Mismatch between Portfolio Watch & Index Funds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
artthomp
Posts: 327
Joined: Tue Feb 20, 2007 3:44 pm
Location: Ballwin Missouri

Mismatch between Portfolio Watch & Index Funds

Post by artthomp »

I was surprised this morning to find a fairly severe mismatch indicated between my international index funds and the market weighting indicated by Vanguard's Portfolio Watch.

I've already submitted the following message to Vanguard but I thought it might be a good idea to document the question here.

"Dear Vanguard Representative,

I am a great believer in diversification using index funds and I was distrubed by this mornings' results when I ran Vanguard's Portfolio Watch. In the past it only indicated minor deviations from world equity weightings.

I hold the following international index funds:
Vanguard Total World Index ETF (VT) - 5% of my total portfolio
Vanguard Total International Index ETF (VXUS) - 15% of my total portfolio

I am attempting to use index funds to approximate market weightings of international equities.

This morning your Market Watch Tool indicates:
"The proportion of stocks from developed and emerging markets in your portfolio differ from those of the market"

Furthermore the Market Watch Tool indicates:
Europe -10.1%
Pacific +2.5%
Canada +2.5%
Emerging Markets +4.4%
Uncatergorized +0.7%

Shouldn't my holdings more accurately reflect world market weightings since I am using only international and global index funds?
Art
User avatar
bengal22
Posts: 2146
Joined: Sat Dec 03, 2011 5:20 pm
Location: Ohio

Re: Mismatch between Portfolio Watch & Index Funds

Post by bengal22 »

VG portfolio watch does not accurately depict Fidelity's Total Stock Market fund either. I e-mailed them and they said they use morningstar's breakdown but in the case of Fid's TSM that was not accurate.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
User avatar
hoppy08520
Posts: 2193
Joined: Sat Feb 18, 2012 10:36 am

Re: Mismatch between Portfolio Watch & Index Funds

Post by hoppy08520 »

This is an oft-discussed issue, although when I tried to find some past threads on this, I couldn't seem to.

It seems that the VG Portfolio Watch doesn't break down funds into the right asset classes, giving you a distorted view of your portfolio. For such a big company this seems inexcusable.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Mismatch between Portfolio Watch & Index Funds

Post by pkcrafter »

hoppy, to find past discussions on this topic, or any topic, use the Google search box in the upper right corner.

Put "Vanguard portfolio watch" into the box and you will get several hits.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
Topic Author
artthomp
Posts: 327
Joined: Tue Feb 20, 2007 3:44 pm
Location: Ballwin Missouri

Re: Mismatch between Portfolio Watch & Index Funds

Post by artthomp »

Thanks pkcrafter, I'll do that search next.

But I think the current allocation comparison is so incorrect that I've sent the following second email to Vanguard.

"According to the Vanguard site:

The world region equity proportions for the VXUS ETF are:
41.9% Europe
24.9% Pacific
23.9% Emerging Markets
8.6% North America

and according to Portfolio Watch my international equity proportions are:
41.9% Europe
24.5% Pacific
24.4% Emerging Markets
8.5% North America

So my international investments closely match VXUS in equity proportions!

But the world international equity proportions claimed by Portfolio Watch are:
52.0% Europe
22.0% Pacific
20.0% Emerging Markets
6.0% North America

How in the world can the estimate of European equity proportions be off by 24% (52.0% - 41.9% = 10.1%, 10.1%/41.9% = 24%)?

There's something far more messed up than a difference in indexes!

I await your explanation.

Sincerely,"
Art
User avatar
hoppy08520
Posts: 2193
Joined: Sat Feb 18, 2012 10:36 am

Re: Mismatch between Portfolio Watch & Index Funds

Post by hoppy08520 »

pkcrafter wrote:hoppy, to find past discussions on this topic, or any topic, use the Google search box in the upper right corner.

Put "Vanguard portfolio watch" into the box and you will get several hits.


Paul
Thanks. Btw, there is a wiki page on this which includes links to one of the more animated threads on this topic:

http://www.bogleheads.org/wiki/Vanguard_Portfolio_Watch
YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Mismatch between Portfolio Watch & Index Funds

Post by YDNAL »

artthomp wrote:I hold the following international index funds:
Vanguard Total World Index ETF (VT) - 5% of my total portfolio
Vanguard Total International Index ETF (VXUS) - 15% of my total portfolio

I am attempting to use index funds to approximate market weightings of international equities.
Art,

Based on what you said (perhaps I misread), you are not looking at this correctly.

1. Why do you combine a Global Fund (VT) that uses Global Mkt weights and International Fund (VXUS) to meet your goal in "attempting to use index funds to approximate market weightings of international equities" ?

2. To meet your goal (#1), VT properly tracks the FTSE Global All Cap Index and you don't need anything else - and that includes using any portfolio watch thingy?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
livesoft
Posts: 86077
Joined: Thu Mar 01, 2007 7:00 pm

Re: Mismatch between Portfolio Watch & Index Funds

Post by livesoft »

I imagine that PW has the world weights as of 2007 or some other time in the past and not as of June 2012.

A 20% drop in the value of European equities would change a 52% to something much lower ... maybe even 42%.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Topic Author
artthomp
Posts: 327
Joined: Tue Feb 20, 2007 3:44 pm
Location: Ballwin Missouri

Re: Mismatch between Portfolio Watch & Index Funds

Post by artthomp »

YDNAL wrote:
artthomp wrote:I hold the following international index funds:
Vanguard Total World Index ETF (VT) - 5% of my total portfolio
Vanguard Total International Index ETF (VXUS) - 15% of my total portfolio

I am attempting to use index funds to approximate market weightings of international equities.
Art,

Based on what you said (perhaps I misread), you are not looking at this correctly.

1. Why do you combine a Global Fund (VT) that uses Global Mkt weights and International Fund (VXUS) to meet your goal in "attempting to use index funds to approximate market weightings of international equities" ?

2. To meet your goal (#1), VT properly tracks the FTSE Global All Cap Index and you don't need anything else - and that includes using any portfolio watch thingy?
Since I'm 72 years old and retired I'm more or less going by the rule of thumb of having my age in fixed income.

In answer to the questions from YDNAL.

1. VT is a special case. I am using it for my entire Roth IRA which I view as an estate for my children. If market conditions are good in the next few years, this will probably provide them a bigger estate and the simplicity of the investment allows me to simply leave it alone. I do include it in my equity allocations.

Since the results in Portfolio Watch for my investments match fairly closely the allocation indicated for VXUS by itself, I think the mixture of VT and VXUS results in about the same porportions for international stocks.

2. In a response to a personal message I sent him, Mel Lindauer suggested I look at the Vanguard Target Retirement Income Fund. It looked so good to me that I basically copied the allocation scheme for my own retirement accounts.

I could even use it for all of my accounts except for the fact that 90.2% of my retirement funds are still IRA accounts. While only 9.8% of my assets are presently taxable, I expect the taxable portion of the portfolio to increase over time.

My plan is to slowly move IRS Required Distribution proceeds I don't need for current expenses into equiies leaving the bond funds and money market funds in the IRA until I run out of space.

This is the normal Bogleheads recommendation because of the tax considerations.

It's also true that Portfolio Watch shows my overall portfolio ER as 0.11% as compared to the Vanguard Target Retirement Income Fund ER as 0.17%

My version (with some rounding) of the Retirement Income Portfolio is:
5% Vanguard Money Market (there's a very low probability I will lose nominal dollars here)
45% Vanguard Admiral Total Bond Index Fund
20% Vanguard Admiral Inflation-indexed Bond Fund
Equity percentages below are the present approximate percentages but will be maintained at 30% of portfolio.
5% Vanguard World Index ETF (VT) (This Roth IRA account will not be adjusted but will be used in equity allocation)
16.5% Vanguard Total Stock Market Index ETF (This will be adjusted to 66% of equities outside the Roth IRA account)
8.5% Vanguard International Index ETF (This will be adjusted to 34% of equities outside the Roth IRA account)
Art
User avatar
Topic Author
artthomp
Posts: 327
Joined: Tue Feb 20, 2007 3:44 pm
Location: Ballwin Missouri

Re: Mismatch between Portfolio Watch & Index Funds

Post by artthomp »

livesoft wrote:I imagine that PW has the world weights as of 2007 or some other time in the past and not as of June 2012.

A 20% drop in the value of European equities would change a 52% to something much lower ... maybe even 42%.

Vanguard Portfolio Watch states that the proportions are taken from:
MSCI All World Index free ex USA as of 3/31/2012.

You had a good idea though. European stocks are probably down 20% or so because of the current euro crisis.
Art
User avatar
tfb
Posts: 8397
Joined: Mon Feb 19, 2007 4:46 pm

Re: Mismatch between Portfolio Watch & Index Funds

Post by tfb »

hoppy08520 wrote:Btw, there is a wiki page on this which includes links to one of the more animated threads on this topic:

http://www.bogleheads.org/wiki/Vanguard_Portfolio_Watch
I think Vanguard should just remove this tool from its website. This is a case where although economic theory says giving people something not so well done makes people at least as better off as before -- worst case you just ignore it and pretend it's no there -- the reality is bad information will cause confusion and unnecessary stress. I never pay attention to Portfolio Watch and the example* Vanguard shows on the page after I log in.
Harry Sit has left the forums.
User avatar
Topic Author
artthomp
Posts: 327
Joined: Tue Feb 20, 2007 3:44 pm
Location: Ballwin Missouri

Re: Mismatch between Portfolio Watch & Index Funds

Post by artthomp »

I recieved the following email from Vanguard this morning.

"Dear Mr.:

Thank you for taking the time to contact us.

Vanguard is aware the "stock markets outside the U.S." column in the
international section on Portfolio Watch is not accurately reflecting the
source (MSCI All Country World Index Free ex USA with as of 03/31/2012).
Our business technology team is working on a solution for this issue. You
will find the correct numbers as of 03/31/2012 below:

Europe: 44.0%
Pacific: 24.0%
Canada: 8.0%
Emerging Markets: 24.0%

If you have additional questions, please call Vanguard Voyager Select
Services(tm) at 800-284-7245. You can reach us on business days from 8 a.m.
to 10 p.m. and on Saturdays from 9 a.m. to 4 p.m., Eastern time.

Sincerely,"
Art
bhjto
Posts: 1
Joined: Sun Jul 29, 2018 2:44 pm

Re: Mismatch between Portfolio Watch & Index Funds

Post by bhjto »

Six years later and the problem is still there.
Post Reply