Worry about low volume of VHVE + VFEA

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mkps
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Worry about low volume of VHVE + VFEA

Post by mkps » Tue Jun 23, 2020 12:56 pm

Tickers:
VHVE FTSE Developed World
VFEA FTSE Emerging Markets UCITS ETF

Boglebot suggests the proportion be VHVE(88%) + VFEA(12%) to achieve the TER of 0.14% - currently lowest possible in the market

My question is the volumes of these 2 ETFs are relatively low as opposed to their competitor's counterparts. If I plan to invest monthly with 10 to 20 year horizon, will the lowest TER outwin the spread ?

Edit: correct the tickers
Last edited by mkps on Tue Jun 23, 2020 8:50 pm, edited 1 time in total.

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David Jay
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Re: Worry about low volume of VEHE + VFEA

Post by David Jay » Tue Jun 23, 2020 7:49 pm

Are you okay?

Serious question - you provided three different spellings for the Developed World fund: VEHE, VHVE and VEVE. Did you perhaps post this very late at night in your time zone?
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glorat
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Re: Worry about low volume of VHVE + VFEA

Post by glorat » Tue Jun 23, 2020 10:44 pm

mkps wrote:
Tue Jun 23, 2020 12:56 pm
will the lowest TER outwin the spread ?
On this single point alone, yes almost certainly. Spread is a one-off cost you'll cross once in your lifetime (assuming you buy and hold and stay the course, and don't rebalance often). The TER is something that will annually hit you year and year and have an exponential effect.

To repost some maths I did on this
glorat wrote:
Thu Apr 23, 2020 2:30 am
Suppose you have $10,000 to invest today for 20 years and assume you can achieve a whopping 5% CAGR. You spend all your effort eliminating the 0.45% on the spread. That saves you $45 today and compounds up to $119.40 in 20 year time

Suppose you have $10,000 to invest today for 20 years (still 5% CAGR) but you spend your efforts on reducing fund costs by reducing your withholding taxes. E.g. switching to a developed world fund (e.g. VDEV) with a 0.13% TER and a lower withholding tax rate (I forget how much exactly). Let's say it conservatively only saves you a tiny 0.02%. You will come out $1029 better off in 20 years time

Focus on what is 10x more important!
In other words, over 20 years, an extra TER of 0.02% makes 10x the difference of an extra 0.45% spread cost.

That being said, a high volume ETF still has advantages over a low volume ETF (e.g. if you think you ever need to get out of your position for whatever reason - emergency, trading, rebalancing) so it depends on your situation

Disclaimer: I am the boglebot author

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mkps
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Re: Worry about low volume of VHVE + VFEA

Post by mkps » Wed Jun 24, 2020 12:33 am

glorat wrote:
Tue Jun 23, 2020 10:44 pm
mkps wrote:
Tue Jun 23, 2020 12:56 pm
will the lowest TER outwin the spread ?
On this single point alone, yes almost certainly. Spread is a one-off cost you'll cross once in your lifetime (assuming you buy and hold and stay the course, and don't rebalance often). The TER is something that will annually hit you year and year and have an exponential effect.

To repost some maths I did on this
glorat wrote:
Thu Apr 23, 2020 2:30 am
Suppose you have $10,000 to invest today for 20 years and assume you can achieve a whopping 5% CAGR. You spend all your effort eliminating the 0.45% on the spread. That saves you $45 today and compounds up to $119.40 in 20 year time

Suppose you have $10,000 to invest today for 20 years (still 5% CAGR) but you spend your efforts on reducing fund costs by reducing your withholding taxes. E.g. switching to a developed world fund (e.g. VDEV) with a 0.13% TER and a lower withholding tax rate (I forget how much exactly). Let's say it conservatively only saves you a tiny 0.02%. You will come out $1029 better off in 20 years time

Focus on what is 10x more important!
In other words, over 20 years, an extra TER of 0.02% makes 10x the difference of an extra 0.45% spread cost.

That being said, a high volume ETF still has advantages over a low volume ETF (e.g. if you think you ever need to get out of your position for whatever reason - emergency, trading, rebalancing) so it depends on your situation

Disclaimer: I am the boglebot author
Thanks so much for your useful input. I understand that the TER matters the most in the long run, but when it comes to investing regularly i.e. buying every month and holding for the next 10-20 years, I'm afraid that the spread might eat up my returns more than it should.

Laurizas
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Re: Worry about low volume of VHVE + VFEA

Post by Laurizas » Wed Jun 24, 2020 1:08 am

mkps wrote:
Wed Jun 24, 2020 12:33 am
I understand that the TER matters the most in the long run, but when it comes to investing regularly i.e. buying every month and holding for the next 10-20 years, I'm afraid that the spread might eat up my returns more than it should.
It seems you don't really understand. Try doing your own calculations.

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Re: Worry about low volume of VHVE + VFEA

Post by glorat » Wed Jun 24, 2020 1:39 am

mkps wrote:
Wed Jun 24, 2020 12:33 am
Thanks so much for your useful input. I understand that the TER matters the most in the long run, but when it comes to investing regularly i.e. buying every month and holding for the next 10-20 years, I'm afraid that the spread might eat up my returns more than it should.
How often you invest doesn't matter since the spread impacts one off of the % of your total investment amount, no matter over what period it is spread out. In the above, if the $10,000 was actually $100 for the next 100 months, the effect will approximately be the same.

andrew99999
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Re: Worry about low volume of VHVE + VFEA

Post by andrew99999 » Wed Jun 24, 2020 2:04 am

glorat wrote:
Wed Jun 24, 2020 1:39 am
mkps wrote:
Wed Jun 24, 2020 12:33 am
Thanks so much for your useful input. I understand that the TER matters the most in the long run, but when it comes to investing regularly i.e. buying every month and holding for the next 10-20 years, I'm afraid that the spread might eat up my returns more than it should.
How often you invest doesn't matter since the spread impacts one off of the % of your total investment amount, no matter over what period it is spread out. In the above, if the $10,000 was actually $100 for the next 100 months, the effect will approximately be the same.
For completeness of information, even though buying small amounts of ETFs more often is not going to cost you more in spread, it will cost you more brokerage due to the minimum fee of brokerage.

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Re: Worry about low volume of VHVE + VFEA

Post by hushroom » Wed Jun 24, 2020 8:23 pm

glorat wrote:
Thu Apr 23, 2020 2:30 am
Suppose you have $10,000 to invest today for 20 years (still 5% CAGR) but you spend your efforts on reducing fund costs by reducing your withholding taxes. E.g. switching to a developed world fund (e.g. VDEV) with a 0.13% TER and a lower withholding tax rate (I forget how much exactly). Let's say it conservatively only saves you a tiny 0.02%. You will come out $1029 better off in 20 years time

Focus on what is 10x more important!
It's late here so my math could be off, but aren't the savings after 20 years only $101?

(10,000*1.0502^20)-(10,000*1.05^20) = 101.26

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Re: Worry about low volume of VHVE + VFEA

Post by glorat » Thu Jun 25, 2020 5:19 am

hushroom wrote:
Wed Jun 24, 2020 8:23 pm
glorat wrote:
Thu Apr 23, 2020 2:30 am
Suppose you have $10,000 to invest today for 20 years (still 5% CAGR) but you spend your efforts on reducing fund costs by reducing your withholding taxes. E.g. switching to a developed world fund (e.g. VDEV) with a 0.13% TER and a lower withholding tax rate (I forget how much exactly). Let's say it conservatively only saves you a tiny 0.02%. You will come out $1029 better off in 20 years time

Focus on what is 10x more important!
It's late here so my math could be off, but aren't the savings after 20 years only $101?

(10,000*1.0502^20)-(10,000*1.05^20) = 101.26
Well this is hugely embarrassing. I've lost my original spreadsheet but trying to reproduce it now, I think @hushroom is right and therefore my entire prior analysis would be incorrect :confused :confused :confused . Apologies to the community

That being all said, in *normal* markets where spreads are fairly tight even on things like VHVE/VFEA, the TER effect still wins. But I now conclude if you are trying to get in or out in a hurry in volatile markets, the spread will indeed have a bigger effect.

Rosales
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Re: Worry about low volume of VHVE + VFEA

Post by Rosales » Thu Jun 25, 2020 11:46 am

So VHVE (FTSE Developed) + VFEA (FTSE Emerging) with 90/10 split, works out to be costing 0.12*0.9+0.22*0.1= 0.13%
On the other hand, VWRA (FTSE All World) cost is 0.22% (0.09% more)

The first option looks more attractive, that's 90$ saved per annum assuming 100k$ portfolio. And you don't need to rebalance between VHVE and VFEA as long as you get the split right in the first place, correct?

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Re: Worry about low volume of VHVE + VFEA

Post by Fortune Seeker » Sat Jun 27, 2020 4:46 pm

If you are worried about liquidity and your broker giving you bad prices, try distributing versions of these funds:

VEVE - FTSE Developed World UCITS ETF
VDEM - FTSE Emerging Markets UCITS ETF

This share class is much more popular in these 2 funds and should have much better liquidity.

Rosales
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Re: Worry about low volume of VHVE + VFEA

Post by Rosales » Tue Jun 30, 2020 3:45 am

As of today, what would be the correct market-cap ratio between FTSE Developed and FTSE Emerging Markets?

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Schlabba
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Re: Worry about low volume of VHVE + VFEA

Post by Schlabba » Tue Jun 30, 2020 3:47 am

Rosales wrote:
Tue Jun 30, 2020 3:45 am
As of today, what would be the correct market-cap ratio between FTSE Developed and FTSE Emerging Markets?
9.80% EM. The easiest way is to look it up here:
https://investor.vanguard.com/etf/profile/VT
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tre3sori
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Re: Worry about low volume of VHVE + VFEA

Post by tre3sori » Tue Jun 30, 2020 3:53 am

Rosales wrote:
Tue Jun 30, 2020 3:45 am
As of today, what would be the correct market-cap ratio between FTSE Developed and FTSE Emerging Markets?
You can calculate it from this source:
https://research.ftserussell.com/Analyt ... 865253.pdf
Just divide the market cap weight (Net MCap) of FTSE Developed/FTSE Emerging by that of FTSE All-World.
As of March 29 it was 89.8% FTSE Developed and 10.2% FTSE Emerging.

But then: Factsheets are not updated frequently and March 29 is long ago. Probably better use Schlabbas method.
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mkps
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Re: Worry about low volume of VHVE + VFEA

Post by mkps » Tue Jun 30, 2020 10:10 am

I'm with IB at the moment since I'm from Thailand. After going here and there, I don't think it can go wrong with VWRA and lets chill !

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Re: Worry about low volume of VHVE + VFEA

Post by Rosales » Tue Jun 30, 2020 11:00 am

mkps wrote:
Tue Jun 30, 2020 10:10 am
I'm with IB at the moment since I'm from Thailand. After going here and there, I don't think it can go wrong with VWRA and lets chill !
You've decided that 0,09% TER difference between VWRA (FTSE All World) and VHVE/VFEA (FTSE Developed & Emerging) combination isn't worth the hassle? I might do the same.

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mkps
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Re: Worry about low volume of VHVE + VFEA

Post by mkps » Tue Jun 30, 2020 12:33 pm

Rosales wrote:
Tue Jun 30, 2020 11:00 am
mkps wrote:
Tue Jun 30, 2020 10:10 am
I'm with IB at the moment since I'm from Thailand. After going here and there, I don't think it can go wrong with VWRA and lets chill !
You've decided that 0,09% TER difference between VWRA (FTSE All World) and VHVE/VFEA (FTSE Developed & Emerging) combination isn't worth the hassle? I might do the same.
I feel like with the more etfs you're holding, the more commissions you will be paying over the course of time, not to mention when you have to rebalance to keep your desired AA.
In addition, with VHVE/VFEA I can't personally stop the urge of tilting towards the emerging markets - I was first planning to do 70/30 instead of the highly suggested 90/10. So to prevent myself from doing such things, I held myself together and decided to start investing monthly in VWRA. :happy

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Re: Worry about low volume of VHVE + VFEA

Post by Schlabba » Tue Jun 30, 2020 1:27 pm

Rosales wrote:
Tue Jun 30, 2020 11:00 am
mkps wrote:
Tue Jun 30, 2020 10:10 am
I'm with IB at the moment since I'm from Thailand. After going here and there, I don't think it can go wrong with VWRA and lets chill !
You've decided that 0,09% TER difference between VWRA (FTSE All World) and VHVE/VFEA (FTSE Developed & Emerging) combination isn't worth the hassle? I might do the same.
I remember that not so long ago (2019 perhaps?) the TER of the Vanguard FTSE All-World was reduced from 0.25% to 0.22%. My guess is that the TER will be lower in the future, at least closer to the point of where they are in the US today. Vanguard VT has a 0.08% expense ratio.

I currently hold the iShares Core MSCI World + Shares Core MSCI EM IMI, but I will switch to Vanguard FTSE All-World soon as well.
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