1st draft of my portfolio to evaluation [feedback please] [Europe]

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Mrpacman
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1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

[Thread updated, see below. --admin LadyGeek]

Hi everybody,

This is my first post, although I have been reading you for a while. I am an avid reader of indexing and buy&hold inverstment strategy books (love W.Bernstein and Mr Boogle books) and finally I came up with the first draft of what will be my retirement portfolio.

I am 32y old, I live in Europe and do not currently have any other investment. The purpose of this post is to receive feedback from you guys. I will add the structure, the funds I will use to implement it and some concerns I have in the back of my mind. There we go...

25% FIXED INCOME
15% US short-term bonds
10% TIPS

65% VARIABLE INCOME
35% US stocks
Large
- 15% Growth
- 10% Value
Small
- 10% Value
30% Foreign
15% Europe
- 10% Large
- 5% Small
10% Emerging
5% Asia-Pacific

10% REITs
5% Domestic
5% Foreign

Investment - Fund
TIPS - Vanguard Short-Term Inflation-Protected Securities ETF
US Corporate Bond - Vanguard Short-Term Corporate Bond ETF
US Large-Growth - Vanguard S&P 500 ETF
US Large-Value - Vanguard Value ETF
US Small-Value - Vanguard Small-Cap Value ETF
Europe Large - Vanguard FTSE Europe ETF
Europe Small - iShares MSCI Europe Small-Cap ETF
Asia/Pacific - Vanguard FTSE Pacific ETF
Emerging - Vanguard FTSE Emerging Markets ETF
REITs Domestic - Vanguard REIT ETF
REITs Foreign - Vanguard Global ex-U.S. Real Estate ETF

Concerns:
1.- My pf is US biased, since all my reading sources are from the US (that is why I considered "Domestic" US assets and "Foreign" the rest). I do not know to what extend that is positive living and working in Europe, where the currency is euro.

2.- Since I live and work in Europe, I was doubltful of either including only US bond or also European bonds. I am considering to include half of the TIPS from US and half from the EU.

3.- Half of my foreign assets are from Europe and half form the rest of the world. Probably that is not a good idea since European economy is stronger than Japanese's or Pacific's

4.- I gave a lot of though whether I should segment my European assets in Growth and Value. I did it for 2 reasons: first to reduce complexity, second because if I segment Europe, why not doing the same for Emergings (here I have China in my mind) too?

5.- I am considering not to segment US and EU REITs to reduce complexity, but I did not find any Vanguard or any other fund to that covers global REITs. On top I am not sure the level of risk that REITs add to the whole portfolio. I am prett sure that high risk, but how sohuld I compensate that with fixed income?

6.- I am not abosulutely sure that I can use iShares MSCI Europe Small-Cap ETF to cover the "Europe Small" segment, cause looking at the structure it is mid-size rather than small, and blended rather than value. Any suggestion to cover this, either from Vanguard or any other source?

Any other comment aside from these is more than welcome.

Thank you guys!
Cheers
Last edited by Mrpacman on Sun Nov 12, 2017 2:53 pm, edited 1 time in total.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by LadyGeek »

Welcome! I retitled the thread to attract our European experts. Is your home country in the EU?

If so, we have a wiki article that can help: EU investing
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Mrpacman
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi LadyGeek,

Thanks for the quick reply! Yes, my home country is in the EU.

Thank you for the link
Regards
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Mrpacman
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi LadyGeek,

Is there any forum in the platform for EU investors only?

Thanks
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by LadyGeek »

Hi,

I am sorry, but we do not have separate forums for EU investors.

Can someone with EU experience please help the OP?
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imperia
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by imperia »

What is your home country?
Does your country has estate tax treaty with USA?
MotoTrojan
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by MotoTrojan »

Few notes.

VBR, the Small-value VG fund, is also sort of a mid-cap fund (as you mentioned about the International one). You may want to look into IJS, VIOV, or other small-value indexes that follow the S&P 600, if you want better exposure to small.

S&P 500 is not really the same as a large-cap growth fund, but it is an excellent choice. There is probably some overlap with the large value fund, but it is an okay tilt... just not really going all-in, assuming you really believe in the value factor.
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randomizer
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by randomizer »

I'm typing this on a tiny mobile keyboard so I won't go into detail, but the tilts and the overweight to the US strike me as overly complex and not entirely rational. Given that we can't know the future, I can't imagine wanting a home country bias (especially when it's not one's own home country). I'd go for an international bond fund, keep my equities world market cap weighted, and keep it as simple as possible.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Tyler Aspect »

Mrpacman wrote: Sun Nov 12, 2017 11:02 am Hi everybody,

This is my first post, although I have been reading you for a while. I am an avid reader of indexing and buy&hold inverstment strategy books (love W.Bernstein and Mr Boogle books) and finally I came up with the first draft of what will be my retirement portfolio.

I am 32y old, I live in Europe and do not currently have any other investment. The purpose of this post is to receive feedback from you guys. I will add the structure, the funds I will use to implement it and some concerns I have in the back of my mind. There we go...
Welcome to Bogleheads.

25% FIXED INCOME
15% US short-term bonds
10% TIPS
Not sure why all your fixed income are US based. I would thought as an European that you would have a heavy weighting on fixed income in the European Union.

65% VARIABLE INCOME
35% US stocks
Large
- 15% Growth
- 10% Value
Small
- 10% Value
30% Foreign
15% Europe
- 10% Large
- 5% Small
10% Emerging
5% Asia-Pacific
I would encourage you to base your stock allocation in a combination of EU stocks, and world wide stocks. Separating by region can introduce personal bias.
10% REITs
5% Domestic
5% Foreign

Investment - Fund
TIPS - Vanguard Short-Term Inflation-Protected Securities ETF
US Corporate Bond - Vanguard Short-Term Corporate Bond ETF
US Large-Growth - Vanguard S&P 500 ETF
US Large-Value - Vanguard Value ETF
US Small-Value - Vanguard Small-Cap Value ETF
Europe Large - Vanguard FTSE Europe ETF
Europe Small - iShares MSCI Europe Small-Cap ETF
Asia/Pacific - Vanguard FTSE Pacific ETF
Emerging - Vanguard FTSE Emerging Markets ETF
REITs Domestic - Vanguard REIT ETF
REITs Foreign - Vanguard Global ex-U.S. Real Estate ETF

Concerns:
1.- My pf is US biased, since all my reading sources are from the US (that is why I considered "Domestic" US assets and "Foreign" the rest). I do not know to what extend that is positive living and working in Europe, where the currency is euro.
Have you looked at iShare's Ireland domiciled ETFs? I thought by buying with US domiciled ETFs then you would be subject to a US dividend tax withholding. All your dividend would be distributed as well whether you want it or not.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

Mrpacman wrote: Sun Nov 12, 2017 11:02 amMy pf is US biased, since all my reading sources are from the US (that is why I considered "Domestic" US assets and "Foreign" the rest). I do not know to what extend that is positive living and working in Europe, where the currency is euro.
You are proposing to hold US domiciled ETFs

If your country has both a US income tax treaty and a US estate tax treaty then at best these will be broadly tax-neutral. Otherwise, you should prefer non-US domciled ETFs, such as those from Vanguard EU. Without treaty protections, US domiciled ETFs are a perilous US tax-trap for non-US persons.

Separately to all of this, a bias towards the US is probably not sensible if the US is not your own country. Especially around bonds, because the currency risk of holding bonds in a foreign currency is generally uncompensated.
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BeBH65
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Hello MRPacman,

Welcome to the forum.
You have already received some goood answers.

While the forum is US focussed, there are many people from the rest of the world as well.

A lot depends on your country and its tax regime; in which country are you domiciled? How does your coutnry tax accumulated dividends?
Please have a look at the pages in the international domiciles
. Even though they might not be for your country, they will give you more background.

Also do a search on the forum for previous threads; there might be some for your country.
Mrpacman wrote: Sun Nov 12, 2017 11:02 am Hi everybody,

This is my first post, although I have been reading you for a while. I am an avid reader of indexing and buy&hold inverstment strategy books (love W.Bernstein and Mr Boogle books) and finally I came up with the first draft of what will be my retirement portfolio.

I am 32y old, I live in Europe and do not currently have any other investment. The purpose of this post is to receive feedback from you guys. I will add the structure, the funds I will use to implement it and some concerns I have in the back of my mind. There we go...

25% FIXED INCOME What is the purpose in your portfolio of this fixed income?
15% US short-term bonds
10% TIPS

65% VARIABLE INCOME
35% US stocks
Large
- 15% Growth
- 10% Value
Small
- 10% Value
30% Foreign
15% Europe
- 10% Large
- 5% Small
10% Emerging
5% Asia-Pacific

10% REITs
5% Domestic
5% Foreign

Investment - Fund On this forum we value simplicity; there is no need to have this many funds; probably 2/3/4 will suffice for you. Have a look at the three-fund-portfolio page on the wiki
TIPS - Vanguard Short-Term Inflation-Protected Securities ETF
US Corporate Bond - Vanguard Short-Term Corporate Bond ETF
US Large-Growth - Vanguard S&P 500 ETF
US Large-Value - Vanguard Value ETF
US Small-Value - Vanguard Small-Cap Value ETF
Europe Large - Vanguard FTSE Europe ETF
Europe Small - iShares MSCI Europe Small-Cap ETF
Asia/Pacific - Vanguard FTSE Pacific ETF
Emerging - Vanguard FTSE Emerging Markets ETF
REITs Domestic - Vanguard REIT ETF
REITs Foreign - Vanguard Global ex-U.S. Real Estate ETF

Concerns:
1.- My pf is US biased, since all my reading sources are from the US (that is why I considered "Domestic" US assets and "Foreign" the rest). I do not know to what extend that is positive living and working in Europe, where the currency is euro. See the internation domicile pages

2.- Since I live and work in Europe, I was doubltful of either including only US bond or also European bonds. I am considering to include half of the TIPS from US and half from the EU. On this forum bonds are used for protection; one typically does not want currency risk for their protection area. Hence Euro might be preferred. EURO bonds are currently under stress in Europe. You might want to consider holding cash for the protection portion of your portfolio

3.- Half of my foreign assets are from Europe and half form the rest of the world. Probably that is not a good idea since European economy is stronger than Japanese's or Pacific's Who says so? Many on this forum prefer to hold the regions with the weigth they have in the global market, as this is the consensus of all investors in the world. Europe is maybe 1/4 of the world market.

4.- I gave a lot of though whether I should segment my European assets in Growth and Value. I did it for 2 reasons: first to reduce complexity, second because if I segment Europe, why not doing the same for Emergings (here I have China in my mind) too? Keep it simple; buy the whoel market

5.- I am considering not to segment US and EU REITs to reduce complexity, but I did not find any Vanguard or any other fund to that covers global REITs. On top I am not sure the level of risk that REITs add to the whole portfolio. I am prett sure that high risk, but how sohuld I compensate that with fixed income? REITS are already included in the stock funds, at the weight they have in the market

6.- I am not abosulutely sure that I can use iShares MSCI Europe Small-Cap ETF to cover the "Europe Small" segment, cause looking at the structure it is mid-size rather than small, and blended rather than value. Any suggestion to cover this, either from Vanguard or any other source?SPDR® MSCI World Small Cap UCITS ETF (EUR) (ZPRS) is often mentioned


Any other comment aside from these is more than welcome.

Thank you guys!
Cheers
Please come back with additional questions
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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Mrpacman
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi all,

Thanks for all the really useful feedback.

I totally agree, I definitely have to reduce the asset's number. However, I want to pursue some more diversification, that is why the 3 assets lazy portfolios may not be an option for me. I want to go for a bit more slice and dice pf, so probably the coffeehouse portfolio could be a good option to start with.

How could I adapt it to en eurozone? Any hints about this? I want exposure to the US market (both large-growth and small-value). Is there any fund that I can buy in € and they buy US stocks of these types?

Regarding the fixed income portion. I used entirely US bonds because they are not under stress as BeBH65 mentioned. The alternative for me now could be either going for a Total Market Bond Fund (VBMFX) or for a mix of US/EU bonds (probably 20/80). What do you think is best?

How about the iShares Core Euro Government Bond UCITS ETF for the Euro part?

Regarding taxes, I am from Spain and as far as I know there is no special regime between the 2 countries for this matter.

Regarding taxes payment mitigation, probably it would be a good idea to go for funds that accumulate instead distribute the dividends (for example, the iShares STOXX Europe 600 UCITS ETF for Large-Blended stocks). What do you think?

Thanks again!
TedSwippet
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

Mrpacman wrote: Sat Nov 25, 2017 12:14 pmI want exposure to the US market (both large-growth and small-value). Is there any fund that I can buy in € and they buy US stocks of these types?
By way of example, for US small-cap there is CUSS from iShares. This is Ireland domiciled and so will not put you at risk of US estate taxes -- Spain lacks an estate tax treaty with the US. There are any number of US large-cap ETFs to choose from. Any S&P 500 tracker would do, for example VUSA.

That's not a recommendation that you should buy either of these ETFs, by the way. Just a pointer to the fact that non-US domiciled ETFs probably exist to satisfy your every whim.
Mrpacman wrote: Sat Nov 25, 2017 12:14 pmThe alternative for me now could be either going for a Total Market Bond Fund (VBMFX) or for a mix of US/EU bonds (probably 20/80). What do you think is best?
As you are not a US resident or citizen you won't be able to open a Vanguard US account, and so cannot readily access any Vanguard US mutual funds, including VBMFX. So you need to look to European equivalents, either Ireland domiciled ETFs or EU/UCITS unit trusts that are qualified for sale in Spain.

With respect, I think you are going about your quest backwards. Rather than trying to fully copy a US-centric example portfolio constructed of mutual funds that are directed at only US investors, you instead need to first think about exactly what asset classes you want to hold as an EU (Spanish) investor, and in what proportions. From there, work forwards to find the right European domiciled funds or ETFs that most closely meet your aims. These could well be Vanguard's Ireland domiciled unit trusts or their UCITS ETFs, or perhaps iShares, or some combination. Or maybe something else entirely.

However, given your residence and the lack of an estate tax treaty between Spain and the US, it is not at all advisable for you to consider copying exactly the fund holdings suggested for a US investor's portfolio. To do so invites significant unpleasant US tax surprises that you can easily avoid by avoiding holding non-US domiciled funds or ETFs. US estate taxes begin at just $60k total US holdings for US non-resident aliens (that's you; and me).

For what it's worth, the mirror of this also applies to US investors. For these investors to buy European domiciled funds again invites truly horrible US tax treatment. But because the Boglehead's guide, its cousins, and most of the other main investing books discussed on this forum are written by US authors for US investors, you don't encounter this much in the literature. The effect is there, though. Google 'PFIC tax rules' if you want to read about the full horror that unwary US investors might suffer.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by LadyGeek »

Mrpacman wrote: Sat Nov 25, 2017 12:14 pm ...Regarding taxes, I am from Spain and as far as I know there is no special regime between the 2 countries for this matter.
This will not answer your question, but we have a wiki article containing basic information: Investing from Spain
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Mrpacman
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi Tedswippet,

Thank you for your feedback. I must say that after all comments received I will give a deep review to my 1st draft up to the point that the 2nd will be very different.

I realize that one of the reasons is because I thought that replicating US portfolios was ok. Actually I was not sure if the heavy weight on US assets of US portfolios that I have seen was because investing in US economy was good because is strong or because they are US based and most of their assets fit them (but not us EU investors). It seems to be more of the second.

Is there any authour that you know that writes in English similar content than William Bernstein but for EU investors? I did a quick research and I only saw a german author (Gerd Kommer) that doesn't even have most of his books in English. It is shocking that in EU there is nothing like this.

@Lady Geek, thanks for the link!

Cheers!
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

Mrpacman wrote: Mon Nov 27, 2017 6:39 amActually I was not sure if the heavy weight on US assets of US portfolios that I have seen was because investing in US economy was good because is strong or because they are US based and most of their assets fit them (but not us EU investors). It seems to be more of the second.
A bit of both, probably. If you look at the global allocations of VWRL, Vanguard's FTSE All-World UCITS ETF, you can see that more than 50% of it is US equity, by market cap. In practice this would probably be large-cap S&P 500 stocks. US based investors will be able to slice and dice their own US stock market more cheaply than those of us in the EU simply because local markets are always cheaper than foreign ones, but overall a single S&P 500 holding for a non-US based investor ought to work just fine.

At the end of things, honestly you probably would not go far wrong if you held only VWRL as your entire equity allocation, and simply blended in a bond ETF or two with this. So much easier than a fragmented US-centric slice-and-dice portfolio, too.
Mrpacman wrote: Mon Nov 27, 2017 6:39 amIs there any authour that you know that writes in English similar content than William Bernstein but for EU investors?
None EU-centric springs to mind. There are a couple that write for UK investors, but much of their coverage focuses on UK tax shelters such as ISAs and SIPPs, neither of which would be usable to you.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by brad.clarkston »

Mrpacman wrote: Sat Nov 25, 2017 12:14 pm Hi all,

Thanks for all the really useful feedback.

I totally agree, I definitely have to reduce the asset's number. However, I want to pursue some more diversification, that is why the 3 assets lazy portfolios may not be an option for me. I want to go for a bit more slice and dice pf, so probably the coffeehouse portfolio could be a good option to start with.

How could I adapt it to en eurozone? Any hints about this? I want exposure to the US market (both large-growth and small-value). Is there any fund that I can buy in € and they buy US stocks of these types?

Regarding the fixed income portion. I used entirely US bonds because they are not under stress as BeBH65 mentioned. The alternative for me now could be either going for a Total Market Bond Fund (VBMFX) or for a mix of US/EU bonds (probably 20/80). What do you think is best?

How about the iShares Core Euro Government Bond UCITS ETF for the Euro part?

Regarding taxes, I am from Spain and as far as I know there is no special regime between the 2 countries for this matter.

Regarding taxes payment mitigation, probably it would be a good idea to go for funds that accumulate instead distribute the dividends (for example, the iShares STOXX Europe 600 UCITS ETF for Large-Blended stocks). What do you think?

Thanks again!
I like the small cap-value and REIT factors but I'm not a fan of TIPS at your age (or my age) at this point.
Better to buy into TIPS if you need them during a inflation correction unless your around the 65 year mark already.
70% AVGE | 20% FXNAX | 10% T-Bill/Muni
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Mrpacman
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2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

[Thread merged into here, see below. --admin LadyGeek]

Hi all,

First of all, thank you to those iving me feedback in my previous post where we discussed the 1st draft of my retirement portfolio. All your comments were very useful and most of them eye openers. After careful review of all feedback received, now I bring the 2nd draft.

10% EU bonds - db x-trackers Eurozone Government Bond 3-5 UCITS ETF (DR) 1C (DBXQ)
13% US Large-Growth - iShares Core S&P 500 UCITS ETF (CSPX)
20% US Small-Value - UBS ETF (IE) Factor MSCI USA Prime Value UCITS ETF (UBUW)
14% EU Large-Growth - db x-trackers EURO STOXX 50 UCITS ETF (DR) 1C (DXET)
20% EU Small-Value - SPDR MSCI Europe Small Cap UCITS ETF (EUSC) or iShares MSCI EMU Small Cap UCITS ETF EUR (CEUS)
13% Emerging & Pacific - iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM)
10% REITs global - Lyxor FTSE EPRA/NAREIT Global Developed UCITS ETF D-EUR (REWLD)

Now all of my assets currency is Euro, with its domicile in Europe (Ireland) and the distribution policy of accumulating to optimize tax expenses.

These are the questions I have in mind so far
1. Not sure if I should go for EU bonds index or global bonds index
2. I tilted my porfolio more towards value to assume some more risk but obtain some more return. What do you think of this strategy?
3. The large-growth funds are not purely large, the are rather large mid, so may be I would need to reduce some weight in the small cap assets, otherwise the portfolio will be too tilted towards small cap companies
4. In terms of diversification, am I covering the whole (or almost) market?
5. Several ETF trade in different stocks markets (borsa italiana, Dax..) , what should I consider in selecting one or another?
6. Not sure what ETF choose for EU Small-Value among the 2 mentioned
7. iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM), not sure of the is denominated in Eur o USD, since its price is in Euro but its assets are in USD

Thank you very much in advance. Any further comment beyond these questions ir more than welcome.

Cheers!
airelleofmusic
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by airelleofmusic »

Too many funds. In Europe it's about 0.20% expense ratios for this kind of funds so if you have 8 funds you will be close to 1.6% fees every year.
Way too much.
LBYM and enjoy life ! Thanks BH !
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

airelleofmusic wrote: Tue Dec 05, 2017 5:17 pmIn Europe it's about 0.20% expense ratios for this kind of funds so if you have 8 funds you will be close to 1.6% fees every year. Way too much.
Sorry, but your comment makes no sense. You cannot simply multiply an assumed average fund TER by the number of funds held and hope to arrive at the blended portfolio TER.

If the TER for every fund in this portfolio were indeed 0.2%, then entire portfolio's blended TER is also 0.2%.
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by Valuethinker »

Mrpacman wrote: Tue Dec 05, 2017 4:58 pm Hi all,

First of all, thank you to those iving me feedback in my previous post where we discussed the 1st draft of my retirement portfolio. All your comments were very useful and most of them eye openers. After careful review of all feedback received, now I bring the 2nd draft.

10% EU bonds - db x-trackers Eurozone Government Bond 3-5 UCITS ETF (DR) 1C (DBXQ)
13% US Large-Growth - iShares Core S&P 500 UCITS ETF (CSPX)
20% US Small-Value - UBS ETF (IE) Factor MSCI USA Prime Value UCITS ETF (UBUW)
14% EU Large-Growth - db x-trackers EURO STOXX 50 UCITS ETF (DR) 1C (DXET)
20% EU Small-Value - SPDR MSCI Europe Small Cap UCITS ETF (EUSC) or iShares MSCI EMU Small Cap UCITS ETF EUR (CEUS)
13% Emerging & Pacific - iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM)
10% REITs global - Lyxor FTSE EPRA/NAREIT Global Developed UCITS ETF D-EUR (REWLD)

Now all of my assets currency is Euro, with its domicile in Europe (Ireland) and the distribution policy of accumulating to optimize tax expenses.

These are the questions I have in mind so far
1. Not sure if I should go for EU bonds index or global bonds index
2. I tilted my porfolio more towards value to assume some more risk but obtain some more return. What do you think of this strategy?
3. The large-growth funds are not purely large, the are rather large mid, so may be I would need to reduce some weight in the small cap assets, otherwise the portfolio will be too tilted towards small cap companies
4. In terms of diversification, am I covering the whole (or almost) market?
5. Several ETF trade in different stocks markets (borsa italiana, Dax..) , what should I consider in selecting one or another?
6. Not sure what ETF choose for EU Small-Value among the 2 mentioned
7. iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM), not sure of the is denominated in Eur o USD, since its price is in Euro but its assets are in USD

Thank you very much in advance. Any further comment beyond these questions ir more than welcome.

Cheers!
We don't know your age, assets so hard to say.

What I would say is you have far, far too many funds. And too few bonds. And we do not know the Expense Ratios on the funds-- could you provide them?

Rebalancing with what you have there would be a real pain and might give rise to tax problems (depending on your capital gains tax position).

I would be 20% in bonds. That gives you ammunition for your next bear market (it will come, rest assured)-- rebalancing into cheaper equities. A global government bond fund (investment grade) would do it. And you will find out how you feel about markets that drop by 30-40%, what you do, whether you are tempted to panic (it is impossible to know that until it happens, you cannot negotiate with your future self; and, to complicate things, you will find that you get more risk averse as you get older, that seems to be part of the human pattern of life-- your reaction to a bear market in your 20s or 30s won't be the same as one in your 40s or 50s).

As to your other funds. There are world or world developed market trackers out there. You could just have one of those. If it lacks Emerging Markets then, roughly speaking, you want between 10 & 15% (of the 80% in equities) to be EM (a separate ETF).

Small Cap & Small Cap Value? At the best of times, the returns from these strategies are inconsistent. The premium appears, a lot of funds emerge to invest in it, and it disappears.

Let's say that there is something there worth having. Then one has the risk that one chases it, the period over which one invests is one of sharp underperformance, and say in 10 years one abandons the strategy. Again, age is important here-- the closer you get to retirement, the less risk you can afford to take (I had never owned a bond fund before I was 50).

Thus I would say, at max 20% your equities (16% of your total portfolio) should be in Small Cap and Small Cap Value strategies. That's enough of an overweighting to matter, and in those years when equity markets go up 20% and you go up 0% it will hurt plenty. Or when equity markets go down 10% and SCV goes down 20%.
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi,

Thank you four your feedback Valuethinker.

I am 32y and do not have any asset or investment. I don't have any debt or mortgage either. In this situation and considering that I am young, I deceided to be aggressive and go for low % in bonds. As time goes by I will weight more the fixed income.

How about the rest of the questions -Valuethinker or any other-?

Cheers
TedSwippet
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

A few thoughts, in no particular order.

In contrast to others, I don't see a particular problem with seven funds rather than three. In one of my own pensions I combine seven funds to effectively replicate the simple three-fund portfolio. By holding UK, US, EU ex-UK, Japan, Pacific ex-Japan, ordinary bonds and index-linked bonds funds separately I can shave some 0.12% or so (several hundred GBP) from my annual management charge compared to holding an all-in-one fund. It started out like this for historic reasons -- it pre-dates Vanguard's entry into the UK funds market -- but I keep it this way because the cost saving is well worthwhile.

Check the small-print details of both Lyxor and db x-tracker ETFs carefully, to make sure you know what you are getting into with these. iShares and Vanguard EU are all Ireland-domiciled and so are tax-neutral to non-Irish investors, but that doesn't necessarily hold true for either x-trackers or Lyxor.

In the past most Deutsche Asset Manangement ETFs were swap-based rather than physical replication. Deutsche partly embraced physical replication recently, but not all their ETFs might have been included in that switchover. In general you should really prefer either full physical replication or sampling to swap-based. Also, watch carefully for the ETF domicile. The x-trackers are generally domiciled in Luxembourg, and unlike Ireland, Luxembourg does not have a tax treaty with the US. So any db x-tracker ETFs you own that hold US shares or property will probably not get the same beneficial US tax treatment as an Ireland-domicile ETF would.

[ETA: The final sentence of the previous paragraph is not correct -- struck through.]

Lyxor are French based, and France can withhold tax on dividends for French-domiciled ETFs. As with the US some of that might be recoverable, but anecdotal reports suggest that recover can be fiddly, time consuming, and error-prone. So check your position here too.

As for your other specific questions... Well, risk/return is a personal thing so that one is up to you. I doubt anyone can predict whether EU or global bonds will serve you best. And on diversification, at a rough glance (haven't looked in detail) you seem to be entirely missing Japan (8.5% of world market cap), UK large cap (perhaps another 5-6%), and all of Pacific ex-Japan (Aus, NZ, HK, Singapore, so maybe another 5% or so).
Last edited by TedSwippet on Wed Dec 13, 2017 8:52 am, edited 1 time in total.
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi TedSwippet,

My strategy picking up ETFs is the following:
1. Physical; 2.Ireland/Luxembourg domiciliated; 3.In EUR currency, 4. distribution policy= accumulation. Since they are accumulation I guess you mean that I may have problems with taxes when I liquidate the assets, right? Thanks for Luxembourg advice, I had no idea. I will try them to be all Ireland domiciliated.
The x-trackers are generally domiciled in Luxembourg, and unlike Ireland, Luxembourg does not have a tax treaty with the US. So any db x-tracker ETFs you own that hold US shares or property will probably not get the same beneficial US tax treatment as an Ireland-domicile ETF would
If Lux does not have tax treaty with the US, when and why would I be paying taxes? Is this what in the wiki is called Level 2 taxes? If a fund buys US assets and have to pay for that, wouldn’t be the fund dealing with those expenses, not me?

Vanguard would be my first choice, but since I live in Spain, I did not find any Vanguard fund domiciliated in EUR, for any of the market segments I need to cover. If you have any suggestion…more than welcomed.

If I am not taking the wrong conclusion, your suggestion would be to go for all Ireland domiciliated ETFs to avoid taxes problems?

Thanks!
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

Further quick thoughts...
Mrpacman wrote: Sat Dec 09, 2017 5:09 pmSince they are accumulation I guess you mean that I may have problems with taxes when I liquidate the assets, right?
Not really what I meant, but you might. Nothing to do with ETF domicile, though. It all hinges on how your home country taxes accumulated dividends. Some let them 'roll up' until sale and then tax as capital gain, perhaps at lower rates than normal income tax. Others treat them as 'deemed' distributed and so tax them annually even though you don't actually receive them.

You'll have to investigate which of these will apply to you. If the second, then outside of pensions and other shelters accumulation funds can be a tax nightmare, since you have to annually pay real tax on phantom income, and when you sell you then have to subtract out all of the taxed-but-not-received dividends to find the capital gain. If the first, they're a lot easier.

Mrpacman wrote: Sat Dec 09, 2017 5:09 pmThanks for Luxembourg advice, I had no idea. I will try them to be all Ireland domiciliated.

This was just an observation specific to US assets held by Luxembourg-domiciled ETFs. I have no idea on whether other countries' assets held in a Luxembourg ETF might suffer similar problems. It seems that Luxembourg is a popular ETF domicile, though perhaps not quite as popular as Ireland, so it looks like it might be safe to imagine that it is generally trouble-free tax-wise (except for lacking a US tax treaty, that is).

Mrpacman wrote: Sat Dec 09, 2017 5:09 pmIf Lux does not have tax treaty with the US, when and why would I be paying taxes? Is this what in the wiki is called Level 2 taxes? If a fund buys US assets and have to pay for that, wouldn’t be the fund dealing with those expenses, not me?

Yes, the fund would pay any US taxes internally. The difference though is that a Luxembourg fund would lose 30% to US tax on dividends from any US assets it holds. An Ireland fund can use the US/Ireland tax treaty and so drop the US dividend tax to 15%.


[ETA: The previous paragraphs are misleading or not correct -- struck through.]

A fund that uses swaps rather than holding US stocks directly can sometimes get around this US tax withholding using 'dividend equivalent payments', but the US has recently got wise to that and is trying to also tax such payments ('section 871m' withholding), even though they are not direct dividend payments from US stocks.
Mrpacman wrote: Sat Dec 09, 2017 5:09 pmVanguard would be my first choice, but since I live in Spain, I did not find any Vanguard fund domiciliated in EUR, for any of the market segments I need to cover. If you have any suggestion…more than welcomed.
Vanguard EU funds cover the broad indexes, but do not segment markets into large/small cap in the way that you appear to prefer. For example, VUSD is an S&P 500 tracker, but no US small-cap ETF exists from Vanguard EU.

If you can access funds as well as ETFs then a few more options appear, for example the Vanguard Global Small-Cap fund. But these non-ETF Vanguard funds may not be available in all countries. In that case you may simply have to compromise by deciding what matters most to you -- either the salami-slicing segmentation of markets, or Vanguard ETFs and simplicity.
Last edited by TedSwippet on Wed Dec 13, 2017 8:56 am, edited 1 time in total.
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Hi pacman,

You have already received many good comments.
Here are some additional remarks.
Mrpacman wrote: Tue Dec 05, 2017 4:58 pm 10% EU bonds - db x-trackers Eurozone Government Bond 3-5 UCITS ETF (DR) 1C (DBXQ) in general ok: Euro, govt, medium duration. Do check the number of assets in this though. % is low for a beginning investor. And what % are you currently getting on govt insured savings accounts. This might be a safe alternative.
13% US Large-Growth - iShares Core S&P 500 UCITS ETF (CSPX) where is large value?
20% US Small-Value - UBS ETF (IE) Factor MSCI USA Prime Value UCITS ETF (UBUW)
14% EU Large-Growth - db x-trackers EURO STOXX 50 UCITS ETF (DR) 1C (DXET). where is large value?
20% EU Small-Value - SPDR MSCI Europe Small Cap UCITS ETF (EUSC) or iShares MSCI EMU Small Cap UCITS ETF EUR (CEUS). check if these are really small cap. Many Europeans small caps are actually more mid-cap
13% Emerging & Pacific - iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM)covers a bit more emerging then the region that you mention that is on. Where are you developed Asia countries?
10% REITs global - Lyxor FTSE EPRA/NAREIT Global Developed UCITS ETF D-EUR (REWLD) your other funds already includ REIT, are u sure you need more?

Now all of my assets currency is Euro, with its domicile in Europe (Ireland) and the distribution policy of accumulating to optimize tax expenses.if accumulating is advantageous in Spain, then excellent

These are the questions I have in mind so far
1. Not sure if I should go for EU bonds index or global bonds index
2. I tilted my porfolio more towards value to assume some more risk but obtain some more return. What do you think of this strategy?you tilted to small/mid value but underweight/remove large value?
3. The large-growth funds are not purely large, the are rather large mid, so may be I would need to reduce some weight in the small cap assets, otherwise the portfolio will be too tilted towards small cap companies
4. In terms of diversification, am I covering the whole (or almost) market?
5. Several ETF trade in different stocks markets (borsa italiana, Dax..) , what should I consider in selecting one or another?
6. Not sure what ETF choose for EU Small-Value among the 2 mentioned
7. iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM), not sure of the is denominated in Eur o USD, since its price is in Euro but its assets are in USDdepends on which exchange you will buy it. Make sure it is euro end,instead to avoid currency exchange costs
Would suggest you start with the simpler portfolios,already mentioned above. This ensures that the you start with a fully diversified portfolio.
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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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by Lauretta »

By holding UK, US, EU ex-UK, Japan, Pacific ex-Japan, ordinary bonds and index-linked bonds funds separately I can shave some 0.12% or so (several hundred GBP) from my annual management charge compared to holding an all-in-one fund.
I can relate to that; I also went for several ETFs as they are cheaper than MSCI World.
TedSwippet wrote: Sat Dec 09, 2017 10:38 am In general you should really prefer either full physical replication or sampling to swap-based.
Can you elaborate on that please? I tend to like Amundi for some ETFs (TER cheaper, easier to contact them to ask them questions etc); their answer to the question of the danger of synthetic ETFs was (I translate it from the French) 'Every method of replication has both advantages and drawbacks and one cannot state that synthetic ETFs are more risky than physical ones: indeed in 2012 ESMA (the European Securities and Markets Authority) has put an end to this debate'.
Except that in spite of ESMA this debate seems to be still going on... :D
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

Lauretta wrote: Sun Dec 10, 2017 4:47 am
TedSwippet wrote: Sat Dec 09, 2017 10:38 am In general you should really prefer either full physical replication or sampling to swap-based.
Can you elaborate on that please? ... Except that in spite of ESMA this debate seems to be still going on...
Maybe I am still living in the past with my preference for physical replication. If counterparty risk can be eliminated, why not? But perhaps it's not large in the grand scheme of things.

ESMA is probably not impartial, and neither are Amundi. But additionally, this paper shows that investors are generally compensated for counterparty risk. (Although, the paper is French, and Lyxor are both French and very enthusiastic about swap-based ETFs -- coincidence?!)

I doubt anyone had even heard of counterparty risk before the Lehman collapse in 2008. Now we all have. However, beyond Lehman and their OTC derivatives, I cannot cite any recent occasion where an ETF has seen counterparty issues. Perhaps I should be less concerned about them. And physical replication can be near-impossible in hard-to-reach markets, so for these it can be either synthetic or nothing, so a definite win there.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by LadyGeek »

Mrpacman - I have merged your 2nd draft into the 1st draft discussion. An important point may be missed when the discussion is in different threads. Please continue to provide updates and ask questions in this thread.
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Mrpacman
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi,
@TedSwippet wrote:Yes, the fund would pay any US taxes internally. The difference though is that a Luxembourg fund would lose 30% to US tax on dividends from any US assets it holds. An Ireland fund can use the US/Ireland tax treaty and so drop the US dividend tax to 15%.
Then what is the impact that this taxation has on me? If it is the fund dealing with those taxes, apparently none.
BeBH65 wrote:10% EU bonds - db x-trackers Eurozone Government Bond 3-5 UCITS ETF (DR) 1C (DBXQ) in general ok: Euro, govt, medium duration. Do check the number of assets in this though. % is low for a beginning investor. And what % are you currently getting on govt insured savings accounts. This might be a safe alternative.
Do you mean the number of assets in the fund or the %of EU bonds on my portfolio?

You are totally right BeBH65, I deliverately missed large value but I am not sure to what extend that is a good idea.

I want my portfolio to be value tilted, but I find myself in a dilemma. On the one hand, I want to have few assets. On the other hand, I want my portfolio to be value tilted and cover the whole world and company styles, and for that I need many funds.
I tried to solve this starting from the caffeehouse portfolio and addapting it to the Eurozone but seems as if there were nothing in the middle and I had to chose either selecting 3 funds and no tilting or tilting but 11 funds.

Any suggestion on how to move forward?

Thank you
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by TedSwippet »

Mrpacman wrote: Wed Dec 13, 2017 6:11 am
@TedSwippet wrote:Yes, the fund would pay any US taxes internally. The difference though is that a Luxembourg fund would lose 30% to US tax on dividends from any US assets it holds. An Ireland fund can use the US/Ireland tax treaty and so drop the US dividend tax to 15%.
Then what is the impact that this taxation has on me? If it is the fund dealing with those taxes, apparently none.
I am going by this article:
For example, most European ETFs are domiciled in Ireland and Luxembourg, and many have substantial holdings of US equities. A double-taxation treaty between the US and Ireland allows most Irish-domiciled funds to receive dividends from US companies after a 15% deduction for withholding tax. However, many Luxembourg-based funds suffer a higher deduction—30%—from US dividend income because of a less favourable tax treaty between the two countries.

With US dividend yields currently around 2% a year, that's a difference between receiving 1.7% or 1.4% a year into your ETF from US shares, depending on the fund's domicile. This could easily offset any headline difference in fund fees.
However... it seems that there is in fact a US/Luxembourg tax treaty after all, and the dividends tax rate is 15%, so the same as Ireland. So the article above could it seems be out of date, or perhaps just flat out wrong. Shrug.

(Guess I should correct my earlier post too, or at minimum add some weasel-words. Sigh.)
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Mrpacman wrote: Wed Dec 13, 2017 6:11 am
BeBH65 wrote:10% EU bonds - db x-trackers Eurozone Government Bond 3-5 UCITS ETF (DR) 1C (DBXQ) in general ok: Euro, govt, medium duration. Do check the number of assets in this though. % is low for a beginning investor. And what % are you currently getting on govt insured savings accounts. This might be a safe alternative.
Do you mean the number of assets in the fund or the %of EU bonds on my portfolio?
Actually:
1. 10% stable asset seems ow for a person of your age and investing experience.
2. Besides bonds you could also look at a savings account (governmente insured) what is the intrest% that you get on that? this might be better then bonds.
Mrpacman wrote: Wed Dec 13, 2017 6:11 am You are totally right BeBH65, I deliverately missed large value but I am not sure to what extend that is a good idea.

I want my portfolio to be value tilted, but I find myself in a dilemma. On the one hand, I want to have few assets. On the other hand, I want my portfolio to be value tilted and cover the whole world and company styles, and for that I need many funds.
I tried to solve this starting from the caffeehouse portfolio and addapting it to the Eurozone but seems as if there were nothing in the middle and I had to chose either selecting 3 funds and no tilting or tilting but 11 funds.

Any suggestion on how to move forward?

Thank you
Why don't you start with a core like IWDA (ishares core MSCI world) and then add the tilts that you would like: e.g. large Value, small (Value), REIT?
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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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

TedSwippet, thanks for he article. That was useful to understand taxation at all levels.
BeBH65 wrote:1. 10% stable asset seems ow for a person of your age and investing experience.
I know it is a bit aggressive, but I am ok with that. Actually if you check the Vanguard retirement portfolio for 2050, it has not even 10% of fixed income
BeBH65 wrote:2. Besides bonds you could also look at a savings account (governmente insured) what is the intrest% that you get on that? this might be better then bonds.
In Spain interest is currently very low fo savings account. It is not worthy.
BeBH65 wrote:Why don't you start with a core like IWDA (ishares core MSCI world) and then add the tilts that you would like: e.g. large Value, small (Value), REIT?
VERY intresting approach. I am going to study it. My problem tough, is that as soon as I add a tilting (let's say a fund of small value), I need to add a lot of stuff to avoid the portfolio being heavily unbalanced, and I end up with lots of assets. I am going to givi it a though and bring back some ideas on this.

Do you guys know if there is any site where I add my funds and I get the Morningstar matrix (or similar) to analyze the resulting combination of assets?

Thanks a lot!
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Mrpacman wrote: Sat Dec 16, 2017 5:13 pm Do you guys know if there is any site where I add my funds and I get the Morningstar matrix (or similar) to analyze the resulting combination of assets?
Morningstar offers the possibilty to create a portfolio.
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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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi guys,

I continue with the seeking of my porfolio for retirement. The approach I followed this time is to select a core fund and add some others to "customize" it according to my preferences.

I drop here an image with my analysis to kindly receive your feedback (if it is not clear I can send it to your email). The core fund will be IWDA. Then I added EMSV to gain EU exposure, EUSC to gain exposure to small caps but in the EU (that's where I live and work), DBX1 togain global emerging exposure and I will add EPRA for REITS and the Fixed Income. A total of 6 assets, which is a number I think not difficult to handle.

I think it is quite well diversified, with heavy weight in US and EU. Maybe more exposure than I would like in UK, but there is nothing perfect.

For background purposes; I am 32y, I do not have mortgages or any other debts an I live and work in Spain. I built the data table and chart with data from Morningstar.

Cheers!

Image
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Valuethinker »

Mrpacman wrote: Wed Jan 24, 2018 2:09 am Hi guys,

I continue with the seeking of my porfolio for retirement. The approach I followed this time is to select a core fund and add some others to "customize" it according to my preferences.

I drop here an image with my analysis to kindly receive your feedback (if it is not clear I can send it to your email). The core fund will be IWDA. Then I added EMSV to gain EU exposure, EUSC to gain exposure to small caps but in the EU (that's where I live and work), DBX1 togain global emerging exposure and I will add EPRA for REITS and the Fixed Income. A total of 6 assets, which is a number I think not difficult to handle.

I think it is quite well diversified, with heavy weight in US and EU. Maybe more exposure than I would like in UK, but there is nothing perfect.

For background purposes; I am 32y, I do not have mortgages or any other debts an I live and work in Spain. I built the data table and chart with data from Morningstar.

Cheers!

Image
You appear to be way underweight in Japan & Asia. And overweight in Europe.

I think it's important to understand that for (currency unhedged) equity funds, you are not more Euro-tilted just by owning more Europe stocks.

What I mean is this. When the UK voted (by surprise) for Brexit on 23rd June 2016 GBP dropped -10% against EUR and USA in about a hour around 2 am. However the FTSE 100 (the largest UK stocks, about 84% of the total FTSE All Share index) rose by 6-7% quite quickly. The big UK stocks are all multinationals-- the USD is probably their biggest currency, followed by EUR followed by GBP. Think Unilever or Royal Dutch Shell oil.

There's no reason for a home country bias-- tilting towards European stock markets just because one lives in Europe.

Thus, I try to have as globally diversified a portfolio as possible. There are 2 ETFs listed in London (one ishares, one Vanguard) which are large cap value, and the ishares one happens to have a lot of Japan, the Vanguard one appears to have more small cap exposure (and more stocks generally).

I actually have been underweight USA and that has hurt-- a lot. Fortunately I have enough global equity funds that I still have participated in the rise and rise of the FAANGS (Facebook Apple Amazon Netflix Google).

So my message to you is don't ignore global diversification-- that includes Japan. Let the market do the asset allocation for you. Your labour income is in EUR so you want maximum diversification in the rest of your equity portfolio (I lean towards keeping bonds in your home currency, EUR, however that means accepting a near zero yield right now).

I would want

- one global ETF - at least 50% of my equity exposure
- one global value ETF (or split it between ishares one and Vanguard one) - large cap - 25% of my equity exposure
- one global small cap ETF (if you can find one, if not something like 50 USA, 25 Asia, 25 Europe?) - up to 20% of my equity exposure

I wouldn't bother with REITs (I view them as basically a form of financial stock, sensitive to interest rates) but they do have superior inflation protection to the market as a whole. How the dividends are taxed is important-- real estate should pay a higher yield than stocks as a whole (thus higher tax to pay for investor).

You also have no bonds?

I would suggest any investor should be at least 20% in bonds. Gives rebalancing bonus in a bear market. And when equity markets have dropped 50% (which they can do in a Crash; recent bear markets have ranged from -30-50%; a study of stock market history would suggest (to me at least) that 50% is quite a good number to latch on to, but 90% is certainly possible).

ST Eurozone bonds or bonds hedged into the Euro give about 0% return at the moment, unfortunately. However I would still consider it, and there is merit in just owning the world govt bond market (Euro hedged). Or split it 50/50 with a US Treasury Bond fund (currency unhedged) -- the USD has fallen a lot against the Euro of late, and US 10 year bond pays 2.5% yield, whereas the German one is more like 0.5% last time I checked.

So

- 20% - global govt bond fund or 10% GGBF (EUR hedged) + 10% Short or Intermediate Term US Treasury fund
- 40% global equity fund (up to 8% of that in EM if the ETF you choose is developed markets only, you would need 2)
- 20% global large cap value fund
- 20% small stock fund or funds (global weightings)
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi Valuethinker,

Thanks for your reply.
There are 2 ETFs listed in London (one ishares, one Vanguard) which are large cap value, and the ishares one happens to have a lot of Japan, the Vanguard one appears to have more small cap exposure (and more stocks generally).
Could you please name them? They may be interesting for me to do changes in the portfolio. It is important for me that they are Accumulating and Ireland domiciliated, for tax purposes.

I appreciate your point of view, cause it is indeed my purpose to have global diversification, both geographically and in size (both small and large caps). However I cannot find a formula to achieve this combination with not very many funds.
I would suggest any investor should be at least 20% in bonds. Gives rebalancing bonus in a bear market. And when equity markets have dropped 50% (which they can do in a Crash; recent bear markets have ranged from -30-50%; a study of stock market history would suggest (to me at least) that 50% is quite a good number to latch on to, but 90% is certainly possible).
Regarding Variable I/Fixed I, it is my intention to go for 80%/20%
- 20% - global govt bond fund or 10% GGBF (EUR hedged) + 10% Short or Intermediate Term US Treasury fund
- 40% global equity fund (up to 8% of that in EM if the ETF you choose is developed markets only, you would need 2)
- 20% global large cap value fund
- 20% small stock fund or funds (global weightings)
Regarding this structure, makes sense to me. Only couple of comments. Could you provide the funds you have in mind to implement this portfolio? Also, I see that there are in total 5 funds, plus REITs in case I add them. How difficult is that to handle? I have read many times in this forum that the lower number of funds the better to handle them.

What does EM stand for in "...of that in EM if the ETF..."

Thanks a lot!
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by LadyGeek »

"EM" stands for "Emerging Market". See: Emerging markets, on Wikipedia.

(Sorry, I can't help you with the other questions.)
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Mrpacman wrote: Wed Jan 24, 2018 2:09 am I drop here an image with my analysis to kindly receive your feedback (if it is not clear I can send it to your email). The core fund will be IWDA. Then I added EMSV to gain EU exposure, EUSC to gain exposure to small caps but in the EU (that's where I live and work), DBX1 togain global emerging exposure and I will add EPRA for REITS and the Fixed Income. A total of 6 assets, which is a number I think not difficult to handle.
Hi,

IWDA is actually: Developped World Large Cap, with Europe at its weight in the world; so a good core for your equity portfolio --> would augment the %.
The above fund does not contain EM so you need to add that. EM is 10% of the world stock market. It is very volatlle --> I would not overweight it.
Small cap is 15% of the world market.
I would lower your overweighting of Europe considrably.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi,
The above fund does not contain EM so you need to add that
@BeBh65: DBX1 is the fund for Emerging I include. what do you mean with it does not contain EM? This is the link to Morningstar
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mors »

Mrpacman wrote: Fri Jan 26, 2018 3:39 pm Hi,
The above fund does not contain EM so you need to add that
@BeBh65: DBX1 is the fund for Emerging I include. what do you mean with it does not contain EM? This is the link to Morningstar
It seems relatively expensive compared to the alternatives from iShares and Amundi (both accumulating, the former domiciled in Ireland, the latter in France but it is synthetic so it is probably not an issue). The latter is offered commision free from Degiro by the way.

While I do not mind over-weighting a bit Europe, since the US has currently rich valuations, the US dividend taxation shaves off a bit of the returns and it has more currency risk, I believe that you went too far. You make a conscious active bet, which may or may not be what you want in the end. I would advice to come closer to the global market cap.

This MSCI Europe value etf is cheaper, domiciled in Ireland and accumulating; is there a reason you do not prefer it?

https://www.justetf.com/en/etf-profile. ... 00BQN1K901

Do not consider REITS fixed income nor safe allocation. They do have low correlation with the rest of the stock market though. Make sure it is accumulating.

I do not believe that you need the eu small cap, but each to his one about hte specific asset allocation.

You have no fixed income, like a global eu hedged bond. If you dislike the low yield bonds, you may have access to a decent savings account, although I doubt that you will find any with at least 1% interest rate to replace the bond allocation. Having no safe fixed income is an option of course at your age for retirement investing, but you must then feel fine with an allocation that can lose 50% of its worth in a year.

Finally, since you are fond of slice and dice, consider a small allocation to emerging market bonds. They have equity like potential for returns, while being less volatile. They are more volatile than safe bonds, but in an otherwise 100% stocks portfolio they will bring the volatility down without impacting the returns, thanks to diversification principles.

They are both hedged and non-hedged, depending on if you want fx risk or not. All else equal having them hedged is preferable, but in some cases the local currency ones hold higher quality bonds, so they may be preferable. They can be funded both from the equity and the fixed income part of the portfolio, although in the latter case you should definitely not go too far.

Here are the available choices. I would argue that going with the first x-trackers etf is a perfectly fine choice.

https://www.justetf.com/en/find-etf.htm ... ets&ls=any
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Mrpacman wrote: Fri Jan 26, 2018 3:39 pm Hi,
The above fund does not contain EM so you need to add that
@BeBh65: DBX1 is the fund for Emerging I include. what do you mean with it does not contain EM? This is the link to Morningstar
The above IWDA fund ..
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi,

@Mor; some comments on your post.
This MSCI Europe value etf is cheaper, domiciled in Ireland and accumulating; is there a reason you do not prefer it?
Those are my drivers and you are totally right. It is cheaper. I will perform the simulation with it to see how the output looks like.
I do not believe that you need the eu small cap, but each to his one about hte specific asset allocation.
Why not? I want to invest in small cap and this was the solution that I found to do it.
You have no fixed income, like a global eu hedged bond. If you dislike the low yield bonds, you may have access to a decent savings account, although I doubt that you will find any with at least 1% interest rate to replace the bond allocation. Having no safe fixed income is an option of course at your age for retirement investing, but you must then feel fine with an allocation that can lose 50% of its worth in a year.
I deliverately did not included that in the simulation I shared, but I will include that when I have clear how to organize the variable income part.
Finally, since you are fond of slice and dice, consider a small allocation to emerging market bonds. They have equity like potential for returns, while being less volatile. They are more volatile than safe bonds, but in an otherwise 100% stocks portfolio they will bring the volatility down without impacting the returns, thanks to diversification principles.
I really want to keep the fixed income allocation very simplified, since I will have already many funds to manage in the variable income. I think the approach that I feel more confortable with is one fund that includes the global bonds market or as some suggested, a fund of EU fixed income (in spite its poor performance). Is there any suggestion on this for such a purpose?

Really appreciated your comments ;)
Thanks a lot
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Valuethinker »

Mrpacman wrote: Fri Jan 26, 2018 11:05 am Hi Valuethinker,

Thanks for your reply.
There are 2 ETFs listed in London (one ishares, one Vanguard) which are large cap value, and the ishares one happens to have a lot of Japan, the Vanguard one appears to have more small cap exposure (and more stocks generally).
Could you please name them? They may be interesting for me to do changes in the portfolio. It is important for me that they are Accumulating and Ireland domiciliated, for tax purposes.

I appreciate your point of view, cause it is indeed my purpose to have global diversification, both geographically and in size (both small and large caps). However I cannot find a formula to achieve this combination with not very many funds.
I would suggest any investor should be at least 20% in bonds. Gives rebalancing bonus in a bear market. And when equity markets have dropped 50% (which they can do in a Crash; recent bear markets have ranged from -30-50%; a study of stock market history would suggest (to me at least) that 50% is quite a good number to latch on to, but 90% is certainly possible).
Regarding Variable I/Fixed I, it is my intention to go for 80%/20%
- 20% - global govt bond fund or 10% GGBF (EUR hedged) + 10% Short or Intermediate Term US Treasury fund
- 40% global equity fund (up to 8% of that in EM if the ETF you choose is developed markets only, you would need 2)
- 20% global large cap value fund
- 20% small stock fund or funds (global weightings)
Regarding this structure, makes sense to me. Only couple of comments. Could you provide the funds you have in mind to implement this portfolio? Also, I see that there are in total 5 funds, plus REITs in case I add them. How difficult is that to handle? I have read many times in this forum that the lower number of funds the better to handle them.

What does EM stand for in "...of that in EM if the ETF..."

Thanks a lot!
Sorry EM = Emerging Markets

I'd have to check, but I believe EM are c. 15% of world markets by value (different index providers classify South Korea as developed/ EM).

The ishares.co.uk website (I click "intermediary" when it queries me) lists all their ETFs.

https://www.ishares.com/uk/intermediari ... f-acc-fund covers developed world.

https://www.ishares.com/uk/intermediari ... -ucits-etf

covers EM. If you are a ratio of 5 of the former to 1 of the latter then you are about market weight (would have to check). ie 1/6th of 80% is c. 13.5%. Given the heavy exposure to China I'd probably split it 70/10 and not get too worried.

VG may have one which covers EM as well in same fund.

https://www.ishares.com/uk/intermediari ... (acc)-fund

covers global bonds

https://www.ishares.com/uk/intermediari ... -ucits-etf

is a global value ETF (Vanguard also has one, which might be better - I did not know about VG one when I bought this one).

https://www.ishares.com/uk/intermediari ... -ucits-etf

would give you small cap exposure (but not for EM -- the small cap fund for EM is distributing).

In truth, if you did

- 20% the bond fund, above
- 70% global equity developed markets fund, above
- 10% EM fund, above

Then you are there. Everything else is bells & whistles-- it may improve or detract from your performance, but it will make rebalancing harder.

The portfolio above has funds which *report* in USD. But unless they hedge the currency, that does not matter to you-- it's the actual investments which matter, which will fluctuate up and down. You are taking full currency risk, but at this stage that's not necessarily a bad thing.

Whilst there are theoretical advantages to REITs (namely: greater correlation with inflation than for the stock market as a whole, some diversification benefit) the experience of the REIT funds in the financial crash was, quite frankly, terrifying. I believe the worst moment they were down something over 60%.

Unless you put 10% into a REIT fund or funds, it's not going to make a significant difference to your final portfolio value. And you will be adding volatility plus the complexity of additional funds to rebalance around.

EDIT

Found the ETFs on the vanguard.co.uk website (clicking through as "adviser")

https://www.vanguard.co.uk/adviser/inve ... /?overview

There's your global index fund.

https://www.vanguard.co.uk/adviser/inve ... /?overview

Eurozone government bond index fund

https://www.vanguard.co.uk/adviser/inve ... /?overview

US Treasury Bond



10% in each of those could be your bond weighting.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi Valuethinker,

Image

Amazing tips. I performed the simulation of the suggested portfolio and as you can see in the image, the result is less UK and EU wighted, so that kind of fixes what bothered me before. Now it is more Japan biased (10%) and Asia EM biased (13%), what looks good.

If you notice in the weight I assigned to each fund, I put 15% instead of 10% to EM so that the entire portfolio is less US biased. Otherwise US is around 35% of the total portfolio value. Do you think it is a good idea or 15% to EM may be too much?

The portfolio above has funds which *report* in USD. But unless they hedge the currency, that does not matter to you-- it's the actual investments which matter, which will fluctuate up and down. You are taking full currency risk, but at this stage that's not necessarily a bad thing.

I always tend to look for currency hedged funds, but you mention that unhedged funds is not a bad thing. Why is that? It does not matter in the long term?

In terms of buying funds, I found this 3 funds for SWDA (and also for the other options), what is the difference between them?
http://www.morningstar.es/es/etf/snapsh ... 0P0000N5XS
http://www.morningstar.es/es/etf/snapsh ... 0P0000TSO8
http://www.morningstar.es/es/etf/snapsh ... 0P00016SUJ
I notice that the Exchange is different, what is the impact of that? I am confused on which one to buy.

Regaring the Fixed Income, I would like to simplify that it to the maximum, so that I do not have very many funds to manage. Could there be a considerable diferente in performance in the long term between choosing only a global FI fund or picking up the 3 you mentioned in your post - Global, EU and Treasury?

Thanks!
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Re: 2nd draft of my portfolio to evaluation [feedback please] [Europe]

Post by Dottie57 »

Mrpacman wrote: Tue Dec 05, 2017 4:58 pm [Thread merged into here, see below. --admin LadyGeek]

Hi all,

First of all, thank you to those iving me feedback in my previous post where we discussed the 1st draft of my retirement portfolio. All your comments were very useful and most of them eye openers. After careful review of all feedback received, now I bring the 2nd draft.

10% EU bonds - db x-trackers Eurozone Government Bond 3-5 UCITS ETF (DR) 1C (DBXQ)
13% US Large-Growth - iShares Core S&P 500 UCITS ETF (CSPX)
20% US Small-Value - UBS ETF (IE) Factor MSCI USA Prime Value UCITS ETF (UBUW)
14% EU Large-Growth - db x-trackers EURO STOXX 50 UCITS ETF (DR) 1C (DXET)
20% EU Small-Value - SPDR MSCI Europe Small Cap UCITS ETF (EUSC) or iShares MSCI EMU Small Cap UCITS ETF EUR (CEUS)
13% Emerging & Pacific - iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM)
10% REITs global - Lyxor FTSE EPRA/NAREIT Global Developed UCITS ETF D-EUR (REWLD)

Now all of my assets currency is Euro, with its domicile in Europe (Ireland) and the distribution policy of accumulating to optimize tax expenses.

These are the questions I have in mind so far
1. Not sure if I should go for EU bonds index or global bonds index
2. I tilted my porfolio more towards value to assume some more risk but obtain some more return. What do you think of this strategy?
3. The large-growth funds are not purely large, the are rather large mid, so may be I would need to reduce some weight in the small cap assets, otherwise the portfolio will be too tilted towards small cap companies
4. In terms of diversification, am I covering the whole (or almost) market?
5. Several ETF trade in different stocks markets (borsa italiana, Dax..) , what should I consider in selecting one or another?
6. Not sure what ETF choose for EU Small-Value among the 2 mentioned
7. iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM), not sure of the is denominated in Eur o USD, since its price is in Euro but its assets are in USD

Thank you very much in advance. Any further comment beyond these questions ir more than welcome.

Cheers!
Way too complicated. Buy the total world etf and be done with equities. Simple really works better. I used to have slice and dice, but. It cost too much in ER and took too much time to rebalance. I also kept wanting to tweek. I can truly say simplicity rules.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Mrpacman »

Hi Dottie57,

Thanks for your feeback. Could you please share your portfolio structure?

Thanks
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by BeBH65 »

Hi,

In our wiki you can find info on Base_currency_vs._trading_currency_vs._currency_of_the_underlying_asset.
- Your choice of the trading currency determines if you will need to perform a currency exchange (with costs) before you invest.
- Your broker will have different fees for different exchanges, choose the one that suits you best.
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Re: 1st draft of my portfolio to evaluation [feedback please] [Europe]

Post by Valuethinker »

Mrpacman wrote: Sun Feb 04, 2018 6:16 am Hi Valuethinker,

Image

Amazing tips. I performed the simulation of the suggested portfolio and as you can see in the image, the result is less UK and EU wighted, so that kind of fixes what bothered me before. Now it is more Japan biased (10%) and Asia EM biased (13%), what looks good.

If you notice in the weight I assigned to each fund, I put 15% instead of 10% to EM so that the entire portfolio is less US biased. Otherwise US is around 35% of the total portfolio value. Do you think it is a good idea or 15% to EM may be too much?

The portfolio above has funds which *report* in USD. But unless they hedge the currency, that does not matter to you-- it's the actual investments which matter, which will fluctuate up and down. You are taking full currency risk, but at this stage that's not necessarily a bad thing.

I always tend to look for currency hedged funds, but you mention that unhedged funds is not a bad thing. Why is that? It does not matter in the long term?

In terms of buying funds, I found this 3 funds for SWDA (and also for the other options), what is the difference between them?
http://www.morningstar.es/es/etf/snapsh ... 0P0000N5XS
http://www.morningstar.es/es/etf/snapsh ... 0P0000TSO8
http://www.morningstar.es/es/etf/snapsh ... 0P00016SUJ
I notice that the Exchange is different, what is the impact of that? I am confused on which one to buy.

Regaring the Fixed Income, I would like to simplify that it to the maximum, so that I do not have very many funds to manage. Could there be a considerable diferente in performance in the long term between choosing only a global FI fund or picking up the 3 you mentioned in your post - Global, EU and Treasury?

Thanks!
I am not able to read the Spanish. I can't tell the difference between the 2nd and 3rd funds. The first reports in EUR.

With currency:

-the currency a fund reports in is irrelevant *except* when you are taking money out or putting it in, in which case you have incurred an additional exchange charge if, say, you are contributing in Euros but the fund reports in US dollars

- OR if the fund hedges back into its currency of reporting. That's often the case with bond funds, but not so common with equity funds. You'd have to check whether this fund hedges its currency exposure

As an EUR based investor, you generally want funds that report in EUR.

If you find a global Fixed Income fund, then take that one. You want one that at least reports in EUR though. If it does not hedge into EUR, the currency effects will give it greater volatility, which at some moments will feel quite painful-- for example in the past year the EUR has moved up something like 10% against USD, so USD bond holdings (currency unhedged) will have a c. -8% return (-10% on currency, +2-2.5%% due to higher yield of US dollar bonds over EUR bonds).
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