Combining VWCE with a small cap ETF

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VWCE
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Joined: Fri Apr 23, 2021 3:46 am

Combining VWCE with a small cap ETF

Post by VWCE »

Hello,

I was wondering what the general consensus is about including low cap stocks/ ETF's in your portfolio.

Would it be a good idea to combine VWCE (which is only large and mid cap) with a low cap etf like IUSN?
If so, what % is generally advised?

Thanks.
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tre3sori
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Re: Combining VWCE with a small cap ETF

Post by tre3sori »

In this factsheet for FTSE Global All Cap Index https://research.ftserussell.com/Analyt ... nual=false you can see that Global Small Cap is about 10.8% of Global All Cap Index (Net MCap of Index Characteristics table).
So if you go with market capitalization weight the easy thing to do would be to allocate 10% to IUSN. As an aside: FTSE Global Small Cap Index is not identical with MSCI World Small Cap Index. The difference should not matter much.
Last edited by tre3sori on Sat Apr 24, 2021 10:59 am, edited 2 times in total.
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oogZoo
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Re: Combining VWCE with a small cap ETF

Post by oogZoo »

Another new option would be to replace VWCE with Vanguard's new ESG Global All Cap UCITS ETF (V3AA IE00BNG8L278 / V3AL IE00BNG8L385). It has all caps from developed and emerging markets with TER of 0.24%. Unfortunately there is no non-ESG variant available, but some people might like this.
Astones
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Re: Combining VWCE with a small cap ETF

Post by Astones »

What is your stock/bond allocation ?

I believe that if you aren't already 100% stocks, the best way to increase the expected return, increasing also the risk a little bit, is to shift your weights slightly more toward stocks with respect to bonds, rather than adding the size or the value tilt.

In this way -theoretically at least- you should be moving closer to the efficient curve. And you also reduce the overall costs, since size and value factors tend to lead to larger fees and I guess also larger turnover rates and transaction costs.

So, to answer your question, I'd personally go for No, I believe it's better to just stick with VWCE and maybe increase its weight if you want to increase the expected return of the portfolio.
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tre3sori
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Re: Combining VWCE with a small cap ETF

Post by tre3sori »

VWCE wrote: Sat Apr 24, 2021 8:44 am Would it be a good idea to combine VWCE (which is only large and mid cap) with a low cap etf like IUSN?
After looking at this I would say it hardly matters if you limit small cap exposure to about market cap weight:
https://www.portfoliovisualizer.com/bac ... tion6_2=11
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Ikarases
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Joined: Fri Apr 02, 2021 12:18 pm
Location: Czech Republic

Re: Combining VWCE with a small cap ETF

Post by Ikarases »

tre3sori wrote: Sat Apr 24, 2021 11:06 pm
VWCE wrote: Sat Apr 24, 2021 8:44 am Would it be a good idea to combine VWCE (which is only large and mid cap) with a low cap etf like IUSN?
After looking at this I would say it hardly matters if you limit small cap exposure to about market cap weight:
https://www.portfoliovisualizer.com/bac ... tion6_2=11
I think OP means small cap value stocks (as opposed to all small cap stocks) and adding these produces a positive outcome:

https://www.portfoliovisualizer.com/bac ... tion6_2=11

I don't know whether there are any good small cap value stock ETFs though.
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tre3sori
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Re: Combining VWCE with a small cap ETF

Post by tre3sori »

VWCE wrote: Sat Apr 24, 2021 8:44 am Would it be a good idea to combine VWCE (which is only large and mid cap) with a low cap etf like IUSN?
IUSN iShares MSCI World Small Cap UCITS ETF USD (Acc) tracks a market cap weighted index in the small size market segment, not value weighted. That would speak against your assumption that OP means small cap value stocks.

Yes, the small cap value segment is riskier than small cap blend and should therefore deliver higher returns.

I don't know of any GLOBAL small cap value weighted ETFs for European investors.
There are country/region specific ETFs though:
SPDR® MSCI USA Small Cap Value Weighted UCITS ETF
SPDR® MSCI Europe Small Cap Value Weighted UCITS ETF
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Ikarases
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Location: Czech Republic

Re: Combining VWCE with a small cap ETF

Post by Ikarases »

tre3sori wrote: Wed Apr 28, 2021 1:24 am
VWCE wrote: Sat Apr 24, 2021 8:44 am Would it be a good idea to combine VWCE (which is only large and mid cap) with a low cap etf like IUSN?
IUSN iShares MSCI World Small Cap UCITS ETF USD (Acc) tracks a market cap weighted index in the small size market segment, not value weighted. That would speak against your assumption that OP means small cap value stocks.

Yes, the small cap value segment is riskier than small cap blend and should therefore deliver higher returns.

I don't know of any GLOBAL small cap value weighted ETFs for European investors.
There are country/region specific ETFs though:
SPDR® MSCI USA Small Cap Value Weighted UCITS ETF
SPDR® MSCI Europe Small Cap Value Weighted UCITS ETF
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VWCE wrote: Sat Apr 24, 2021 8:44 am I was wondering what the general consensus is about including low cap stocks/ ETF's in your portfolio.
I was trying to make the case for this part of the post (low cap stocks in general) rather than IUSN specifically as OP mentioned below later. IUSN indeed doesn't seem to provide any benefit.

I've been doing some research regarding small cap value stocks ETFs recently, trying to figure out whether they're worth including and found the two SPDR ETFs you mention above. It doesn't seem to be worth the hassle for us Europeans though, granted the portfolio complication and small sizes of the funds above.
jg12345
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Re: Combining VWCE with a small cap ETF

Post by jg12345 »

Hi OP,
I don't think there's a consensus. I wrote the below a while and I do not think the situation has changed much, for those looking at long term returns.

If I can get an ETF with small caps in it at the same price, yes
If I have to add an additional ETF, which costs twice as much than VWCE... thanks but no thanks.


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The position that you need small caps in your portfolio is debatable. here a comparison of MSCI ACWI (large and mid) and MSCI ACWI IMI (large mid and small). over 10 years, the difference in returns is 0.02 (9.45 ACWI, 9.43 ACWI IMI) => past is not indicative of the future, but it seems to me is not worth the admin, psychological, and TER costs

https://www.msci.com/documents/10199/42 ... d36472a703
https://www.msci.com/documents/10199/8d ... 2942e3adeb
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