adapt portfolios to european investor

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gargagnam
Posts: 12
Joined: Mon Sep 11, 2017 3:55 am

adapt portfolios to european investor

Post by gargagnam » Mon Sep 11, 2017 4:11 am

Hi, I'm planning to build my main portfolio and it will kind of serve as a pension fund.
This mean that I will put my savings there every other month for the next 30+ years, and then will make yearly withdrawals for other (hopefully) 20 years (I'm currently 32).

If I was in the US I would probably just invest everything in an index fund that covers the total market. However, since I leave in Italy I don't have access to that type of funds I wonder if investing entirely in the US stock market is a good idea.

So, my question is, how should I translate a portfolio studied for the US investor (any of the 60/40, three fund, ultimate buy and hold...) to an European or Italian investor?

Obviously I'm going to use etfs, but which strategy should I use? I'm considering 5 of them
1- use the same portfolio and ignore currency risk
2- use the same asset classes of the reference portfolio, but use indexes that tracks the entire world (i.e. us small cap -> msci world small cap)
3- use the same asset classes of the reference portfolio, but use indexes that tracks europe (i.e. us small cap -> msci euro small cap)
4- use the same asset classes, but split investment on US and Euro indexes (i.e. us small cap -> us small cap + mdci euro small cap)
5- ignore US-centric portfolios and search for studies specific to European market

I'm leaning towards strategy 4 with roughly a 50-50 or 60-40 split (in favour of US).
My line of thinking is that US market is the biggest, strongest and most studied - hence worth a big slice of the savings - but is also important to invest in the local market.

What do you think?

vstariradev
Posts: 21
Joined: Wed Nov 02, 2016 9:43 am

Re: adapt portfolios to european investor

Post by vstariradev » Mon Sep 11, 2017 5:50 am

Hi and welcome to the BH forum. I recommend you read through the wiki page for Italian investors ( https://www.bogleheads.org/wiki/Investing_from_Italy ). The ETFs recommended there (SWDA in particular) match the strategy you're leaning towards. My advice to you is to read up as much as possible on your particular situation (search for posts about EU/Italian investors) and even seek local info on the taxation. There's a lot of great advice on the forum but it may not always suit your case. Best of luck.

imperia
Posts: 57
Joined: Tue Feb 21, 2017 6:31 am

Re: adapt portfolios to european investor

Post by imperia » Mon Sep 11, 2017 8:03 am

Italian member of this forum Fabio made ultimate buy and hold portfolio for EU investing:

- 10% iShares Core MSCI Emerging Markets IMI UCITS ETF (TER:0,25%), EIMI
- 20% iShares Core MSCI World UCITS ETF (TER:0,20%), IWDA
- 20% iShares Edge MSCI World Value Factor UCITS ETF (TER::0,30%), IWVL
- 20% SPDR® MSCI World Small Cap UCITS ETF (TER:0,45%), WDSC
- 10% SPDR® MSCI Europe Small Cap Value Weighted UCITS ETF (TER:0,30%), ZPRX
- 10% SPDR® MSCI USA Small Cap Value Weighted UCITS ETF (TER:0,30%), ZPRV
- 10% Global - Amundi Index FTSE EPRA NAREIT UCITS ETF DR (TER:0,24%), EPRA

Another popular portfolio is:

10% iShares Core MSCI Emerging Markets IMI UCITS ETF (TER:0,25%), EIMI
-90% iShares Core MSCI World UCITS ETF (TER:0,20%), IWDA

You can add some Europe ETF to those two if you want like MSCI Europe, Eurostoxx50, ...., if you want balance between € and $ exposure and maybe some small cap, it is all up to you.

gargagnam
Posts: 12
Joined: Mon Sep 11, 2017 3:55 am

Re: adapt portfolios to european investor

Post by gargagnam » Tue Sep 12, 2017 2:41 am

Thank you for the welcome and advices.
I was thinking of something like:

35% euro stoxx 50 xesc X-trackers 0,09
15% small cap eu csemus iShares 0,58
35% s&p 500 csspx ishares 0,07
15% small cap us r2us spdr 0,30

What do you think?
Am I right to say that general consensus is instead to just use msci world indexes in place of a custom split?

Valuethinker
Posts: 33157
Joined: Fri May 11, 2007 11:07 am

Re: adapt portfolios to european investor

Post by Valuethinker » Tue Sep 12, 2017 3:34 am

gargagnam wrote:
Tue Sep 12, 2017 2:41 am
Thank you for the welcome and advices.
I was thinking of something like:

35% euro stoxx 50 xesc X-trackers 0,09
15% small cap eu csemus iShares 0,58
35% s&p 500 csspx ishares 0,07
15% small cap us r2us spdr 0,30

What do you think?
Am I right to say that general consensus is instead to just use msci world indexes in place of a custom split?
There's no logic AFAIK to ignore Asia.

There's no logic to ignore Emerging Markets (or Canada and Australia, which are sometimes not included in the other indices).

I think every portfolio should be at least 20% in safe government bonds. That sickening moment when you realize your equity portfolio has dropped 50% is, well, sickening. Happened to me twice in the last 18 years-- or close to 50% drop, anyways.

imperia
Posts: 57
Joined: Tue Feb 21, 2017 6:31 am

Re: adapt portfolios to european investor

Post by imperia » Tue Sep 12, 2017 4:19 am

You can take SPDR MSCI World Small Cap UCITS ETF (ZPRS), TER:0,45% instead of two small caps ETF that you have choosed.
It is more simple, and you will avoid brockers fee of buying two ETF.

Think about this:

55% iShares Core MSCI World UCITS ETF (TER:0,20%), IWDA
10% iShares Core MSCI Emerging Markets IMI UCITS ETF (TER:0,25%), EIMI
25% euro stoxx 50 xesc X-trackers 0,09
10% SPDR MSCI World Small Cap UCITS ETF (ZPRS), TER:0,45%

For fixed income I currently use banks saving account, it is better than goverment bonds.

I am also thinking about iShares J.P. Morgan USD EM Bond UCITS ETF (JPEA), TER:0,45%, it is new accumulation ETF by ishares, and it tracks emerging market bonds issued in US Dollar.
Total return in last 5years is 4,5%

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BeBH65
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Joined: Sat Jul 04, 2015 7:28 am

Re: adapt portfolios to european investor

Post by BeBH65 » Tue Sep 12, 2017 4:32 am

gargagnam wrote:
Mon Sep 11, 2017 4:11 am
If I was in the US I would probably just invest everything in an index fund that covers the total market. However, since I leave in Italy I don't have access to that type of funds I wonder if investing entirely in the US stock market is a good idea.
IWDA - Ishares MSCI world provides you exposure to the full developped world - 1600 stocks - might be enough
you can (10%) add Emerging Markets to it if you wnat ( e.g EIMI ishares MSCI Emergind Markets)
if you also want small caps you can add up to 15% something like SDPR MSCI world small cap (WDSC/ZPRS)

If you want to add euro, choose something more diversified than EuroStoxx50, e.g. MSCI Europe, or EuroStoxx600.

What about Bonds?

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Lauretta
Posts: 218
Joined: Wed Jul 05, 2017 6:27 am
Location: Italy

Re: adapt portfolios to european investor

Post by Lauretta » Tue Sep 12, 2017 4:36 am

imperia wrote:
Tue Sep 12, 2017 4:19 am

I am also thinking about iShares J.P. Morgan USD EM Bond UCITS ETF (JPEA), TER:0,45%, it is new accumulation ETF by ishares, and it tracks emerging market bonds issued in US Dollar.
Total return in last 5years is 4,5%
Hi Imperia, may I ask why have EM bonds issued in USD (and not in Euros) for a EU investor since that adds currency risk? (I've also read a paper by Howard Marks saying there's a lot of credit risk in EM debt :? ). Thanks :happy
When everyone is thinking the same, no one is thinking at all

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Lauretta
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Location: Italy

Re: adapt portfolios to european investor

Post by Lauretta » Tue Sep 12, 2017 5:42 am

Valuethinker wrote:
Tue Sep 12, 2017 3:34 am
gargagnam wrote:
Tue Sep 12, 2017 2:41 am
Thank you for the welcome and advices.
I was thinking of something like:

35% euro stoxx 50 xesc X-trackers 0,09
15% small cap eu csemus iShares 0,58
35% s&p 500 csspx ishares 0,07
15% small cap us r2us spdr 0,30

What do you think?
Am I right to say that general consensus is instead to just use msci world indexes in place of a custom split?
There's no logic AFAIK to ignore Asia.

There's no logic to ignore Emerging Markets (or Canada and Australia, which are sometimes not included in the other indices).

I think every portfolio should be at least 20% in safe government bonds. That sickening moment when you realize your equity portfolio has dropped 50% is, well, sickening. Happened to me twice in the last 18 years-- or close to 50% drop, anyways.
The problem with governement bonds is that they don't seem to be that safe in real terms. Inflation in the UK is around 3% and IGLT seems to yield less, so you're losing money. Long term nominal returns will be low, as they are correlated to initial yields. There's the additional risk of loss in the intermediate term if/when there are rate hikes. In the EU the situation is even worse.
I saw a video by Markowitz who said that as a young man in his mid-20s he had split his assets 50-50 in stocks and bonds to minimize regret. He said that if he had to do it again, he'd invest 100% stocks. gargagnam is young :-) and they'll be regularly investing, so if the market drops they'll buy at a cheaper price, so I personally don't see a problem in investing all in stocks at their age.
When everyone is thinking the same, no one is thinking at all

Valuethinker
Posts: 33157
Joined: Fri May 11, 2007 11:07 am

Re: adapt portfolios to european investor

Post by Valuethinker » Tue Sep 12, 2017 5:55 am

Lauretta wrote:
Tue Sep 12, 2017 5:42 am
Valuethinker wrote:
Tue Sep 12, 2017 3:34 am
gargagnam wrote:
Tue Sep 12, 2017 2:41 am
Thank you for the welcome and advices.
I was thinking of something like:

35% euro stoxx 50 xesc X-trackers 0,09
15% small cap eu csemus iShares 0,58
35% s&p 500 csspx ishares 0,07
15% small cap us r2us spdr 0,30

What do you think?
Am I right to say that general consensus is instead to just use msci world indexes in place of a custom split?
There's no logic AFAIK to ignore Asia.

There's no logic to ignore Emerging Markets (or Canada and Australia, which are sometimes not included in the other indices).

I think every portfolio should be at least 20% in safe government bonds. That sickening moment when you realize your equity portfolio has dropped 50% is, well, sickening. Happened to me twice in the last 18 years-- or close to 50% drop, anyways.
The problem with governement bonds is that they don't seem to be that safe in real terms. Inflation in the UK is around 3% and IGLT seems to yield less, so you're losing money. Long term nominal returns will be low, as they are correlated to initial yields. There's the additional risk of loss in the intermediate term if/when there are rate hikes. In the EU the situation is even worse.
I saw a video by Markowitz who said that as a young man in his mid-20s he had split his assets 50-50 in stocks and bonds to minimize regret. He said that if he had to do it again, he'd invest 100% stocks. gargagnam is young :-) and they'll be regularly investing, so if the market drops they'll buy at a cheaper price, so I personally don't see a problem in investing all in stocks at their age.
That's confusing the expected return of an asset with its role in the portfolio. You also have to look at volatility.

If you look at the historical data, the incremental return from going to 100% equity from 80% is small (actually it's not that huge going from 60% E/ 40% bonds to 100% equity). However the volatility is greatly increased. The reason being safe government bonds and equity markets are not perfectly correlated-- there's a diversification gain.

And there's a psychological aspect. When you look over the cliff and your investment portfolio has gone down 30, 40, 50%, it's very easy to panic out. Having some bonds helps with that-- gives you ammunition for rebalancing into a falling market.

Bonds have lousy prospective returns. However that means stocks do, also. The difference being a bear market in bonds will cost you 10-15% (look at 1994, the last big bear market in bonds since 1980). A bear market in stocks can cost you 50%-- some people I respect think the US market is 60% overvalued and there's pretty broad agreement it is the most highly valued it has ever been save 1929 and 1999/ early 2000.

msk
Posts: 498
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Re: adapt portfolios to european investor

Post by msk » Tue Sep 12, 2017 6:05 am

imperia wrote:
Mon Sep 11, 2017 8:03 am
Another popular portfolio is:

10% iShares Core MSCI Emerging Markets IMI UCITS ETF (TER:0,25%), EIMI
90% iShares Core MSCI World UCITS ETF (TER:0,20%), IWDA
+1
You are investing for a long time, 50+ years. We have no clue which economies will flourish and which will peter out; ditto for currencies. If Europe (or China) is set for a huge upswing 10 years from today, your IWDA will automatically weight that and down-weight the USA and others. Recall that it was not too long ago that Japan constituted around half of world stock market capitalization and looked unassailable, just as the USA looks today. If you are the type who gets terrified by market falls, by all means own some bonds. I accept and have accepted the market gyrations since the mid 1980s, hence I never owned bonds; and happy to have done so. Know thyself and decide.

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Lauretta
Posts: 218
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Location: Italy

Re: adapt portfolios to european investor

Post by Lauretta » Tue Sep 12, 2017 6:21 am

Valuethinker wrote:
Tue Sep 12, 2017 5:55 am
Lauretta wrote:
Tue Sep 12, 2017 5:42 am
Valuethinker wrote:
Tue Sep 12, 2017 3:34 am
gargagnam wrote:
Tue Sep 12, 2017 2:41 am
Thank you for the welcome and advices.
I was thinking of something like:

35% euro stoxx 50 xesc X-trackers 0,09
15% small cap eu csemus iShares 0,58
35% s&p 500 csspx ishares 0,07
15% small cap us r2us spdr 0,30

What do you think?
Am I right to say that general consensus is instead to just use msci world indexes in place of a custom split?
There's no logic AFAIK to ignore Asia.

There's no logic to ignore Emerging Markets (or Canada and Australia, which are sometimes not included in the other indices).

I think every portfolio should be at least 20% in safe government bonds. That sickening moment when you realize your equity portfolio has dropped 50% is, well, sickening. Happened to me twice in the last 18 years-- or close to 50% drop, anyways.
The problem with governement bonds is that they don't seem to be that safe in real terms. Inflation in the UK is around 3% and IGLT seems to yield less, so you're losing money. Long term nominal returns will be low, as they are correlated to initial yields. There's the additional risk of loss in the intermediate term if/when there are rate hikes. In the EU the situation is even worse.
I saw a video by Markowitz who said that as a young man in his mid-20s he had split his assets 50-50 in stocks and bonds to minimize regret. He said that if he had to do it again, he'd invest 100% stocks. gargagnam is young :-) and they'll be regularly investing, so if the market drops they'll buy at a cheaper price, so I personally don't see a problem in investing all in stocks at their age.
That's confusing the expected return of an asset with its role in the portfolio. You also have to look at volatility.

If you look at the historical data, the incremental return from going to 100% equity from 80% is small (actually it's not that huge going from 60% E/ 40% bonds to 100% equity). However the volatility is greatly increased. The reason being safe government bonds and equity markets are not perfectly correlated-- there's a diversification gain.

And there's a psychological aspect. When you look over the cliff and your investment portfolio has gone down 30, 40, 50%, it's very easy to panic out. Having some bonds helps with that-- gives you ammunition for rebalancing into a falling market.

Bonds have lousy prospective returns. However that means stocks do, also. The difference being a bear market in bonds will cost you 10-15% (look at 1994, the last big bear market in bonds since 1980). A bear market in stocks can cost you 50%-- some people I respect think the US market is 60% overvalued and there's pretty broad agreement it is the most highly valued it has ever been save 1929 and 1999/ early 2000.
Well, concerning the diversification benefit, I'm not sure how significant it is; some people working in finance I have corresponded with seem to favour at present what Peter Bernstein called the barbell portfolio
I agree with the psychological point.
I am not sure why you say 'Bonds have lousy prospective returns. However that means stocks do, also.'. Bonds returns are highly correlated to initial yeilds (there's historical data on e.g. 10 yr Treasuries clearly showing this), that's a question of mathematics, so you can know in advance what to expect within a narrow margin. Stock returns are generally expected to be relatively low but nobody knows really. So I don't understand how you can be confident that stocks will have lousy returns.
Finally I agree that the US market seems overvalued (though an old friend from university with whom I caught up last week and who changed career after his PhD in physics (a good decision moneywise ;-) ) and went on to manage a big Fielity US fund, thinks US stocks are fairly priced, so nobody seems to know even if they are in finance). But other markets (like EM and to some extent Europe) don't seem to be so richly valued; so one is free to overweigh the geographial regions that look more promising (I saw a report by GMO recently in which they say they have 30% of stocks in EM value stocks)
When everyone is thinking the same, no one is thinking at all

Valuethinker
Posts: 33157
Joined: Fri May 11, 2007 11:07 am

Re: adapt portfolios to european investor

Post by Valuethinker » Tue Sep 12, 2017 7:06 am

Lauretta wrote:
Tue Sep 12, 2017 6:21 am
Well, concerning the diversification benefit, I'm not sure how significant it is; some people working in finance I have corresponded with seem to favour at present what Peter Bernstein called the barbell portfolio
All the data presented here, and in other finance sources like textbooks that I have read, suggests that the diversification benefit is very real. You really don't gain a lot of return for going from 80% equities to 100% equities, and you do gain a lot of volatility.

Up to around 40% in safe government bonds vs. an equity portfolio. Safe government bonds have a low correlation with equities (between 0 and 0.2 I believe).

Barbell is a nice construct but the tracking error against the stock market index or against a 60/40 portfolio is too large for most investors. The only reasonable one I have seen is 90% US TIPS, 10% LEAPs (call options on the equity index). That's Zvi Bodie's suggestion. And the problem now is that the yields are so low on TIPS that that won't work for most people -- when Bodie first wrote that TIPS were yielding north of 2.5% I believe.

(Swedroe has a wealth preservation portfolio I believe they use with clients (who are all American). Which is mostly Municipal Bonds (but they are very careful which bonds, to minimize credit risk) plus International Small Cap Value funds. And they have added Reinsurance and Peer-to-Peer lending as well, now, I believe).
I am not sure why you say 'Bonds have lousy prospective returns. However that means stocks do, also.'. Bonds returns are highly correlated to initial yeilds (there's historical data on e.g. 10 yr Treasuries clearly showing this), that's a question of mathematics, so you can know in advance what to expect within a narrow margin. Stock returns are generally expected to be relatively low but nobody knows really. So I don't understand how you can be confident that stocks will have lousy returns.
It's an efficient market argument. If bonds have low return expectations, and stocks do not, then that opens up an arbitrage-- short the bond market (driving yields up) and long the stock market. Or just gear the investment into the stock market.

I don't think that there's a lot of evidence that people are doing that. So money is being left on the table.

What I think is far more likely is that very low interest rates have driven stock valuations to very high levels, thus lowering future returns for stocks as well. No Free Lunches.

Finally I agree that the US market seems overvalued (though an old friend from university with whom I caught up last week and who changed career after his PhD in physics (a good decision moneywise ;-) ) and went on to manage a big Fielity US fund, thinks US stocks are fairly priced, so nobody seems to know even if they are in finance). But other markets (like EM and to some extent Europe) don't seem to be so richly valued; so one is free to overweigh the geographial regions that look more promising (I saw a report by GMO recently in which they say they have 30% of stocks in EM value stocks)
The various measures that are used to value stocks are in agreement that stocks are very expensive by historic measures. The argument the other way is that so is everything else, and in particular that bonds have record low yields. If you factor that in you can justify current US stock market valuations.

Note that if the US goes down so will everything else. Maybe less. But they will also go down. It's very unlikely that you could have a bear market in the US market (55% of world equity markets) that would not drag everything else down with it*. A related market factor is that a sharp fall in US equities will force liquidations of other portfolios as funds prepare to meet cash calls by investors-- that seems to be the pattern of bear markets.

* the Tech Media Telecoms bear market of 2000-03 was to a great extent sectoral-- the market dropped 30-35% but the TMT sectors did much of the dropping. So perhaps if one had a bear market in tech, and the US index is of course heavily weighted towards tech, then that would be possible.

imperia
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Re: adapt portfolios to european investor

Post by imperia » Tue Sep 12, 2017 12:06 pm

Lauretta wrote:
Tue Sep 12, 2017 4:36 am
imperia wrote:
Tue Sep 12, 2017 4:19 am

I am also thinking about iShares J.P. Morgan USD EM Bond UCITS ETF (JPEA), TER:0,45%, it is new accumulation ETF by ishares, and it tracks emerging market bonds issued in US Dollar.
Total return in last 5years is 4,5%
Hi Imperia, may I ask why have EM bonds issued in USD (and not in Euros) for a EU investor since that adds currency risk? (I've also read a paper by Howard Marks saying there's a lot of credit risk in EM debt :? ). Thanks :happy
I can not find EM bond ETF in Euros, it is all in USD.

I noticed UBS ETF (LU) Bloomberg Barclays USD Emerging Markets Sovereign UCITS ETF (hedged to EUR) A-acc, TER:0.47%

EM are more riskier then developed market, but potential reward is bigger.
There is more than 30 EM country in this ETF so it is Well-diversified.

Valuethinker
Posts: 33157
Joined: Fri May 11, 2007 11:07 am

Re: adapt portfolios to european investor

Post by Valuethinker » Tue Sep 12, 2017 12:30 pm

imperia wrote:
Tue Sep 12, 2017 12:06 pm
Lauretta wrote:
Tue Sep 12, 2017 4:36 am
imperia wrote:
Tue Sep 12, 2017 4:19 am

I am also thinking about iShares J.P. Morgan USD EM Bond UCITS ETF (JPEA), TER:0,45%, it is new accumulation ETF by ishares, and it tracks emerging market bonds issued in US Dollar.
Total return in last 5years is 4,5%
Hi Imperia, may I ask why have EM bonds issued in USD (and not in Euros) for a EU investor since that adds currency risk? (I've also read a paper by Howard Marks saying there's a lot of credit risk in EM debt :? ). Thanks :happy
I can not find EM bond ETF in Euros, it is all in USD.

I noticed UBS ETF (LU) Bloomberg Barclays USD Emerging Markets Sovereign UCITS ETF (hedged to EUR) A-acc, TER:0.47%

EM are more riskier then developed market, but potential reward is bigger.
There is more than 30 EM country in this ETF so it is Well-diversified.
The yield spreads of EM bonds over developed market bonds, and in particular the US Treasury bonds, are at more or less the lowest in history. And US Treasury Bonds in turn have the lowest yields in their history.

Argentina, a nation which has defaulted 5 times since independence and most recently in 2002 (to 2016) just sold a 100 year bond at an 8% yield to maturity. There are not many countries that are borrowing at higher than 8% right now.

If we have another EM debt crisis, it will hit stock markets at the same time, in fact will probably be related to that crisis.

These things are not credit risk free. And they are correlated with equity markets. And see 1997 and "Contagion"-- a Thai property company default pushed Brazil to the edge of default and led to Russia defaulting.

I don't believe China will again default (it last did so in 1949 at the end of the Civil War). But Chinese government debt is investment grade. I don't think India will ever default.

Can I really say that South Africa, Turkey, Indonesia, Thailand are never going to default? Nigeria? Even Brazil. Governance and natural resources price risk are quite high in Russia.

I take the argument for EM equities. Higher risk and higher potential return-- compensation for bad corporate governance, political risk etc.

But EM bonds? How much can you gain from here?

Chasing returns on bonds always struck me as a high risk- low reward scenario. In particular for High Yield Corporates, but also for the lower end of governments.

It strikes me as return chasing. And investors will return chase until markets turn round and whack them in the face.

Is 1997-98 so very long ago? I should mention there was also an EM debt crisis in the 1970s (that nearly brought down Chase Manhattan Bank, Lloyd's Bank etc.)-- the restructuring is where Brady Bonds came from. Oh and 1984-- I had a classmate whose father was in the Mexican Government. And 1994 of course (Mexico, again -- Clinton and Rubin saved that one by a legal end run around an uncooperative US Congress, but of course now the US Congress and developed country electorates are far more cosmopolitan-minded and mindful of their obligations as global citizens). And 1997. And 1998. 2002 for Argentina. Ecuador and Venezuela since then. Greece of course is a safe, developed country ....

But this time it is different, I guess?

There's a part of me that thinks we should be encouraging the Original Poster to go 100% equities, because it will be instructive for them (and for the rest of us, more to the point).

Right then, there. 80% equities-- say half in small cap value. 20% in Emerging Market debt.

That's my recommendation. Sorted.
I am sure in the Long Run it will pay off very well.

gargagnam
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Re: adapt portfolios to european investor

Post by gargagnam » Tue Sep 12, 2017 2:50 pm

msk wrote:
Tue Sep 12, 2017 6:05 am
imperia wrote:
Mon Sep 11, 2017 8:03 am
Another popular portfolio is:

10% iShares Core MSCI Emerging Markets IMI UCITS ETF (TER:0,25%), EIMI
90% iShares Core MSCI World UCITS ETF (TER:0,20%), IWDA
+1
You are investing for a long time, 50+ years. We have no clue which economies will flourish and which will peter out; ditto for currencies. If Europe (or China) is set for a huge upswing 10 years from today, your IWDA will automatically weight that and down-weight the USA and others. Recall that it was not too long ago that Japan constituted around half of world stock market capitalization and looked unassailable, just as the USA looks today. If you are the type who gets terrified by market falls, by all means own some bonds. I accept and have accepted the market gyrations since the mid 1980s, hence I never owned bonds; and happy to have done so. Know thyself and decide.
Serious question: why not just an msci ACWI then?

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BeBH65
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Re: adapt portfolios to european investor

Post by BeBH65 » Tue Sep 12, 2017 3:11 pm

gargagnam wrote:
Tue Sep 12, 2017 2:50 pm
Serious question: why not just an msci ACWI then?
Good question!
I can see two main reasons.
- Diversification: Acwi has about 1200 stocks, Iwda+eimi 1600+1900
- and you get this at a cheaper price: ER of Acwi is .60% if i am not mistaken.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

imperia
Posts: 57
Joined: Tue Feb 21, 2017 6:31 am

Re: adapt portfolios to european investor

Post by imperia » Wed Sep 13, 2017 12:08 am

Best and biggest european ACWI ETF is SPDR MSCI ACWI UCITS ETF, TER:0.4%
but it is still expensive compere with EIMI+IWDA.

gargagnam
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Re: adapt portfolios to european investor

Post by gargagnam » Wed Sep 13, 2017 1:19 am

So, does this seem more reasonable:

10% msci world emerging imi
60% msci world
30% msci world small cap

I'm attracted by the ultimate buy and hold portfolio, but in all honesty I'm not fully convinced by the science beyond the "value factor".

For the bond part I'm still undecided, but given the very long investment I'm inclined to do without it (or add some down the road around the 20 o 30 years mark)

But I have another two questions:

- Does it make sense to add a small bet on China A stocks?
- how to chose an etf? In example for msci world index I always see the iShares Core one suggested but there's also the x-trackers XDWD with a slightly lower TER. What makes the first one the preferred?

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Re: adapt portfolios to european investor

Post by Valuethinker » Wed Sep 13, 2017 5:26 am

gargagnam wrote:
Mon Sep 11, 2017 4:11 am
Hi, I'm planning to build my main portfolio and it will kind of serve as a pension fund.
This mean that I will put my savings there every other month for the next 30+ years, and then will make yearly withdrawals for other (hopefully) 20 years (I'm currently 32).

If I was in the US I would probably just invest everything in an index fund that covers the total market. However, since I leave in Italy I don't have access to that type of funds I wonder if investing entirely in the US stock market is a good idea.

So, my question is, how should I translate a portfolio studied for the US investor (any of the 60/40, three fund, ultimate buy and hold...) to an European or Italian investor?

Obviously I'm going to use etfs, but which strategy should I use? I'm considering 5 of them
1- use the same portfolio and ignore currency risk
2- use the same asset classes of the reference portfolio, but use indexes that tracks the entire world (i.e. us small cap -> msci world small cap)
3- use the same asset classes of the reference portfolio, but use indexes that tracks europe (i.e. us small cap -> msci euro small cap)
4- use the same asset classes, but split investment on US and Euro indexes (i.e. us small cap -> us small cap + mdci euro small cap)
5- ignore US-centric portfolios and search for studies specific to European market

I'm leaning towards strategy 4 with roughly a 50-50 or 60-40 split (in favour of US).
My line of thinking is that US market is the biggest, strongest and most studied - hence worth a big slice of the savings - but is also important to invest in the local market.

What do you think?
If my advice is not clear in interchanges up thread:

- buy an ETF which tracks the world equity index, market cap weighted, as close as you can get*
- buy an Emerging Market ETF as well if the other fund does not cover EMs, with 10-15% of your total equity exposure

The above should not be more than 80% of your portfolio. Experience and historic data has taught most of us the payback is a lot less volatility, and the ability to rebalance into a bear market, thus both reducing volatility and increasing long run returns.

- buy 20% of your portfolio in a fund or ETF which tracks Investment Grade government bonds. If the EUR one is unappetizing one can buy a USD one-- the additional volatility for an EUR investor is probably not too important, long term. You could split this 10% short term bond fund, 10% bond fund, but it won't actually matter too much in the long run.

Small Cap and particularly Small Cap Value effect are interesting, but the reality is that most of the funds which pursue these don't appear to extract the full effect. If you want to add that, it should not be more than 20% of your total portfolio (1/4 of your max equity exposure). Don't assume it will work in your favour going forward. And you will have considerable tracking error- -times when markets are going up, and this exposure is doing nothing. Hence my suggestion of limiting it to 20%.

* I have been known to split that between 2 ETFs and/or Funds, which do roughly the same thing, but from different providers. There are differences in implementation and I never want to have all my eggs in one basket. For a Vanguard fund, I would not worry about that consideration.

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Re: adapt portfolios to european investor

Post by Lauretta » Wed Sep 13, 2017 8:37 am

Valuethinker wrote:
Wed Sep 13, 2017 5:26 am

- buy 20% of your portfolio in a fund or ETF which tracks Investment Grade government bonds. If the EUR one is unappetizing one can buy a USD one-- the additional volatility for an EUR investor is probably not too important, long term. You could split this 10% short term bond fund, 10% bond fund, but it won't actually matter too much in the long run.
I came across an article by Warren Buffett last night. He says amongst other instructive things: 'Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.”'
Would you agree with this?
(Btw he puts his money where his mouth is as they say, because in his instructions to trustees he has 90% in stocks and 10% in short term bonds - which for a European would be cash because of negative short term bonds yield)
Here's the article (in 2012 US yields were similar to today's)
http://fortune.com/2012/02/09/warren-bu ... and-bonds/
When everyone is thinking the same, no one is thinking at all

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Re: adapt portfolios to european investor

Post by gargagnam » Wed Sep 13, 2017 9:41 am

Lauretta wrote:
Wed Sep 13, 2017 8:37 am
Valuethinker wrote:
Wed Sep 13, 2017 5:26 am

- buy 20% of your portfolio in a fund or ETF which tracks Investment Grade government bonds. If the EUR one is unappetizing one can buy a USD one-- the additional volatility for an EUR investor is probably not too important, long term. You could split this 10% short term bond fund, 10% bond fund, but it won't actually matter too much in the long run.
I came across an article by Warren Buffett last night. He says amongst other instructive things: 'Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.”'
Would you agree with this?
(Btw he puts his money where his mouth is as they say, because in his instructions to trustees he has 90% in stocks and 10% in short term bonds - which for a European would be cash because of negative short term bonds yield)
Here's the article (in 2012 US yields were similar to today's)
http://fortune.com/2012/02/09/warren-bu ... and-bonds/
I see a point here (as I see in one in the post from Valuethinker). However will this still be true in 10 years? I'd love a "lazy portfolio": I'd avoid to change asset allocation in the future and just rebalance yearly, if necessary.

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Re: adapt portfolios to european investor

Post by Lauretta » Wed Sep 13, 2017 11:43 am

gargagnam wrote:
Wed Sep 13, 2017 9:41 am

I see a point here (as I see in one in the post from Valuethinker). However will this still be true in 10 years? I'd love a "lazy portfolio": I'd avoid to change asset allocation in the future and just rebalance yearly, if necessary.
Well, I don't know how feasible that is, since in 10 years time your situation will have changed, as you'll be 10 years closer to retirement by definition ;-)
Anyway your first remark made me think of a joke about when a rabbi hears a case, telling both sides that they’re right. A listener asks how both sides can be right, and the rabbi responds, “You’re right, too!” :D
More seriously I would suggest you follow the advice of Valuethinker: he has a lot of posts and experience in this field; in my posts I only expressed my own opinion and said what I would do if I had your age - but I woudn't be confident to give advice, so please don't base your decisions on what I wrote.
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Re: adapt portfolios to european investor

Post by msk » Wed Sep 13, 2017 12:19 pm

I have no hesitation in giving advice to my heirs :mrgreen: Unfortunately they live in different countries and tax jurisdictions, but in brief, and mainly as supplementary to their job-income:

100% stocks worldwide. US-based? go for VT (Vanguard Total World), No-tax countries: 90% IWDA + 10% EIMI (both are iShares)
Cash out 5% of portfolio value each year

Expect that the withdrawals will yo-yo up and down depending on market conditions, but overall the withdrawals and the portfolio ought to keep up with inflation for more than 50 years, if one projects from the history of the past 50 years, and also as per Monte Carlo simulations (Median forecast maintains remaining portfolio in real terms) while the 25 percentile forecast is not awful, and the 75 percentile is quite spectacular, after 50 years.

One may have to use different ETFs depending on one's tax jurisdiction, e.g. in Canada it's probably much simpler for income tax reporting to use Canadian Vanguard ETFs, but basically one wants to replicate VT no matter which country each of my kids wishes to reside in.

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Re: adapt portfolios to european investor

Post by Valuethinker » Wed Sep 13, 2017 5:31 pm

Lauretta wrote:
Wed Sep 13, 2017 11:43 am
gargagnam wrote:
Wed Sep 13, 2017 9:41 am

I see a point here (as I see in one in the post from Valuethinker). However will this still be true in 10 years? I'd love a "lazy portfolio": I'd avoid to change asset allocation in the future and just rebalance yearly, if necessary.
Well, I don't know how feasible that is, since in 10 years time your situation will have changed, as you'll be 10 years closer to retirement by definition ;-)
Anyway your first remark made me think of a joke about when a rabbi hears a case, telling both sides that they’re right. A listener asks how both sides can be right, and the rabbi responds, “You’re right, too!” :D
More seriously I would suggest you follow the advice of Valuethinker: he has a lot of posts and experience in this field; in my posts I only expressed my own opinion and said what I would do if I had your age - but I woudn't be confident to give advice, so please don't base your decisions on what I wrote.
That's kind.

Thank you.

What I have learned here is that the wisest and most experienced investors here do not ignore bonds.

Bonds should be at least 25 per cent and at a bare minimum 20 per cent of any portfolio.

In addition taking credit risk on bonds I s not worth the hassle and additional volatility it brings.

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Re: adapt portfolios to european investor

Post by Valuethinker » Wed Sep 13, 2017 5:34 pm

gargagnam wrote:
Wed Sep 13, 2017 9:41 am
Lauretta wrote:
Wed Sep 13, 2017 8:37 am
Valuethinker wrote:
Wed Sep 13, 2017 5:26 am

- buy 20% of your portfolio in a fund or ETF which tracks Investment Grade government bonds. If the EUR one is unappetizing one can buy a USD one-- the additional volatility for an EUR investor is probably not too important, long term. You could split this 10% short term bond fund, 10% bond fund, but it won't actually matter too much in the long run.
I came across an article by Warren Buffett last night. He says amongst other instructive things: 'Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.”'
Would you agree with this?
(Btw he puts his money where his mouth is as they say, because in his instructions to trustees he has 90% in stocks and 10% in short term bonds - which for a European would be cash because of negative short term bonds yield)
Here's the article (in 2012 US yields were similar to today's)
http://fortune.com/2012/02/09/warren-bu ... and-bonds/
I see a point here (as I see in one in the post from Valuethinker). However will this still be true in 10 years? I'd love a "lazy portfolio": I'd avoid to change asset allocation in the future and just rebalance yearly, if necessary.
We are not c Warren Buffett. There is no world where he And his heirs do not have enough money. Even another Great Depression.

An 80 20 portfolio can be managed w very little intervention. The hard part will be staying away from intervention in the next bear m market where stocks drop 50 per cent.

Over time you will increase your exposure to bonds and may add inflation linked bonds. However right now those do not look particularly attractive.

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Re: adapt portfolios to european investor

Post by gargagnam » Thu Sep 14, 2017 12:02 am

Valuethinker wrote:
Wed Sep 13, 2017 5:34 pm
We are not c Warren Buffett. There is no world where he And his heirs do not have enough money. Even another Great Depression.

An 80 20 portfolio can be managed w very little intervention. The hard part will be staying away from intervention in the next bear m market where stocks drop 50 per cent.

Over time you will increase your exposure to bonds and may add inflation linked bonds. However right now those do not look particularly attractive.
Thank you both for the nice discussion.

To sum up, your suggestion would be to buy bonds ideally at 25% but at least 20% and increase the percentage while I near retirement age (let say at 10 and 20 years from now)

The equity part would be
10% msci emerging imi
20% msci world small cap
70% msci world (possibly 2 different etfs)

Is that correct?

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Re: adapt portfolios to european investor

Post by selters » Thu Sep 14, 2017 3:20 am

gargagnam wrote:
Tue Sep 12, 2017 2:50 pm
msk wrote:
Tue Sep 12, 2017 6:05 am
imperia wrote:
Mon Sep 11, 2017 8:03 am
Another popular portfolio is:

10% iShares Core MSCI Emerging Markets IMI UCITS ETF (TER:0,25%), EIMI
90% iShares Core MSCI World UCITS ETF (TER:0,20%), IWDA
+1
You are investing for a long time, 50+ years. We have no clue which economies will flourish and which will peter out; ditto for currencies. If Europe (or China) is set for a huge upswing 10 years from today, your IWDA will automatically weight that and down-weight the USA and others. Recall that it was not too long ago that Japan constituted around half of world stock market capitalization and looked unassailable, just as the USA looks today. If you are the type who gets terrified by market falls, by all means own some bonds. I accept and have accepted the market gyrations since the mid 1980s, hence I never owned bonds; and happy to have done so. Know thyself and decide.
Serious question: why not just an msci ACWI then?
Because slice and dice has much lower costs. The lowest cost ACWI ETF in Europe has an expense ratio of 0.45% I think. And AUM are much lower, so liquidity is loqwe and the risk of the ETF being closed is a lot higher.

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Re: adapt portfolios to european investor

Post by Valuethinker » Thu Sep 14, 2017 4:43 am

gargagnam wrote:
Thu Sep 14, 2017 12:02 am
Valuethinker wrote:
Wed Sep 13, 2017 5:34 pm
We are not c Warren Buffett. There is no world where he And his heirs do not have enough money. Even another Great Depression.

An 80 20 portfolio can be managed w very little intervention. The hard part will be staying away from intervention in the next bear m market where stocks drop 50 per cent.

Over time you will increase your exposure to bonds and may add inflation linked bonds. However right now those do not look particularly attractive.
Thank you both for the nice discussion.

To sum up, your suggestion would be to buy bonds ideally at 25% but at least 20% and increase the percentage while I near retirement age (let say at 10 and 20 years from now)

The equity part would be
10% msci emerging imi
20% msci world small cap
70% msci world (possibly 2 different etfs)

Is that correct?
On bonds yes, that's a good summary.

Your proposed equity portfolio would be fine.

You could do without the small cap. It is the Small Cap Value effect that really shows the much higher returns-- at the cost of volatility and particularly in periods of financial stress, a *lot* of volatility. So for example the Credit Crunch of 2008-09. When the financial system is not lending the value stocks usually really take the pain.

The main argument for small cap is that the MSCI world funds are too large cap weighted.

The real allocation decisions are:

- split between bonds and equity - nothing else will have such a large impact on portfolio volatility and return

secondary questions are:

- whether to hold Emerging Markets - most of us would probably say yes, but not to overweight them*

- whether to go after the SCV effect. The main problem is that to make a really significant difference in final outcome you need a big weighting and that opens up the risk of significant tracking error (underperforming the full index by a significant margin). So 10-20% of equities in such strategies is a compromise-- it will hurt if there's a big divergence between small cap and large cap, on the other hand the long run record of Small Cap Value strategies is very good.


* EM indices adjust for the large state or family holdings in many companies-- they don't included them in weighting the index. Conversely, China is the biggest part of the index, and I have little or no faith in the actual market value of these Chinese companies. The same is true of Gazprom, say, in Russia, which is one of the world's largest fossil fuel companies but is not run for the benefit of shareholders, but for the political and social purposes of the Russian state-- one is in partnership with Vladimir Putin, in effect. However Gazprom is at a very low valuation, reflecting those risks. I am not sure the Chinese equivalents fully discount the risks.

All companies have political risk but I am not sure this is fully discounted in the Chinese share prices.

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Re: adapt portfolios to european investor

Post by gargagnam » Thu Sep 14, 2017 7:16 am

Valuethinker wrote:
Thu Sep 14, 2017 4:43 am

On bonds yes, that's a good summary.

Your proposed equity portfolio would be fine.

You could do without the small cap. It is the Small Cap Value effect that really shows the much higher returns-- at the cost of volatility and particularly in periods of financial stress, a *lot* of volatility. So for example the Credit Crunch of 2008-09. When the financial system is not lending the value stocks usually really take the pain.

The main argument for small cap is that the MSCI world funds are too large cap weighted.

The real allocation decisions are:

- split between bonds and equity - nothing else will have such a large impact on portfolio volatility and return

secondary questions are:

- whether to hold Emerging Markets - most of us would probably say yes, but not to overweight them*

- whether to go after the SCV effect. The main problem is that to make a really significant difference in final outcome you need a big weighting and that opens up the risk of significant tracking error (underperforming the full index by a significant margin). So 10-20% of equities in such strategies is a compromise-- it will hurt if there's a big divergence between small cap and large cap, on the other hand the long run record of Small Cap Value strategies is very good.


* EM indices adjust for the large state or family holdings in many companies-- they don't included them in weighting the index. Conversely, China is the biggest part of the index, and I have little or no faith in the actual market value of these Chinese companies. The same is true of Gazprom, say, in Russia, which is one of the world's largest fossil fuel companies but is not run for the benefit of shareholders, but for the political and social purposes of the Russian state-- one is in partnership with Vladimir Putin, in effect. However Gazprom is at a very low valuation, reflecting those risks. I am not sure the Chinese equivalents fully discount the risks.

All companies have political risk but I am not sure this is fully discounted in the Chinese share prices.
Thanks all of this is invaluable to me.

Once again, let me rephrase to see if I understood correctly:
- small cap may not be worth the added risk. small cap value may be worth, around 10-20% of equities (unfortunately I can't find an ETF available in europa for world small cap value. If I decide to go with this I should split between usa and euro with ZPRV and ZPRX)
- EM may or may not be worth the risk because of political interference in the market

Anything else I should consider?

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Re: adapt portfolios to european investor

Post by gargagnam » Sat Sep 16, 2017 10:02 am

I took some time to think about all the feedbacks, and have come up with this:

45% SWDA - iShares Core MSCI World UCITS ETF
25% MWRD - Amundi ETF MSCI World UCITS ETF DR
10% EIMI - iShares Core MSCI Emerging Markets IMI UCITS ETF
10% XG7S - db x-trackers Global Sovereign UCITS ETF 5C
10% EMG - Lyxor EuroMTS All-Maturity Investment Grade (DR) UCITS ETF EUR

What do you think?

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Re: adapt portfolios to european investor

Post by imperia » Sat Sep 16, 2017 11:12 am

SWDA and MWRD looks like same ETF.
What is reason for holding two ETF that tracks same index?

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Re: adapt portfolios to european investor

Post by gargagnam » Sat Sep 16, 2017 11:22 am

I followed a suggestion from Valuethinker some posts above, the idea is that the implementation among the two founds may be different.
In the specific case one use sampling, the other full replication and has a slightly lower expense ratio but is very new and small.

But honestly, I'm not sure this is what they intended with that suggestion. Another idea would be to use a global etf that tracks a different index, but I can't find one that's available in Europe

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Re: adapt portfolios to european investor

Post by imperia » Sat Sep 16, 2017 1:30 pm

This is wrong.
Use IWDA for MSCI World index, and keep it simple.
If you want you can add emerging markets.
90% IWDA+10%EIMI
This is ok portfolio for begginer

For bond part take some bond ETF, but I notice that you sugested
EMG - Lyxor EuroMTS All-Maturity Investment Grade (DR) UCITS ETF EUR.
This is France domicile ETF, try to find Ireland or Luxembrough domicile ETF, becouse of dividend tax.

Next year you can add small cap(small cap value), msci europe or simple stay with IWDA+EIMI.

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Re: adapt portfolios to european investor

Post by Lauretta » Sat Sep 16, 2017 1:49 pm

imperia wrote:
Sat Sep 16, 2017 1:30 pm

EMG - Lyxor EuroMTS All-Maturity Investment Grade (DR) UCITS ETF EUR.
This is France domicile ETF, try to find Ireland or Luxembrough domicile ETF, becouse of dividend tax.
I once considered this ETF too, and if I remember correctly it does not pay dividends, it's Accumulating.
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Re: adapt portfolios to european investor

Post by gargagnam » Sat Sep 16, 2017 1:55 pm

Lauretta wrote:
Sat Sep 16, 2017 1:49 pm
imperia wrote:
Sat Sep 16, 2017 1:30 pm

EMG - Lyxor EuroMTS All-Maturity Investment Grade (DR) UCITS ETF EUR.
This is France domicile ETF, try to find Ireland or Luxembrough domicile ETF, becouse of dividend tax.
I once considered this ETF too, and if I remember correctly it does not pay dividends, it's Accumulating.
Yes, that's correct. I didn't bother with the France domicile since it's an accumulating one.

Other bond etfs you considered?

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Re: adapt portfolios to european investor

Post by Lauretta » Sat Sep 16, 2017 1:59 pm

gargagnam wrote:
Sat Sep 16, 2017 1:55 pm
Lauretta wrote:
Sat Sep 16, 2017 1:49 pm
imperia wrote:
Sat Sep 16, 2017 1:30 pm

EMG - Lyxor EuroMTS All-Maturity Investment Grade (DR) UCITS ETF EUR.
This is France domicile ETF, try to find Ireland or Luxembrough domicile ETF, becouse of dividend tax.
I once considered this ETF too, and if I remember correctly it does not pay dividends, it's Accumulating.
Yes, that's correct. I didn't bother with the France domicile since it's an accumulating one.

Other bond etfs you considered?
Nope; as I said above I personally came to the conclusion not to buy bonds for my portfolio.
When everyone is thinking the same, no one is thinking at all

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Re: adapt portfolios to european investor

Post by TM90 » Sat Sep 16, 2017 2:23 pm

Hi I currently hold the ishares core euro government bond etf in my portfolio.

There are a couple of ways you can choose your bond etf:

Ishares core Euro aggregate bond dist
- More correlation to stocks because of corporate bonds
- Highly diversified
- More volatile but potentially more profit
- Interest rate risk is higher because of duration

Ishares core euro government bond dist
- Minimum correlation to stocks
- Not maximally diversified (because it only holds govt)
- Less volatile then euro aggregate bond etf
- Interest rate risk is higher because of duration

Ishares Euro government bond 1-3, 5-7 dist or 3-7 acc
- Minimum correlation to stocks
- Not broadly diversified (only had about 40-50 holdings)
- Least volatile of them all
- Interest rate risk is a lot lower because shorter duration
- Efficient frontier for bonds is around 5 to 6 years

I've been thinking about switching to the 3-7 acc etf because of interest rate risk and because of lower volatility and also because the acc version is more tax efficient but the low amount of holdings worries me. On the other hand I was thinking about switching to the euro aggregate bond etf because it is more diversified and possibly has more return.

I don't know what I am going to do.

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Re: adapt portfolios to european investor

Post by imperia » Sat Sep 16, 2017 2:50 pm

Lauretta wrote:
Sat Sep 16, 2017 1:49 pm
imperia wrote:
Sat Sep 16, 2017 1:30 pm

EMG - Lyxor EuroMTS All-Maturity Investment Grade (DR) UCITS ETF EUR.
This is France domicile ETF, try to find Ireland or Luxembrough domicile ETF, becouse of dividend tax.
I once considered this ETF too, and if I remember correctly it does not pay dividends, it's Accumulating.
In Germany you need to pay divident tax on accumulation ETF.
Are you sure for France?

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Re: adapt portfolios to european investor

Post by Lauretta » Sat Sep 16, 2017 2:56 pm

imperia wrote:
Sat Sep 16, 2017 2:50 pm

In Germany you need to pay divident tax on accumulation ETF.
Are you sure for France?
sorry I don't understand your question. If the ETF does not pay dividends what is the tax on? Do you mean the coupons are taxes before being reinvested?
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Re: adapt portfolios to european investor

Post by imperia » Sat Sep 16, 2017 4:11 pm

In Germany you need to pay dividend tax for accumulation ETF.
ETF reinvest dividend but you need to know amount of dividend that is reinvested, report that amount and pay dividend tax on that ammount.
I red that from 2018 ETF will declare dividend to German goverment so dividend tax for accumulation ETF will be pay automatically.
I think Switzerland have same tax regime.

In Italy you do not pay dividend for accumulation ETF, but for France I am not sure.
On this forum many people have spoken about that problem in Germany.

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Re: adapt portfolios to european investor

Post by Lauretta » Sat Sep 16, 2017 4:18 pm

imperia wrote:
Sat Sep 16, 2017 4:11 pm
In Germany you need to pay dividend tax for accumulation ETF.
ETF reinvest dividend but you need to know amount of dividend that is reinvested, report that amount and pay dividend tax on that ammount.
I red that from 2018 ETF will declare dividend to German goverment so dividend tax for accumulation ETF will be pay automatically.
I think Switzerland have same tax regime.

In Italy you do not pay dividend for accumulation ETF, but for France I am not sure.
On this forum many people have spoken about that problem in Germany.
ah ok interesting, didn't know about Germany. Anyway for Italian residents what count should be the country of residence rather than where the ETF is domiciled, don't you think?
When everyone is thinking the same, no one is thinking at all

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Re: adapt portfolios to european investor

Post by Hyperborea » Sat Sep 16, 2017 7:43 pm

Lauretta wrote:
Sat Sep 16, 2017 4:18 pm
imperia wrote:
Sat Sep 16, 2017 4:11 pm
In Germany you need to pay dividend tax for accumulation ETF.
ETF reinvest dividend but you need to know amount of dividend that is reinvested, report that amount and pay dividend tax on that ammount.
I red that from 2018 ETF will declare dividend to German goverment so dividend tax for accumulation ETF will be pay automatically.
I think Switzerland have same tax regime.

In Italy you do not pay dividend for accumulation ETF, but for France I am not sure.
On this forum many people have spoken about that problem in Germany.
ah ok interesting, didn't know about Germany. Anyway for Italian residents what count should be the country of residence rather than where the ETF is domiciled, don't you think?
The country where the fund is domiciled has the right to tax dividends and interest. The country where the investor is domiciled has the right to do so after that and may or may not give some sort of credit for the first country's taxes paid. If either of those discounts an accumulating fund and taxes dividends that were reinvested that could be an accounting nightmare when it comes time to sell shares of the fund.

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Re: adapt portfolios to european investor

Post by Lauretta » Sun Sep 17, 2017 12:25 am

Hyperborea wrote:
Sat Sep 16, 2017 7:43 pm
Lauretta wrote:
Sat Sep 16, 2017 4:18 pm
imperia wrote:
Sat Sep 16, 2017 4:11 pm
In Germany you need to pay dividend tax for accumulation ETF.
ETF reinvest dividend but you need to know amount of dividend that is reinvested, report that amount and pay dividend tax on that ammount.
I red that from 2018 ETF will declare dividend to German goverment so dividend tax for accumulation ETF will be pay automatically.
I think Switzerland have same tax regime.

In Italy you do not pay dividend for accumulation ETF, but for France I am not sure.
On this forum many people have spoken about that problem in Germany.
ah ok interesting, didn't know about Germany. Anyway for Italian residents what count should be the country of residence rather than where the ETF is domiciled, don't you think?
The country where the fund is domiciled has the right to tax dividends and interest. The country where the investor is domiciled has the right to do so after that and may or may not give some sort of credit for the first country's taxes paid. If either of those discounts an accumulating fund and taxes dividends that were reinvested that could be an accounting nightmare when it comes time to sell shares of the fund.
Thanks for these comments. :happy I am not aware that France taxes dividends in accumulating ETFs; the other thing is that many Lyxor and Amundi ETFs do synthetic replication of an index using swaps, so they don't physically receive dividends. And for a number of ETFs both Lyxor and Amundi have switched (or are in the process of switching) from synthetic replication to physical replication. If the latter had different tax implications, I imagine that it would have had repercussion on investors, who would likely have exited these ETFs.
Anyway the best thing is that I call Amundi during the week as I have found it's much easier to communicate with them than with Lyxor, and if I find out that there are negative tax implications for French domiciled ETFs I'll post the information here.
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imperia
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Re: adapt portfolios to european investor

Post by imperia » Sun Sep 17, 2017 12:31 am

Croatia has nice tax regime.
There is no dividend tax for accumulating ETF, and best part is with capital gain tax(CGT).

CGT is 12%, but only if you hold shares less than two years.

If you hold shears more than two years then you are free.
There is no CGT in Croatia for sharea that you hold more than two years.

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BeBH65
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Re: adapt portfolios to european investor

Post by BeBH65 » Sun Sep 17, 2017 12:44 am

Hyperborea wrote:
Sat Sep 16, 2017 7:43 pm
The country where the fund is domiciled has the right to tax dividends and interest. The country where the investor is domiciled has the right to do so after that and may or may not give some sort of credit for the first country's taxes paid. If either of those discounts an accumulating fund and taxes dividends that were reinvested that could be an accounting nightmare when it comes time to sell shares of the fund.
Hello Hyperborea,

Indeed, the investors that live in countries that tax dividends independent if they are distributed or reinvested have additional administrative actions to take. Those investors have no gain in using accumulating funds and could best avoid them, or at least they should use funds that are 'registered' or are 'reporting' in their country..

There are also countries that tax all dividends of the funds domiciled in its country. As this would indeed be a 'accounting nightmare' you will see that the fund companies would not create accumulating funds in that country. Also some countries (like the Us) only allow ditributing funds.

The above is focussed on dividend tax. Similar attention needs to be given for capital gains tax.

Situation for Belgian investors:
- Dividend tax on all dividends really received (often withheld by broker).
- Capital gains tax for bond funds, but not for equity finds.
- different taxation on transactions with distributing and accumulating funds.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Lauretta
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Re: adapt portfolios to european investor

Post by Lauretta » Sun Sep 17, 2017 12:49 am

imperia wrote:
Sun Sep 17, 2017 12:31 am
Croatia has nice tax regime.
There is no dividend tax for accumulating ETF, and best part is with capital gain tax(CGT).

CGT is 12%, but only if you hold shares less than two years.

If you hold shears more than two years then you are free.
There is no CGT in Croatia for sharea that you hold more than two years.
Interesting! I recently asked an accountant in Italy (a commercialista) about Croatia but he did not know. On the other hand Malta does not seem good for CGT if I understand correctly.
I know someone who used to manage a Fidelity fund, he's already retired but he runs a Travel Agency for UK people who want to go live in Andorra, for tax purposes, so I think Andorra should have a good regime... More generally do you know which are the best websites to find out about tax regimes on investments in different countries? There's probably a lot of stuff on the web but I don't know yet which are the reliable websites nor the best way to find reliable information quickly.
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imperia
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Re: adapt portfolios to european investor

Post by imperia » Sun Sep 17, 2017 1:10 am

I am Croat and this information for Croatia is 100% correct.

I am not sure there is web site on english that cover tax regime in EU.

I have find this site

http://www.globalpropertyguide.com

It is for realestate not for shares and ETF, but maybe you can find something interesting.

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BeBH65
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Re: adapt portfolios to european investor

Post by BeBH65 » Sun Sep 17, 2017 3:29 am

The places where I find a lot of info are:
- the Bogleheads wiki pages on international domiciles, and their references
- this Bogleheads forum, especially the posts by Ted Swippet and the references he provides
- the site of my government
- the sites of the fund providers, ishares and vanguard. And here both the international as well as the local sites
- Deloitte, PWC, ....
- Sites for expats
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Lauretta
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Re: adapt portfolios to european investor

Post by Lauretta » Sun Sep 17, 2017 4:09 am

imperia wrote:
Sun Sep 17, 2017 12:31 am
Croatia has nice tax regime.
There is no dividend tax for accumulating ETF, and best part is with capital gain tax(CGT).

CGT is 12%, but only if you hold shares less than two years.

If you hold shears more than two years then you are free.
There is no CGT in Croatia for sharea that you hold more than two years.
then I might consider moving across the border (I live not far on the Italian side) to Croatia: last time I went there on holiday I liked it so much I didn't want to come back anyway! :happy
When everyone is thinking the same, no one is thinking at all

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