Overlap with S&P 500 or Not

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
noe.rocha
Posts: 8
Joined: Sun Feb 02, 2020 5:54 am

Overlap with S&P 500 or Not

Post by noe.rocha » Wed Feb 05, 2020 9:56 am

Hello Bogleheads!

I am a 40 year old Portuguese, whishing to place an investement on this month.
Here's some details about my plan

Country of Residence: Portugal
Currency: EUR
Emergency funds: over 1 year
Debt: none
Age: 40
Desired Asset allocation: 70%/30% or 65%/35% stock/bond split.

Boglebot suggestions:
70% VWRA - Vanguard FTSE All-World UCITS ETF (USD) Acc IE00BK5BQT80
30% AGGH - iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) IE00BDBRDM35

i have uploaded to portfoliovisualizer data series from IWDA and did some testing using BND or ANAGX to simulate world bonds and noticed that i got slightly better results (volatility, drawdowns) if added more US exposure with S&P 500.

i know the dogma here is max diversification and avoid overlapping, but i got to ask, is it ok to add S&P or leave it as it is ?

Thank you.

DJN
Posts: 667
Joined: Mon Nov 20, 2017 12:30 am

Re: Overlap with S&P 500 or Not

Post by DJN » Wed Feb 05, 2020 12:07 pm

Hi,
BND has US holdings only and is US domiciled.
ANAGX is US domiciled and has a high expense ratio, (high fees overall).
Neither are comparable strictly to AGGH (EUNA).
IWDA already has an index weighting to US, (63% geographic coverage of US). Why concentrate risk, why not if you have a strong conviction based upon some rationale?
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.

Topic Author
noe.rocha
Posts: 8
Joined: Sun Feb 02, 2020 5:54 am

Re: Overlap with S&P 500 or Not

Post by noe.rocha » Wed Feb 05, 2020 12:48 pm

i took the idea from this article excerpt. i will be using the Vanguard VRWA which has a lower US exposure, just wanted to know if i could add some more US.
There isn’t any EU domiciled ETF tracking the FTSE Global All Cap ex US Index. Also there isn’t any EU domiciled ETF tracking an alternative index with a similar goal.

VXUS is usually used along with VTI to create an “all world/global portfolio” with an overweight towards the US. You can achieve that goal by picking an all world fund (e.g. Vanguard FTSE All-World UCITS ETF, iShares MSCI ACWI UCITS ETF) along with an S&P 500 fund in order to increase the allocation towards the USA.
https://indexfundinvestor.eu/2019/03/28 ... vtiax-bnd/

User avatar
BeBH65
Posts: 1651
Joined: Sat Jul 04, 2015 7:28 am

Re: Overlap with S&P 500 or Not

Post by BeBH65 » Wed Feb 05, 2020 1:20 pm

BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
noe.rocha
Posts: 8
Joined: Sun Feb 02, 2020 5:54 am

Re: Overlap with S&P 500 or Not

Post by noe.rocha » Wed Feb 05, 2020 2:23 pm

from the article, i will take it as - it's a valid strategy :happy
Many US based Bogleheads overweight the US stock market. Both John Bogle in Common Sense on Mutual Funds[4] and Taylor Larimore in The Bogleheads' Guide to the Three-Fund Portfolio[5] argue for overweighting US stocks in a US investor's asset allocation policy by limiting non-US stocks to a maximum 20% of the total equity allocation.

This might also be a strategy for the non-US investors that subscribes to the same reasoning.

finrod_2002
Posts: 42
Joined: Fri Feb 15, 2019 6:04 am

Re: Overlap with S&P 500 or Not

Post by finrod_2002 » Thu Feb 06, 2020 2:41 pm

noe.rocha wrote:
Wed Feb 05, 2020 12:48 pm
i took the idea from this article excerpt. i will be using the Vanguard VRWA which has a lower US exposure, just wanted to know if i could add some more US.
There isn’t any EU domiciled ETF tracking the FTSE Global All Cap ex US Index. Also there isn’t any EU domiciled ETF tracking an alternative index with a similar goal.

VXUS is usually used along with VTI to create an “all world/global portfolio” with an overweight towards the US. You can achieve that goal by picking an all world fund (e.g. Vanguard FTSE All-World UCITS ETF, iShares MSCI ACWI UCITS ETF) along with an S&P 500 fund in order to increase the allocation towards the USA.
https://indexfundinvestor.eu/2019/03/28 ... vtiax-bnd/
One thing worth considering might be the fact that by following an FTSE All cap, so for example VTI +VXUS, you have also exposure to global small cap companies, around 10% from the top of my head.

FTSE All-World, and MSCI ACWI don't have small caps.

Topic Author
noe.rocha
Posts: 8
Joined: Sun Feb 02, 2020 5:54 am

Re: Overlap with S&P 500 or Not

Post by noe.rocha » Thu Feb 06, 2020 3:53 pm

you saying i would be best served if adding iShares MSCI World Small Cap UCITS ETF in the porfolio, ex, instead of S&P 500 ?

User avatar
Schlabba
Posts: 525
Joined: Sat May 11, 2019 9:14 am
Location: Netherlands

Re: Overlap with S&P 500 or Not

Post by Schlabba » Thu Feb 06, 2020 4:12 pm

noe.rocha wrote:
Wed Feb 05, 2020 9:56 am
i know the dogma here is max diversification and avoid overlapping, but i got to ask, is it ok to add S&P or leave it as it is ?
Yes.

Either is fine, you can add a little tilt (little being between 0 to 15%) if you like or you can accept market weight. I don't think a lot of bogleheads actually have a completely standard portfolio, a lot of people like to add a little twist.

Whatever you do, don't hop in and out of investments and don't do it based on past performance, past volatility, and so on. The past isn't a predictor of the future. The US has outperformed in the past, but there were also time periods where it underperformed.
Secretly a dividend investor. Feel free to ask why.

Topic Author
noe.rocha
Posts: 8
Joined: Sun Feb 02, 2020 5:54 am

Re: Overlap with S&P 500 or Not

Post by noe.rocha » Thu Feb 06, 2020 4:59 pm

Thank you :happy
just wished i knew this world longer ago

finrod_2002
Posts: 42
Joined: Fri Feb 15, 2019 6:04 am

Re: Overlap with S&P 500 or Not

Post by finrod_2002 » Fri Feb 07, 2020 5:45 am

noe.rocha wrote:
Thu Feb 06, 2020 3:53 pm
you saying i would be best served if adding iShares MSCI World Small Cap UCITS ETF in the porfolio, ex, instead of S&P 500 ?
Well, it depends what your goal is.
If you want to track the FTSE Global All Cap index, then you have to add small caps in some ways. If your happy to track the FTSE All-World then VWRA is perfect. If you want to tilt towards US, adding some S&P exposure should be fine. I guess there other ways as well to tilt towards US exposure.

Anyways, personally I think for most people VWRA alone should be fine. Then it depends on you, if you want to add complexity to track a wider market by adding small caps and/or tilt towards more US exposure.

On a side note as Portugues I think it would be easier to use Vanguard FTSE All-World UCITS ETF in Euro, for example ticker VWCE traded in Germany, so you avoid having to convert Euros to USD and save some transaction costs.

Topic Author
noe.rocha
Posts: 8
Joined: Sun Feb 02, 2020 5:54 am

Re: Overlap with S&P 500 or Not

Post by noe.rocha » Fri Feb 07, 2020 8:17 am

finrod_2002 wrote:
Fri Feb 07, 2020 5:45 am
noe.rocha wrote:
Thu Feb 06, 2020 3:53 pm
you saying i would be best served if adding iShares MSCI World Small Cap UCITS ETF in the porfolio, ex, instead of S&P 500 ?
On a side note as Portugues I think it would be easier to use Vanguard FTSE All-World UCITS ETF in Euro, for example ticker VWCE traded in Germany, so you avoid having to convert Euros to USD and save some transaction costs.
Thank you. I know :), sometimes, it's hard to keep track of all tickers, that i just use the "root" one.

EDIT:
It seems my broker will not have AGGH, which is a bit of a shame, the best next candidate would be DBZB ( VAGF has a low fund size right now ).
Now, my question, since DBZB is domiciled in Luxembourg, but x-trackers is based on Europe, am i safe from the taxation shenanigans usually associated with this domicile ?

Post Reply