EU Investor - ETF portfolio with tilts

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papito75
Posts: 9
Joined: Fri May 06, 2016 10:52 pm

EU Investor - ETF portfolio with tilts

Postby papito75 » Sat Feb 04, 2017 3:54 am

Hello all,

Longtime lurker here. After weighing the several contributions made for EU investors in particular, such as the merits of dividend-accumulating funds, the debates on currency hedging, etc., I started investing in the following portfolio, which is a version of the typical IWDA/EMIM mix primarily recommended here for EU investors. My primary concern is on the small cap part of the portfolio, where I am not yet invested.

Emergency funds: 3 months. I think this is enough due to generous unemployment insurance in Europe (65% of net salary) and low overdraft fees
Debt: Paid back 1.9% student loan in 2016 (perhaps stupidly), have 20k left at 0%.
Age: 28
Desired Asset allocation: 80% stocks / 20% fixed income - I intend to keep this allocation stable throughout the years as my increasing RE equity will help mitigate NW volatility. I intend to buy my primary residence with a pretty sizeable downpayment in a HCOL, European capital, where steep declines in RE prices are hard to imagine. Perhaps the assumption is foolish though.

Stocks: 80%

iShares Core MSCI World - IWDA (TER: .2%): 62,5% stocks/50% portfolio

SPDR Russell 2000 US Small Cap - ZPRR (TER: .3%) OR SPDR MSCI World Small Cap - ZPRS (TER: .45%): 10% stocks/8% portfolio
I am still undecided on which one to pick. The former has a cheaper TER and is far more liquid with a better bid/ask spread, while the latter offers greater market diversification, albeit underperforming the Russell 2000 ETF slightly. I have read the debates on small cap tilts and am fairly convinced I want a small portion of my portfolio invested in them for diversification and further opportunities for rebalancing, even at the expense of simplicity.

SPDR MSCI EMU - EMUE (TER: .17): 17,5% stocks/14% portfolio
A home bias tilt on the EMU that I am added mainly to alleviate currency risk somewhat. I could bring that down to 15% if I end up going for ZPRS.

iShares Core MSCI Emerging Markets IMI - EMIM (TER: .25): 10% stocks/8% portfolio
I have been very happy with the overperformance of the past few months but I still 10% in EM is all I can stomach right now.

Fixed Income: 20%

Lyxor EuroMTS All-Maturity Investment Grade (DR) - MTX (TER: .165): 80% FI/16% portfolio
Government-insured savings account, yielding a net .75%/year: 20% FI/4% portfolio

Anyway, I look forward to your feedback on the portfolio and my general plan. Thanks for reading!

norciom
Posts: 33
Joined: Wed Sep 28, 2016 4:46 pm

Re: EU Investor - ETF portfolio with tilts

Postby norciom » Sat Feb 04, 2017 4:49 am

SPDR MSCI EMU is the only one that makes me raise an eyebrow. If you want to alleviate currency risk why pick one country not full Europe? Something like iShares MSCI Europe - IEUR.

Correction: SPDR MSCI EMU was misinterpreted as one country index. I see it's a full Europe index.

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galeno
Posts: 1003
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: EU Investor - ETF portfolio with tilts

Postby galeno » Sat Feb 04, 2017 7:25 am

Simplify equities by using VWRL. Forget about small caps until there's a better option. Your FI choices are fine.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 2.8%. TER = 0.5%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

Fabio
Posts: 68
Joined: Tue Mar 29, 2016 11:54 am
Location: Italy

Re: EU Investor - ETF portfolio with tilts

Postby Fabio » Sat Feb 04, 2017 11:05 am

galeno wrote:Simplify equities by using VWRL


VWRL distributes dividends though. In some european countries (mine, for example) accumulating funds are more tax efficient, as distibuted dividends are immediately taxed. If this is the case IWDA + EMIM could be a better choice.

Papito, would you mind specifying where is your fiscal residence? Did you check if dividends are taxed in your country?

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galeno
Posts: 1003
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: EU Investor - ETF portfolio with tilts

Postby galeno » Sat Feb 04, 2017 1:12 pm

I ALWAYS forget about the "distributing" vs "accumulating" ETFs and Europe.

I was wondering why you were dancing around the simple solution (VWRL) staring you in the face.

Our fiscal residence is Panama. No USA-NRA tax treaty.

Our equity ETF (VWRD) dividends gets hit with the standard level 1 dividend taxes = 11.7% which comes to a TR (tax ratio) = 0.27%. Our bond income comes thru free of the level 1 taxes.

Our portfolio ER = 0.19%. Our portfolio TR = 0.11%. We add in another 0.20% for misc costs (IBC, trades, currency spreads, wire transfer fees, etc). For us, accumulating funds make no sense.

Fabio wrote:
galeno wrote:Simplify equities by using VWRL


VWRL distributes dividends though. In some european countries (mine, for example) accumulating funds are more tax efficient, as distibuted dividends are immediately taxed. If this is the case IWDA + EMIM could be a better choice.

Papito, would you mind specifying where is your fiscal residence? Did you check if dividends are taxed in your country?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 2.8%. TER = 0.5%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

vstariradev
Posts: 13
Joined: Wed Nov 02, 2016 9:43 am

Re: EU Investor - ETF portfolio with tilts

Postby vstariradev » Sat Feb 04, 2017 2:23 pm

I'm also 28 and an EU resident in a country where acc ETFs are more tax efficient (I'm assuming this based on your ETF choice, you have to check it with a tax adviser). Our situation is similar so I'll share what I did and maybe it can give you some points to consider. I'm not saying my strategy is the best but it works for me.

Broker: Interactive Brokers through local introducer to escape the 10$/mo fee (then eventually transferring to direct account with IB when I have more than $100000). IB have better account protection through SPIC ($500 000) compared to EU's 20 000 euro. The local introducing broker has higher commissions but I only pay them once a year when I invest/rebalance.

Asset allocation
Stocks:
80% IWDA
20% EIMI

For small cap I was considering WDSC but I decided to skip it because the yearly fee was equal to IWDA and EIMI combined and the amount I'd allocate to it would be too small to even matter. If I did choose it I'd have gone with 80/10/10 IWDA/EIMI/WDSC resulting in more money going to commission and yearly fees.

Fixed-income:
I didn't allocate any of my initial investment in fixed-income ETFs and I don't plan to include it in my asset allocation. There are a few topics around this forum considering the various bond investments available for EU residents with the general consensus that we don't have a lot of options. Most EU bond ETFs contain a large percent of Italian bonds and we all know Italy's credit rating. EU-linked TIPS offers too little return and it feels like I'm paying a big price for inflation protection. CDs are an option for some Europeans but I don't trust my local banks enough.

I pulled the trigger on the plan on 1st of Feb this year and the plan is to not touch it until 1st of Feb next year. I hope this helps.

Vladimir

papito75
Posts: 9
Joined: Fri May 06, 2016 10:52 pm

Re: EU Investor - ETF portfolio with tilts

Postby papito75 » Sat Feb 04, 2017 11:15 pm

Fabio wrote:
galeno wrote:Simplify equities by using VWRL


VWRL distributes dividends though. In some european countries (mine, for example) accumulating funds are more tax efficient, as distibuted dividends are immediately taxed. If this is the case IWDA + EMIM could be a better choice.

Papito, would you mind specifying where is your fiscal residence? Did you check if dividends are taxed in your country?


This. Vanguard ETFs is far more the optimal choice in Europe due to taxation and inferior trading volume. Dividends are taxed at 21% or whatever your marginal tax rate is if below that, + 15.5% on top of that. There are possible deductions however. The complexity alone makes me want to choose accumulating funds.

vstariradev wrote:
Broker: Interactive Brokers through local introducer to escape the 10$/mo fee (then eventually transferring to direct account with IB when I have more than $100000). IB have better account protection through SPIC ($500 000) compared to EU's 20 000 euro. The local introducing broker has higher commissions but I only pay them once a year when I invest/rebalance.

For small cap I was considering WDSC but I decided to skip it because the yearly fee was equal to IWDA and EIMI combined and the amount I'd allocate to it would be too small to even matter. If I did choose it I'd have gone with 80/10/10 IWDA/EIMI/WDSC resulting in more money going to commission and yearly fees.


Fair enough. I am with Degiro now but am considering diversifying once my portfolio gets big enough, say 100k. Noted on the WDSC too!

hilink73
Posts: 63
Joined: Tue Sep 20, 2016 3:29 pm

Re: EU Investor - ETF portfolio with tilts

Postby hilink73 » Sun Feb 05, 2017 1:23 am

papito75 wrote:
Fabio wrote:
galeno wrote:Simplify equities by using VWRL


VWRL distributes dividends though. In some european countries (mine, for example) accumulating funds are more tax efficient, as distibuted dividends are immediately taxed. If this is the case IWDA + EMIM could be a better choice.

Papito, would you mind specifying where is your fiscal residence? Did you check if dividends are taxed in your country?


This. Vanguard ETFs is far more the optimal choice in Europe due to taxation and inferior trading volume. Dividends are taxed at 21% or whatever your marginal tax rate is if below that, + 15.5% on top of that. There are possible deductions however. The complexity alone makes me want to choose accumulating funds.

vstariradev wrote:
Broker: Interactive Brokers through local introducer to escape the 10$/mo fee (then eventually transferring to direct account with IB when I have more than $100000). IB have better account protection through SPIC ($500 000) compared to EU's 20 000 euro. The local introducing broker has higher commissions but I only pay them once a year when I invest/rebalance.

For small cap I was considering WDSC but I decided to skip it because the yearly fee was equal to IWDA and EIMI combined and the amount I'd allocate to it would be too small to even matter. If I did choose it I'd have gone with 80/10/10 IWDA/EIMI/WDSC resulting in more money going to commission and yearly fees.


Fair enough. I am with Degiro now but am considering diversifying once my portfolio gets big enough, say 100k. Noted on the WDSC too!



WDSC = Wycombe District Swimming Club => http://www.wycombe-swimming.org.uk/ ??
Guys, would you mind giving the full fund names?
Using only the ticker symbols is *not* cool and makes your posts meaningless for readers who do not know them from memory.

And state your country, because taxation in the EU is not homogeneous.

vstariradev
Posts: 13
Joined: Wed Nov 02, 2016 9:43 am

Re: EU Investor - ETF portfolio with tilts

Postby vstariradev » Sun Feb 05, 2017 1:58 am

hilink73 wrote:WDSC = Wycombe District Swimming Club => http://www.wycombe-swimming.org.uk/ ??
Guys, would you mind giving the full fund names?
Using only the ticker symbols is *not* cool and makes your posts meaningless for readers who do not know them from memory.

And state your country, because taxation in the EU is not homogeneous.


Just add "stock" when googling the ticker symbols, "wdsc stock" comes out with the right info. That swimming club looks small cap just not diversified enough :D . I'm from EU's tax heaven called Bulgaria.

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BeBH65
Posts: 773
Joined: Sat Jul 04, 2015 7:28 am

Re: EU Investor - ETF portfolio with tilts

Postby BeBH65 » Sun Feb 05, 2017 2:36 am

Hello ,

- Please have look at our wiki pages on international domiciles. Even if your country is not there, the pages will have good info for you.
- Some of the topics you mention have been discussed before. Do a search in our forum. You should find treads like this one
- Depending on the methods of caculation, small caps make up 10-15% of the market. So you proposition is not a tilt to small caps.
- Related to the funds choice: Irish domiciled is generally better for tax reasons, make sure you check the minimal investment as some require 70000 shares minimum.
- For small caps, I personally use: SPDR® MSCI Europe Small Cap UCITS ETF (EUR) | SMC and iShares MSCI USA Small Cap UCITS ETF USD (Acc) (EUR) | CUSS, I would use SPDR® MSCI World Small Cap ETF (WDSC), if I would have access to it.

Regarding your emergency fund: emergencies are also include large purchases like new car, new roof,.... Make sure you take that into account in setting the size of the EF.

Avoid to invest your future down payment in the stock market. A downpayment needs a stable investment choice.

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

papito75
Posts: 9
Joined: Fri May 06, 2016 10:52 pm

Re: EU Investor - ETF portfolio with tilts

Postby papito75 » Sun Feb 05, 2017 3:15 am

BeBH65 wrote:Hello ,

- Please have look at our wiki pages on international domiciles. Even if your country is not there, the pages will have good info for you.
- Some of the topics you mention have been discussed before. Do a search in our forum. You should find treads like this one
- Depending on the methods of caculation, small caps make up 10-15% of the market. So you proposition is not a tilt to small caps.
- Related to the funds choice: Irish domiciled is generally better for tax reasons, make sure you check the minimal investment as some require 70000 shares minimum.
- For small caps, I personally use: SPDR® MSCI Europe Small Cap UCITS ETF (EUR) | SMC and iShares MSCI USA Small Cap UCITS ETF USD (Acc) (EUR) | CUSS, I would use SPDR® MSCI World Small Cap ETF (WDSC), if I would have access to it.

Regarding your emergency fund: emergencies are also include large purchases like new car, new roof,.... Make sure you take that into account in setting the size of the EF.

Avoid to invest your future down payment in the stock market. A downpayment needs a stable investment choice.

Regards,


Thanks. Yes of course, my downpayment is on a dedicated savings account, what I meant was that I didn't count this DP as part of my portfolio but would consider equity, at least informally, as part of the safer portion of my portfolio.

Also, I don't drive and live in a small apartment, but yes I agree that my emergency fund could be a little bigger;

jordanow
Posts: 2
Joined: Mon Feb 13, 2017 8:17 am

Re: EU Investor - ETF portfolio with tilts

Postby jordanow » Fri Apr 21, 2017 2:38 am

papito75 wrote:Hello all,

Longtime lurker here. After weighing the several contributions made for EU investors in particular, such as the merits of dividend-accumulating funds, the debates on currency hedging, etc., I started investing in the following portfolio, which is a version of the typical IWDA/EMIM mix primarily recommended here for EU investors. My primary concern is on the small cap part of the portfolio, where I am not yet invested.

Emergency funds: 3 months. I think this is enough due to generous unemployment insurance in Europe (65% of net salary) and low overdraft fees
Debt: Paid back 1.9% student loan in 2016 (perhaps stupidly), have 20k left at 0%.
Age: 28
Desired Asset allocation: 80% stocks / 20% fixed income - I intend to keep this allocation stable throughout the years as my increasing RE equity will help mitigate NW volatility. I intend to buy my primary residence with a pretty sizeable downpayment in a HCOL, European capital, where steep declines in RE prices are hard to imagine. Perhaps the assumption is foolish though.

Stocks: 80%

iShares Core MSCI World - IWDA (TER: .2%): 62,5% stocks/50% portfolio

SPDR Russell 2000 US Small Cap - ZPRR (TER: .3%) OR SPDR MSCI World Small Cap - ZPRS (TER: .45%): 10% stocks/8% portfolio
I am still undecided on which one to pick. The former has a cheaper TER and is far more liquid with a better bid/ask spread, while the latter offers greater market diversification, albeit underperforming the Russell 2000 ETF slightly. I have read the debates on small cap tilts and am fairly convinced I want a small portion of my portfolio invested in them for diversification and further opportunities for rebalancing, even at the expense of simplicity.

SPDR MSCI EMU - EMUE (TER: .17): 17,5% stocks/14% portfolio
A home bias tilt on the EMU that I am added mainly to alleviate currency risk somewhat. I could bring that down to 15% if I end up going for ZPRS.

iShares Core MSCI Emerging Markets IMI - EMIM (TER: .25): 10% stocks/8% portfolio
I have been very happy with the overperformance of the past few months but I still 10% in EM is all I can stomach right now.

Fixed Income: 20%

Lyxor EuroMTS All-Maturity Investment Grade (DR) - MTX (TER: .165): 80% FI/16% portfolio
Government-insured savings account, yielding a net .75%/year: 20% FI/4% portfolio

Anyway, I look forward to your feedback on the portfolio and my general plan. Thanks for reading!



Hello,

At the end, what has been your decision for the small cap?

alpine_boglehead
Posts: 16
Joined: Fri Feb 17, 2017 9:51 am

Re: EU Investor - ETF portfolio with tilts

Postby alpine_boglehead » Fri Apr 21, 2017 7:20 am

If you don't mind using mutual funds, you could take a look at one from Vanguard Ireland - Vanguard Global Small-Cap Index Fund Investor Euro Shares.

http://www.morningstar.co.uk/uk/funds/s ... F00000T1HQ

The 0.4% ER is a bit higher than some of the abovementioned ETFs, though. And with some brokers the minimum investment seems to be 100k€

papito75
Posts: 9
Joined: Fri May 06, 2016 10:52 pm

Re: EU Investor - ETF portfolio with tilts

Postby papito75 » Sat Apr 22, 2017 12:59 am

jordanow wrote:
Hello,

At the end, what has been your decision for the small cap?


Ended up going for the SPDR World Small Cap one. I decided that the lower trading volume and larger bid/ask do not bother me so much since as I will continue to B&H.


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