Spreading my Emerging Markets allocation over two funds

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Betelgeuse79
Posts: 29
Joined: Sat Mar 07, 2020 3:25 am

Spreading my Emerging Markets allocation over two funds

Post by Betelgeuse79 » Fri May 22, 2020 6:14 am

Dear Bogleheads,

I would like to pick your brains about my idea to split my emerging markets allocation in my equity portfolio between two different funds. I know this goes against the 'keep it simple' rule, but I see some potential advantages coming from enhanced diversification and don't particularly mind the little extra work I may have to do at the re-balancing stages if I have an additional ETF to mind.

I have an allocation of 90% stocks and 10% bonds. My stocks allocation is 80% on developed markets and 20% emerging markets.

For developed markets I use:

iShares MSCI World SRI UCITS ETF EUR (Acc) ISIN IE00BYX2JD69 (TER 0.20%)

For emerging markets I use:

iShares MSCI EM IMI ESG Screened UCITS ETF USD (Acc) ISIN IE00BFNM3P36 (TER 0.18%)

The EM IMI one is pretty heavy on China, with 37.6% of the portfolio invested in Chinese equities.

I have found another emerging markets fund which has a slightly higher TER (0.25%) but with a rather different geographical allocation of its portfolio, possibly due to its more stringent SRI exclusionary criteria over the ESG fund I already have. Specifically, China represents only about 9% of the holdings, and India is the biggest one with 18%. Other countries have also different weights in the two funds. The fund is:

iShares MSCI EM SRI UCITS ETF ISIN IE00BYVJRP78

Apart from the slightly higher cost and some more re-balancing work, what do you think about splitting my EM allocation between the ESG fund I already have and this SRI one? It seems to me it would give me more diversification, which I understand to be a good thing. Both funds have the same size (about 480 millions).

Thanks in advance for any input you'll take the time to give me on this issue!

rkhusky
Posts: 9240
Joined: Thu Aug 18, 2011 8:09 pm

Re: Spreading my Emerging Markets allocation over two funds

Post by rkhusky » Fri May 22, 2020 6:58 am

Betelgeuse79 wrote:
Fri May 22, 2020 6:14 am
It seems to me it would give me more diversification, which I understand to be a good thing.
Do the two funds hold different companies? If not, you are not really diversifying.

It appears that the first fund has 1700 stocks, while the second has 180 stocks.

Although past performance is no guarantee of future returns, you should at least look at past performance to see if there has been a significant difference over different time periods (they are both rather new funds so this won't tell you much).

If you really dislike that much in China, just go with the second fund if the performance is generally the same or better. The only benefit of combining them is controlling the exposure to China, while having a larger number of stocks.

Topic Author
Betelgeuse79
Posts: 29
Joined: Sat Mar 07, 2020 3:25 am

Re: Spreading my Emerging Markets allocation over two funds

Post by Betelgeuse79 » Fri May 22, 2020 7:12 am

I don't really "dislike" China, I'm not even sure what that would mean. But given one fund invests 33% in China and the other one only 9%, giving more prominence to India with 18%, I thought that owning both would be a good thing.

User avatar
BeBH65
Posts: 1634
Joined: Sat Jul 04, 2015 7:28 am

Re: Spreading my Emerging Markets allocation over two funds

Post by BeBH65 » Fri May 22, 2020 11:06 am

You do not gain diversification by concentrating more of your money in the smaller markets.

The iShares Core MSCI EM IMI UCITS ETF (EMIM) fund does not have any specific screening, and it has 37% China.
I would consider that the neutral weight according to market-cap, and as such the standard diversification.
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

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