Tilting sectors, regions and countries? Which ones.

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TheTimeLord
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Tilting sectors, regions and countries? Which ones.

Post by TheTimeLord » Tue Dec 12, 2017 9:21 am

Are there any sectors, regions or countries you are overweighting or underweighting? Personally I am looking at underweighting energy and consumer staples and overweighting technology and consumer discretionary but I have not done this to any great extent yet.
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Re: Tilting sectors, regions and countries? Which ones.

Post by digarei » Tue Dec 12, 2017 10:05 am

TheTimeLord wrote:
Tue Dec 12, 2017 9:21 am
Are there any sectors, regions or countries you are overweighting or underweighting? Personally I am looking at underweighting energy and consumer staples and overweighting technology and consumer discretionary but I have not done this to any great extent yet.
I overweight U.S., holding a 67% share of equities and an 80% portion of fixed income.

For an asset allocation of 80/20 this translates to about a 54% US Stock and 16% US Bond position, portfolio-wide.

Some years ago, I decided to maintain a slight tilt to emerging markets (20% of international). Implementing this strategy wasn’t trivial. A fund may track an index which includes a specific country while another fund excludes it. Ratios of the countries within emerging market and total international funds change frequently. It requires some effort to maintain: a spreadsheet is needed to track changes made within funds (indices) to ensure that I have the target proportion of emerging markets in my portfolio. Several times a year I check Morningstar for any changes to my international funds.

I’ve never seriously entertained overweighting at the sector level. What is the attraction, and what assurance do you hold that you’re making the right decision about the long term future success of a particular sector?
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Chip
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Re: Tilting sectors, regions and countries? Which ones.

Post by Chip » Tue Dec 12, 2017 10:25 am

TheTimeLord wrote:
Tue Dec 12, 2017 9:21 am
Are there any sectors, regions or countries you are overweighting or underweighting? Personally I am looking at underweighting energy and consumer staples and overweighting technology and consumer discretionary but I have not done this to any great extent yet.
No.

What is it that you think you know about these sectors, regions or countries that isn't already public knowledge and priced into the stocks?

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jhfenton
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Re: Tilting sectors, regions and countries? Which ones.

Post by jhfenton » Tue Dec 12, 2017 11:12 am

No. I overweight U.S. small value. I overweight international small cap. For simplicity, I actually eliminated international developed large cap, because I didn't see that it added much diversification compared to small cap. I overweight emerging markets. We're 50/50 US/International on equities, which is a perhaps a slight overweight. We're 100% US on the bonds side.

But to this point, I haven't invested in any single-country or regional ETFs. I used to invest in a REIT fund because it was one of the better choices in my wife's 401(k), but I have enough real estate in Vanguard's SCV fund.

The only thing I can see doing in the future is possibly splitting out China from emerging markets. At some point, if China is 50% of emerging markets by market cap, I'm going to want to split it out from the rest of the emerging markets. Much as Asia ex-Japan funds used to be a big deal, I can see that happening with China.

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TheTimeLord
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Re: Tilting sectors, regions and countries? Which ones.

Post by TheTimeLord » Tue Dec 12, 2017 11:29 am

Chip wrote:
Tue Dec 12, 2017 10:25 am
TheTimeLord wrote:
Tue Dec 12, 2017 9:21 am
Are there any sectors, regions or countries you are overweighting or underweighting? Personally I am looking at underweighting energy and consumer staples and overweighting technology and consumer discretionary but I have not done this to any great extent yet.
No.

What is it that you think you know about these sectors, regions or countries that isn't already public knowledge and priced into the stocks?
Nothing except the timeframe I would be using for my investment decision.
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TheTimeLord
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Re: Tilting sectors, regions and countries? Which ones.

Post by TheTimeLord » Tue Dec 12, 2017 11:32 am

jhfenton wrote:
Tue Dec 12, 2017 11:12 am
No. I overweight U.S. small value. I overweight international small cap. For simplicity, I actually eliminated international developed large cap, because I didn't see that it added much diversification compared to small cap. I overweight emerging markets. We're 50/50 US/International on equities, which is a perhaps a slight overweight. We're 100% US on the bonds side.

But to this point, I haven't invested in any single-country or regional ETFs. I used to invest in a REIT fund because it was one of the better choices in my wife's 401(k), but I have enough real estate in Vanguard's SCV fund.

The only thing I can see doing in the future is possibly splitting out China from emerging markets. At some point, if China is 50% of emerging markets by market cap, I'm going to want to split it out from the rest of the emerging markets. Much as Asia ex-Japan funds used to be a big deal, I can see that happening with China.
Not sure if this is still true but percentage of Chinese representation in EM funds seemed to vary from fund to fund. I guess it is hard for people to look at on of the world's 2 largest economies and call it an emerging market. On the other hand its stock markets have in the past had access rules that as I understood them disadvantaged foreign investors.
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Re: Tilting sectors, regions and countries? Which ones.

Post by jhfenton » Tue Dec 12, 2017 12:50 pm

TheTimeLord wrote:
Tue Dec 12, 2017 11:32 am
Not sure if this is still true but percentage of Chinese representation in EM funds seemed to vary from fund to fund. I guess it is hard for people to look at on of the world's 2 largest economies and call it an emerging market. On the other hand its stock markets have in the past had access rules that as I understood them disadvantaged foreign investors.
It does vary, even for straight market-cap weighted funds. FTSE and S&P funds classify South Korea as developed (VWO and SPEM). MSCI funds (e.g. IEMG) classify South Korea as emerging, giving it a roughly 16% weight. And VWO adds mainland China A shares now at 5%, in addition to all of the H shares traded in Hong Kong. As China loosens restrictions on foreign investors buying A shares, that allocation will rise. With a full market-cap weight of A shares, you could see China at 50% of VWO instead of 30%. (And if/when Taiwan is promoted to developed status, that's another 15% of VWO gone, increasing China's weight.)

If those things all happen, and China is sitting at 50-60% of VWO, I'll consider alternatives for splitting out China. There are a few ex-China EM funds, but last time I looked they were small, illiquid, and at risk of closure. But I expect that to change eventually.

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TheTimeLord
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Re: Tilting sectors, regions and countries? Which ones.

Post by TheTimeLord » Tue Dec 12, 2017 1:09 pm

jhfenton wrote:
Tue Dec 12, 2017 12:50 pm
TheTimeLord wrote:
Tue Dec 12, 2017 11:32 am
Not sure if this is still true but percentage of Chinese representation in EM funds seemed to vary from fund to fund. I guess it is hard for people to look at on of the world's 2 largest economies and call it an emerging market. On the other hand its stock markets have in the past had access rules that as I understood them disadvantaged foreign investors.
It does vary, even for straight market-cap weighted funds. FTSE and S&P funds classify South Korea as developed (VWO and SPEM). MSCI funds (e.g. IEMG) classify South Korea as emerging, giving it a roughly 16% weight. And VWO adds mainland China A shares now at 5%, in addition to all of the H shares traded in Hong Kong. As China loosens restrictions on foreign investors buying A shares, that allocation will rise. With a full market-cap weight of A shares, you could see China at 50% of VWO instead of 30%. (And if/when Taiwan is promoted to developed status, that's another 15% of VWO gone, increasing China's weight.)

If those things all happen, and China is sitting at 50-60% of VWO, I'll consider alternatives for splitting out China. There are a few ex-China EM funds, but last time I looked they were small, illiquid, and at risk of closure. But I expect that to change eventually.
In some ways I see Asia ex-Japan (AAXJ) as a possible proxy for Emerging Markets, no doubt not perfect but maybe come enough.

China 34.36%
Korea (South) 17.69%
Taiwan 13.01%
Hong Kong 11.27%
India 9.98%
Singapore 4.34%
Malaysia 2.64%
Thailand 2.58%
Indonesia 2.51%
Philippines 1.29%
Cash and/or Derivatives 0.18%
Other 0.08%
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Re: Tilting sectors, regions and countries? Which ones.

Post by Portfolio7 » Tue Dec 12, 2017 2:08 pm

jhfenton wrote:
Tue Dec 12, 2017 11:12 am
No. I overweight U.S. small value. I overweight international small cap. For simplicity, I actually eliminated international developed large cap, because I didn't see that it added much diversification compared to small cap. I overweight emerging markets. We're 50/50 US/International on equities, which is a perhaps a slight overweight. We're 100% US on the bonds side.

But to this point, I haven't invested in any single-country or regional ETFs. I used to invest in a REIT fund because it was one of the better choices in my wife's 401(k), but I have enough real estate in Vanguard's SCV fund.

The only thing I can see doing in the future is possibly splitting out China from emerging markets. At some point, if China is 50% of emerging markets by market cap, I'm going to want to split it out from the rest of the emerging markets. Much as Asia ex-Japan funds used to be a big deal, I can see that happening with China.
Your portfolio sounds virtually identical to mine, though my style box has less midcap. (Edit to add below). Other than that, everything in your first paragraph is also true of my portfolio, except my fixed asset allocation is a stable value fund.

Value Blend Growth
LCap 16 14 14
MCap 13 14 10
SCap 8 6 4
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Re: Tilting sectors, regions and countries? Which ones.

Post by jhfenton » Tue Dec 12, 2017 4:38 pm

Portfolio7 wrote:
Tue Dec 12, 2017 2:08 pm
Your portfolio sounds virtually identical to mine, though my style box has less midcap. (Edit to add below). Other than that, everything in your first paragraph is also true of my portfolio, except my fixed asset allocation is a stable value fund.

Value Blend Growth
LCap 16 14 14
MCap 13 14 10
SCap 8 6 4
My mid-cap line comes from two things: (1) My 401(k) has Vanguard Mid-Cap Value Index Admiral (VMVAX), but no small cap value (and no international index options). So I have about as much VMVAX as VSIAX (Vanguard Small Cap Value Index Admiral). The performance is remarkably similar over time. (2) My huge stake in VSS (Vanguard FTSE ex-US Small Cap) shows up on M* as 2/3 mid-cap. (And my 401(k) stable value option is terrible.)

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Re: Tilting sectors, regions and countries? Which ones.

Post by DaftInvestor » Tue Dec 12, 2017 5:43 pm

TheTimeLord wrote:
Tue Dec 12, 2017 9:21 am
.. am looking at underweighting energy and consumer staples and overweighting technology and consumer discretionary ...
Interesting. With valuations where they are today in technology I would be tempted to do the opposite to you here assuming technology have had a good run up (led by FAANG stocks). But since I really don't know - I am not doing any sector tilting.
What time frame would you have this sector tilt? For 30 years or for a short term timing?

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TheTimeLord
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Re: Tilting sectors, regions and countries? Which ones.

Post by TheTimeLord » Tue Dec 12, 2017 7:07 pm

DaftInvestor wrote:
Tue Dec 12, 2017 5:43 pm
TheTimeLord wrote:
Tue Dec 12, 2017 9:21 am
.. am looking at underweighting energy and consumer staples and overweighting technology and consumer discretionary ...
Interesting. With valuations where they are today in technology I would be tempted to do the opposite to you here assuming technology have had a good run up (led by FAANG stocks). But since I really don't know - I am not doing any sector tilting.
What time frame would you have this sector tilt? For 30 years or for a short term timing?
For my purposes tilts would be 10+ year macro trend plays. What are you using to determine if something is expensive or not? Depending on how you are valuing things technology can look cheap and dividend stocks can appear to be through the roof or vise-versa.
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Re: Tilting sectors, regions and countries? Which ones.

Post by asif408 » Wed Dec 13, 2017 3:17 pm

As far as regions and countries, I overweight emerging and developed ex-US markets, and among individual countries I overweight the PIGS and Eastern Europe. For sectors, just an overweight to energy and precious metals equities (which is really a sub-sector of materials), as I don't see enough difference in the other sectors to make any changes.

Basically, I overweight anything that has done very poorly relative to the US stock market the last 5-10 years. The past 10 year performance of my current portfolio is basically 0% vs. an 8% return for the S&P. This is all based on a belief in reversion to the mean, that these countries and sectors will eventually catch up to the counterparts at some point in the future. If and when this happens, I don't know, but I'm willing to take the risk.

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TheTimeLord
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Re: Tilting sectors, regions and countries? Which ones.

Post by TheTimeLord » Wed Dec 13, 2017 3:19 pm

asif408 wrote:
Wed Dec 13, 2017 3:17 pm
As far as regions and countries, I overweight emerging and developed ex-US markets, and among individual countries I overweight the PIGS and Eastern Europe. For sectors, just an overweight to energy and precious metals equities (which is really a sub-sector of materials), as I don't see enough difference in the other sectors to make any changes.

Basically, I overweight anything that has done very poorly relative to the US stock market the last 5-10 years. The past 10 year performance of my current portfolio is basically 0% vs. an 8% return for the S&P. This is all based on a belief in reversion to the mean, that these countries and sectors will eventually catch up to the counterparts at some point in the future. If and when this happens, I don't know, but I'm willing to take the risk.
What are you using to overweight Eastern Europe?
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asif408
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Re: Tilting sectors, regions and countries? Which ones.

Post by asif408 » Wed Dec 13, 2017 3:57 pm

TheTimeLord wrote:
Wed Dec 13, 2017 3:19 pm
asif408 wrote:
Wed Dec 13, 2017 3:17 pm
As far as regions and countries, I overweight emerging and developed ex-US markets, and among individual countries I overweight the PIGS and Eastern Europe. For sectors, just an overweight to energy and precious metals equities (which is really a sub-sector of materials), as I don't see enough difference in the other sectors to make any changes.

Basically, I overweight anything that has done very poorly relative to the US stock market the last 5-10 years. The past 10 year performance of my current portfolio is basically 0% vs. an 8% return for the S&P. This is all based on a belief in reversion to the mean, that these countries and sectors will eventually catch up to the counterparts at some point in the future. If and when this happens, I don't know, but I'm willing to take the risk.
What are you using to overweight Eastern Europe?
Just single country ETFs. Some of the Eastern European countries are pretty small (e.g., Czech Republic) so don't have single country ETFs, so I've mainly stuck to the bigger ones (e.g., Poland, Turkey, Russia) that actually have ETFs. IShares has a pretty good selection of single country ETFs.

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