherlands

Postby dutchboglehead » Sat Nov 02, 2013 2:22 pm

galao888 wrote:@ European Bogleheads,

....

Any ideas on the bond/fixed income part for the portfolio?


What about:
iShares Euro Aggregate Bond UCITS ETF
TER: 0.25
The Barclays Euro Aggregate Bond Index includes fixed-rate, investment-grade Euro denominated bonds. Inclusion is based on the currency of the issue, and not the domicile of the issuer. The principal sectors in the index are the Treasury, corporate, government-related and securitised.
See: http://nl.ishares.com/en/pc/products/IEAG

See also the topic I started recently at: viewtopic.php?f=1&t=125413
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