Why IWDA + EIMI...

[tradez]

... when you can simplify it with SSAC or VWRP if you want emerging markets too? Is there a noticeable difference in weighting / tilt?

Furthermore, it looks like MSCI world has consistently outperformed the others so why do more people not just scrap the emerging markets and just buy IWDA?

[DoctorE]

IWDA + EIMI: In case someone wants to play with %s to get a higher or lower 'tilt' to Emerging Markets than the World Index.
Emerging markets have been underperforming developed markets for about 10 years now.. will it remain like this in the future or will they outperform? Nobody knows...

[tre3sori]

Hi tradez,
some investors don't like the 60% market capitalization weight of the United States in global equity ETFs.
They try to reduce the country risk they perceive by overweighting emerging markets. 70% MSCI World/30% MSCI Emerging Marktes seems to be a common split. This reduces the US country weight to about 40% and almost triples the China weight from about 3.8% in MSCI ACWI to 10%.
"Suum cuique", to each his own, is an old Latin proverb. You don't have to overweight emerging markets. I don't do it either.

[tradez]

Thank you for the response. Is there a tool I can compare IWDA + EIMI with SSAC, to see exactly how the tilt/split changes?

[tre3sori]

Thank you for the response. Is there a tool I can compare IWDA + EIMI with SSAC, to see exactly how the tilt/split changes?

You could use Portfolio Visualizer and enter the US equivalent tickers for SSAC, IWDA, EIMI (actually I didn't find an US equivalent ETF for EIMI, so I just took the standard iShares MSCI Emerging Market ETF IEMG):

https://www.portfoliovisualizer.com/bac ... tion3_2=30

[tradez]

If my calculations are correct, Portfolio Visualizer shows that MSCI ACWI is the equivalent of 88/12 IWDA + EIMI?

What is the reason people don't like the split that IWDA provides? My understanding of passive investing is you simply follow the market. If you adjust the split too much you end up becoming an active investor surely...

[tubaleiter]

If you adjust the split too much you end up becoming an active investor surely...

Yes - but the kind of people who spend their free time on Bogleheads forums often have a desire to fiddle/tweak/tilt. If you just take the "true" Bogleheads advice and do 100% VWRP for 40 years, there isn't a lot to talk about!

So you do have lots of discussions amongst Bogleheads about some kind of partial divergence from a pure market cap approach. Excluding stuff they don't like (there's an ongoing thread about not wanting to invest in China, for example), adding more of stuff they do like (small cap value, home country bias), "play money" invested in individual stocks up to X% limit, and so on.

Where's the line that makes these investors start being considered "active"? Hard to say - but the unifying principle is that index investing is the starting point and they diverge from that knowingly.

For what it's worth, the whole Bogleheads idea started with an S&P 500 mutual fund - single country, large cap only, but a massive leap forward compared to previous active funds. Many of us would argue that with modern access to global markets the S&P 500 should no longer be the default, but you can apply a passive, index, buy-and-hold methodology to a lot of potential investments, not just a global index tracker.

[Laurizas]

What is the reason people don't like the split that IWDA provides?

1) US outperformance since 2009. 2) Bogle and Buffet said you do need international. 3) US is the best country with best army.

[DoctorE]

If you adjust the split too much you end up becoming an active investor surely...

Yes - but the kind of people who spend their free time on Bogleheads forums often have a desire to fiddle/tweak/tilt. If you just take the "true" Bogleheads advice and do 100% VWRP for 40 years, there isn't a lot to talk about!

So you do have lots of discussions amongst Bogleheads about some kind of partial divergence from a pure market cap approach. Excluding stuff they don't like (there's an ongoing thread about not wanting to invest in China, for example), adding more of stuff they do like (small cap value, home country bias), "play money" invested in individual stocks up to X% limit, and so on.

Where's the line that makes these investors start being considered "active"? Hard to say - but the unifying principle is that index investing is the starting point and they diverge from that knowingly.

For what it's worth, the whole Bogleheads idea started with an S&P 500 mutual fund - single country, large cap only, but a massive leap forward compared to previous active funds. Many of us would argue that with modern access to global markets the S&P 500 should no longer be the default, but you can apply a passive, index, buy-and-hold methodology to a lot of potential investments, not just a global index tracker.

Very well said but I'd like to add, that even the S&P 500 is an 'active' index. There is a committee that chooses which companies go in and out based on various criteria. It is also 'tilted' to large cap growth. So unless one holds, as you said 100% World, or 50% World 50% Aggregate bonds (whatever is the current stock/bond split of the global market portfolio) then there is a bit of 'active' going on.

[Valuethinker]

What is the reason people don't like the split that IWDA provides?

1) US outperformance since 2009. 2) Bogle and Buffet said you do need international. 3) US is the best country with best army.

(Point 3 doesn't really speak to stock market performance. The United Kingdom, militarily, did pretty well in the 20th century. UK stock market -- the most mature in 1910, probably, in the world-- didn't do that well).

I think the US-only debate is sterile and uninformative for non US based investors. Home country bias is not something we should subscribe to (our home countries or anyone else's).

There's no question in my mind that we should use global indexation - maximum stock diversification - to my mind. To bet for (or against) the US index at market weight is to take a view that assumes an exploitable market inefficiency. Something which every investor has access to information about, yet somehow enables future outperformance ie that is not incorporated into investors current expectations about markets.

(I short form this as: Ford but not BMW & Daimler & VW & Toyota? Altria but not British American Tobacco & Imperial Tobacco? Brown-Forman but not Diageo? P&G but not Nestle? Intel but not Samsung or Taiwan Semiconductor? The big difference is the US has the big internet stocks - but of course that has worked against investors in recent times).

There is a question of how much to accept foreign currency exposure. That varies by individual, country & the availability of currency hedged funds.

Generally bond funds are hedged so to the extent one holds bonds, one is making a currency bet - usually for one's home currency.

This past year, despite a bear market, my unhedged global equity funds have fallen by less than 10%, due to the weakness of sterling.

By contrast, my "safe" investments in pound sterling bond funds - UK corporate bonds, global bonds hedged into GBP - have done very poorly indeed. Double digit falls (c -16%). I had both the very poor performance of bond funds due to rising rates *and* the weakness of pound sterling.

Diversification is working but not necessarily to my advantage

[tubaleiter]

Very well said but I'd like to add, that even the S&P 500 is an 'active' index. There is a committee that chooses which companies go in and out based on various criteria. It is also 'tilted' to large cap growth. So unless one holds, as you said 100% World, or 50% World 50% Aggregate bonds (whatever is the current stock/bond split of the global market portfolio) then there is a bit of 'active' going on.

Agree - nothing is truly "passive". Every index is designed by somebody, with their criteria for inclusion. Some are more active than others - that includes the S&P, for sure. ESG is another strong example, where everybody's definition of ESG is different, so you get very different indices. But even the most passive of the indexes and their accompanying funds have some level of decisionmaking.

That said, almost any reasonable index is going to be far ahead of your typical active approach

[tradez]

If you just take the "true" Bogleheads advice and do 100% VWRP for 40 years, there isn't a lot to talk about!

I assume the tendency to go for VWRP instead of SSAC is because a) this forum loves Vanguard, and b) up until not long ago, TER was 0.6% from iShares vs 0.22% for Vanguard. Now, iShares ETF is just 0.20% with virtually identical allocation and performance.

[tubaleiter]

If you just take the "true" Bogleheads advice and do 100% VWRP for 40 years, there isn't a lot to talk about!

I assume the tendency to go for VWRP instead of SSAC is because a) this forum loves Vanguard, and b) up until not long ago, TER was 0.6% from iShares vs 0.22% for Vanguard. Now, iShares ETF is just 0.20% with virtually identical allocation and performance.

Yes, I think that's it I think the Vanguard funds also get used as a shorthand for their category - VWRP = global equity tracker. But any similar index fund (including the other flavours of VWRP for accumulation vs distribution and currency) is a reasonable substitute.

[TedSwippet]

I assume the tendency to go for VWRP instead of SSAC is because a) this forum loves Vanguard, and b) up until not long ago, TER was 0.6% from iShares vs 0.22% for Vanguard. Now, iShares ETF is just 0.20% with virtually identical allocation and performance.

SSAC gets equal billing with VWRP and IWDA in the wiki: Simple non-US portfolios . All perfectly fine choices.

Agree - nothing is truly "passive". Every index is designed by somebody, ...

I have even seen the argument put forward elsewhere that the decision to use passive investing is in and of itself "active investing". :-)

[tradez]

SO MSCI ACWI, and FTSE All-World have a 12% weighting of EM. I did some research and it appears that EM equities are closer to 13%. Do either index actively update their EM weighting? Also, is this an argument to have a 3-fund portfolio so you can weigh EM higher than the current indexes have?

[tradez]

SO MSCI ACWI, and FTSE All-World have a 12% weighting of EM. I did some research and it appears that EM equities are closer to 13%. Do either index actively update their EM weighting? Also, is this an argument to have a 3-fund portfolio so you can weigh EM higher than the current indexes have?

[tre3sori]

SO MSCI ACWI, and FTSE ALl-World have a 12% weighting of EM. I did some research and it appears that EM equities are closer to 13%. Do either indexes actively update their EM weighting? Also, is this an argument have a 3-fund portfolio so you can weight EM higher than that the current indexes have?

This is splitting hairs. 12% or 13% in Emerging Markets does not make any difference. (And of course do the MSCI ACWI or FTSE All-World indices actively update their EM weighting....to market weight) If you want to overweight EM, 70%/30% DM/EM starts to make a difference. A 3-fund portfolio is a US-centric concept. If your home country has by far the largest market in the world and the leading currency, it probably makes sense to say 40% Total US stocks/20% International stocks/40% Total US bonds. From a European perspective it would make more sense to go with say 50% MSCI ACWI or FTSE All-World/10% European stocks/40% Global Aggregate Bond if you definitively want a 3-fund Portfolio.

[tradez]

This is splitting hairs. 12% or 13% in Emerging Markets does not make any difference. (And of course do the MSCI ACWI or FTSE All-World indices actively update their EM weighting....to market weight) If you want to overweight EM, 70%/30% DM/EM starts to make a difference. A 3-fund portfolio is a US-centric concept. If your home country has by far the largest market in the world and the leading currency, it probably makes sense to say 40% Total US stocks/20% International stocks/40% Total US bonds. From a European perspective, it would make more sense to go with say 50% MSCI ACWI or FTSE All-World/10% European stocks/40% Global Aggregate Bond if you definitively want a 3-fund Portfolio.

I think just a two-fund portfolio of 80% MSCI ACWI and 20% Global Aggregate Bonds will make my life a lot easier, and give me less to deliberate over with overweight/underweight EM... Although Smart Investing by Tim Hale does recommend 10% REIT too.

[jg12345]

This is splitting hairs. 12% or 13% in Emerging Markets does not make any difference. (And of course do the MSCI ACWI or FTSE All-World indices actively update their EM weighting....to market weight) If you want to overweight EM, 70%/30% DM/EM starts to make a difference. A 3-fund portfolio is a US-centric concept. If your home country has by far the largest market in the world and the leading currency, it probably makes sense to say 40% Total US stocks/20% International stocks/40% Total US bonds. From a European perspective, it would make more sense to go with say 50% MSCI ACWI or FTSE All-World/10% European stocks/40% Global Aggregate Bond if you definitively want a 3-fund Portfolio.

I think just a two-fund portfolio of 80% MSCI ACWI and 20% Global Aggregate Bonds will make my life a lot easier, and give me less to deliberate over with overweight/underweight EM... Although Smart Investing by Tim Hale does recommend 10% REIT too.

Some people do Vanguard developed markets (TER 0.12) + vanguard emerging markets (ter 0.22) to save vs the TER of Vanguard ftse all world 0.22
For IWDA + EIMI vs SSAC I see no reason as the TER saving argument doesn't hold (TERs are 0.2 for IWDA, SSAC and 0.18 for EIMI)

However: EIMI is large, medium and small caps
while SSAC is only large and medium

so another reason is that some might prefer the little EM small caps in EIMI

I personally have Vanguard FTSE all world

[tre3sori]

This is splitting hairs. 12% or 13% in Emerging Markets does not make any difference. (And of course do the MSCI ACWI or FTSE All-World indices actively update their EM weighting....to market weight) If you want to overweight EM, 70%/30% DM/EM starts to make a difference. A 3-fund portfolio is a US-centric concept. If your home country has by far the largest market in the world and the leading currency, it probably makes sense to say 40% Total US stocks/20% International stocks/40% Total US bonds. From a European perspective, it would make more sense to go with say 50% MSCI ACWI or FTSE All-World/10% European stocks/40% Global Aggregate Bond if you definitively want a 3-fund Portfolio.

I think just a two-fund portfolio of 80% MSCI ACWI and 20% Global Aggregate Bonds will make my life a lot easier, and give me less to deliberate over with overweight/underweight EM... Although Smart Investing by Tim Hale does recommend 10% REIT too.

Some people do Vanguard developed markets (TER 0.12) + vanguard emerging markets (ter 0.22) to save vs the TER of Vanguard ftse all world 0.22
For IWDA + EIMI vs SSAC I see no reason as the TER saving argument doesn't hold (TERs are 0.2 for IWDA, SSAC and 0.18 for EIMI)

However: EIMI is large, medium and small caps
while SSAC is only large and medium

so another reason is that some might prefer the little EM small caps in EIMI

I personally have Vanguard FTSE all world

Yes of course, many reasons to use alternatives to Vanguard FTSE All-World (my only equity fund as well ) or iShares MSCI ACWI. My point was more about what would the European interpretation of a US 3-Fund portfolio look like. It would introduce a home bias to market cap weighted all country equity exposure. There could be a case to be made for a little home bias (10%-20%) to say STOXX Europe 600 or EURO STOXX trackers: lower P/E, higher dividend yield, lower currency risk ...