Non-USA Domiciles: VT, VWRD, and WD

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galeno
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Non-USA Domiciles: VT, VWRD, and WD

Post by galeno » Tue May 22, 2018 2:40 pm

These are the basic composition of VT (USA Vanguard FTSE all world all cap equity index) and VWRD (Ireland Vanguard FTSE all world equity index).

VT: 47% giant cap 30% Lg cap. 18% mid cap. 5% sm cap. 0% micro cap.

VWRD: 53% giant cap 34% Lg cap. 13% mid cap. 0% sm cap. 0% micro cap.

If we want VWRD to look more like VT, we need to add a world mid-small cap equity ETF. The best I"ve found is an Ireland I-shares ETF named WSML. This mid-small cap equity ETF holds equities from developed countries. No EM stocks. I'm hoping Ireland Vanguard or Ishares will create an inexpensive mid-small cap world equity ETF which includes EM stocks. So.....

75%VWRD + 25%WSML: 40% giant cap 26% Lg cap. 24% mid cap. 10% sm cap. 1% micro cap.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

ying_yang
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by ying_yang » Tue May 22, 2018 10:33 pm

It’s not an ETF but Vanguard UK offer a FTSE All Cap tracker in mutual fund format.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

buylowbuyhigh
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by buylowbuyhigh » Wed May 23, 2018 1:20 am

I haven't seen any EM small cap funds/ETF's, but the iShares Core EM IMI ETF holds EM small caps too, while the iShares Core World ETF does not hold developed small caps. Using these two ETF's with the iShares World Small Cap ETF (WSML) makes up the MSCI ACWI IMI index (without gaps or overlaps), very close to FTSE Global All Cap which is the index that VT tracks.

Since VWRD follows a FTSE index and WSML a MSCI index, there could be gaps or overlaps in addition to the omission of EM small caps. Moreover, one is dividend distributing and the other is dividend accumulating, so they're maybe not suitable for the same investor?

msk
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by msk » Wed May 23, 2018 1:46 am

1. VT holds just about everything, 8000(?) stocks. For me this is a nonstarter because my dividends get slapped with a 30% withholding tax.

2. VWRD holds a slightly smaller subset, 2800(?) stocks. It does not hold small caps. I hold this in one account

3. I also hold 76% IWDA, 12% WSML, 12% EIMI. All these are accumulative. I hold these in another account, to check out which will be better long term compared to VWRD. E.g. if there are differences in how I get clobbered for taxes. I do not expect any measurable differences but ask me again in 5 years...

I also plotted VWRD and VT over 5 years (short history available for VWRD). Both pay dividends but the plots are just for price. They overlay over 5 years. There is no noticeable difference between holding 2800 Large and Midcap stocks (VWRD) and 8000 Large, Midcap and Smallcap stocks (VT).

Hope that helps in choosing.

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BeBH65
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by BeBH65 » Wed May 23, 2018 8:22 am

ying_yang wrote:
Tue May 22, 2018 10:33 pm
It’s not an ETF but Vanguard UK offer a FTSE All Cap tracker in mutual fund format.

https://www.vanguardinvestor.co.uk/inve ... _fund_link
I assume this is only available for UK residents.
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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BeBH65
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by BeBH65 » Wed May 23, 2018 8:31 am

Remaining with the MSCI series one can do:
- IWDA: developped large cap
- WSML; developped mid and small cap
- EIMI: EM total investable market (large+mid+small)
All of these are acumulating

Percentages should be about 10% EM, 15-20% SC

South Korea is considered developed for one and emerging for the other index provider.

Vanguard also has a LC DM with Vanguard FTSE Developed World UCITS ETF (EUR) | VGVE
You could potentially also go for VGVE+WSML+EIMI
Last edited by BeBH65 on Sat Jan 12, 2019 1:19 am, edited 1 time in total.
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

ying_yang
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by ying_yang » Wed May 23, 2018 8:39 am

BeBH65 wrote:
Wed May 23, 2018 8:22 am
ying_yang wrote:
Tue May 22, 2018 10:33 pm
It’s not an ETF but Vanguard UK offer a FTSE All Cap tracker in mutual fund format.

https://www.vanguardinvestor.co.uk/inve ... _fund_link
I assume this is only available for UK residents.
Yep. Which rules me out for time being, but thought it was worth mentioning.

ying_yang
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by ying_yang » Wed May 23, 2018 8:40 am

BeBH65 wrote:
Wed May 23, 2018 8:31 am
Remaining withing the MSCI series one can do:
- IWDA: developped large cap
- WSML; developped mid and small cap
- EIMI: EM total investable market (large+mid+small)
All of these are acumulating

Percentages should be about 10% EM, 15-20% SC

South Korea is considered developed for one and emerging for the other index provider.

Vanguard also has a LC DM with Vanguard FTSE Developed World UCITS ETF (EUR) | VGVE
You could potentially also go for VGVE+WSML+EIMI
small correction: developed mid-caps are in IWDA not WSML..

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BeBH65
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by BeBH65 » Wed May 23, 2018 10:06 am

ying_yang wrote:
Wed May 23, 2018 8:40 am
small correction: developed mid-caps are in IWDA not WSML..
Depends who is assesing.
Each indexprovider as well as each financial service provide has his own definition of LC, MC, SC.
One of the reasons to avoid mixing funds of different index providers


These are the numbers from M* for the MSCI funds.

IWDA
huge 53,14
Large 34,94
Mid 11,89
Small 0,03
Micro 0,00

WSML
huge 0,00
Large 0,56
Mid 57,83
Small 39,29
Micro 2,32
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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galeno
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by galeno » Wed May 23, 2018 2:26 pm

We (non-USA domicles w/o a tax treaty with USA) are indifferent to distributing or accumulating ETFs.

With distributing ETFs the dividend income is taxed (for our VWRD about 11.7%) and sent to our MMF.

With accumulating ETFs the dividend income is taxed and immediately re-invested into the ETF. I calculate the dividend tax on WSML to be about 11.6%.

Even if the overlap between a FTSE all world equity ETF (VWRD) and a MSCI developed sm-mid cap world ETF (WSML) is 100% it doesn't matter. E.g. so what if stock XYZ goes from 0.14% of port to 0.28% of port?

Unless Ireland Vanguard or I-shares comes up with a cheaper sm-mid cap world equity ETF that includes EM, my plan is to use either a 3:1 or 2:1 ratio of VWRD:WSML when we rebalance in January.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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alpine_boglehead
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by alpine_boglehead » Wed May 23, 2018 3:07 pm

buylowbuyhigh wrote:
Wed May 23, 2018 1:20 am
I haven't seen any EM small cap funds/ETF's
There's EM small cap ETFs like the iShares MSCI Emerging Markets Small Cap and SPDR MSCI Emerging Markets Small Cap ETFs, but the expense ratios are quite high (0.74% and 0.55%).

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galeno
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by galeno » Wed May 23, 2018 5:02 pm

EM stocks make up about 10% of the world equity indices.

Holding a 40% VWRD + 60% FI portfolio means EM stocks are 4% of port. Diluting it by going 30% VWRD + 10% WSML (3:1) means our port will hold 3% EM stocks. Not significant enough to think about.

Eventually I'd like to get back to 60% equities.

Holding 60% VWRD + 40% FI portfolio means 6% of port in EM stocks goes to 4% of port if I dilute it by going to 40% VWRD + 20% WSML (2:1). Again. Not really significant.

Significant for me means >/= 5% of port. If I take a position in an ETF it better be for at least 10% of port.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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galeno
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by galeno » Tue May 29, 2018 2:47 pm

So thinking out loud. A 5:1 ratio of VWRD/WSML will get us very to VT's market caps.

44% giant + 28% LC + 21% MC + 7% SC.

VT is

47% giant + 30% LC + 18% MC + 5% SC.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

sharukh
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by sharukh » Thu Jan 10, 2019 7:11 pm

Hi,
Can you please tell me how is tax applied on accumulating fund. It doesn’t pay any dividends. Only capital gains.

Are you paying taxes for the dividends you didn’t receive but the fund just kept with itself? If so, how are you making sure that you are not double paying taxes, once as dividends and once as capital gain.

Thank you.
galeno wrote:
Wed May 23, 2018 2:26 pm
We (non-USA domicles w/o a tax treaty with USA) are indifferent to distributing or accumulating ETFs.

With distributing ETFs the dividend income is taxed (for our VWRD about 11.7%) and sent to our MMF.

With accumulating ETFs the dividend income is taxed and immediately re-invested into the ETF. I calculate the dividend tax on WSML to be about 11.6%.

Even if the overlap between a FTSE all world equity ETF (VWRD) and a MSCI developed sm-mid cap world ETF (WSML) is 100% it doesn't matter. E.g. so what if stock XYZ goes from 0.14% of port to 0.28% of port?

Unless Ireland Vanguard or I-shares comes up with a cheaper sm-mid cap world equity ETF that includes EM, my plan is to use either a 3:1 or 2:1 ratio of VWRD:WSML when we rebalance in January.

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galeno
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by galeno » Fri Jan 11, 2019 10:17 pm

Most of the stocks in your ETF pay dividends. For USA-NRAs those dividends are ALWAYS taxed. Before we get them.

If the ETF is distributing, the net dividends go to CASH.

If the ETF is accumulating, the net dividends get reinvested back into the ETF as more shares.

If you live in a country that taxes capital gains you won't get taxed on them until you sell some of the ETF.

Essentially you get a "capital gains tax deferment".
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

TedSwippet
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by TedSwippet » Sat Jan 12, 2019 5:24 am

galeno wrote:
Fri Jan 11, 2019 10:17 pm
If you live in a country that taxes capital gains you won't get taxed on them until you sell some of the ETF. ... Essentially you get a "capital gains tax deferment".
Nearly. To gain any benefit here you need to live in a country that both a) does not immediately tax accumulated dividends, and b) taxes capital gains less heavily than dividend income.

The UK and Germany, for example, satisfy the second of these but not the first. Both countries tax both income and capital gains, and investors here have to pay annual tax on 'notional' accumulated dividends even though they don't immediately receive the money (and that's a potential cashflow problem right there!). Later on these taxed dividends need to be subtracted out before capital gains tax calculations. If left for a few years, the whole thing can actually become a bit of a paperwork problem to unravel; best reserved for tax-sheltered accounts such as pensions, then.

For investors in these countries, the only benefit to accumulation funds is convenience and avoiding a few dividend reinvestment trading fees. For other countries, there will be a benefit, but the results are entirely dependent on local tax laws. And sometimes these are vague too, for example where they were drafted before accumulation funds even existed.

shcnno
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Re: Non-USA Domiciles: VT, VWRD, and WD

Post by shcnno » Wed Jan 30, 2019 11:41 pm

Rogs is world small cap but us domiciled. Still for a small percentage of a portfolio corresponding to small caps only it could maybe work.

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