ETF Index Pie Advice

Hi All,

I’m looking for a bit of advice in the weighting’s of a pie I intend to be my main long term hold.

I’m fine with reviewing the ETFs content and fees and comparing etc.

I’m more after some thoughts in how to weight the pie, in terms of opinions on how much to weight towards Europe, Asia, USA etc.

Any thoughts or articles etc would be greatly appreciated.

Obviously there is no right answer. One possibility would be to take world weighting as a model. See Vanguard VWRL.

But if you had had a higher weight in US you would have done better last year. It you had higher weight in emerging markets you would have done better this year to date.

My portfolio presently has this

It is overweight in US and UK. I have recently been buying emerging market ETFs, but am not too worried that my regional weights don’t match the world ones in VWRL. I think @Finki once made the interesting point that ETFs in non US regions behave sort of like bonds - long term reliable, but nothing too exciting. I have found that. My VERX and VJPN are fine, up 50% over 7 years, but not doing as good as my Apple stock.

If ETFs are your way of investing you could just buy a world fund like VWRL, SWDA or SUWS. I have many individual US stocks, but cover all other regions with ETFs and managed funds like Fundsmith (cost 0.95%). The overall costs for my portfolio average out at around 0.20% pa. I use ISF, VUKE, VERX, VJPN, VAPX, VFEM, EUE, EMIM, SUWS, and have recently chosen some small positions in ESG funds like EEDM.

People have tendancy to prefer their home market because the stocks are names they know. The popular Vanguard Lifestrategy 100% is around 20% UK, whereas UK is really only about 5% of world market. It is more tax efficient to own US stocks directly than in an ETF like VUSA because of the unavoidable double taxation of dividends that applies to ETF ownership. I have more invested in each of MSFT, PG, AAPL, JNJ than I do in Japan plus Asia ETFs.


As @Richard.W eluded to, nothing seems to match the performance of US equities. But I like a bit of exposure to other markets to reduce my risk. I also have some ISF holdings which puts me significantly overweight in the UK but the recovery has been slower so will keep increasing and then gradually reduce as it recovers.

This is how I currently have my global pie:


What is the weighting of the stocks/ETFs you already own?

I would start with that, see what you are overweight in and go from there.

Also, if you have any thoughts then incorporate them. I personally consider the USA market to be overvalued and as such I am very heavily weighted towards Europe. Emerging markets I think that I am slightly underweight compared to VWRL and in Japan I am very underweight. I might consider buying a Japanese or even Korean ETF to compensate.

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Just buy VWRP and then invest and forget.


Thanks for the detailed reply Richard. I think using VWRL is a good basis. At present I’m leaning towards weighting around 70% to the US as for the best part of a hundred years the index has averaged annual returns of around 9.6%. Whilst considering that the averaged factors in various crashes, I would say that history says to put your money there.

I’ve read a lot of the seasoned pros such as Lynch and Buffet etc advising the above. Buffet even challenged funds ran by “professionals” to beat the S&P500 over 5 years, the fund that took the challenge lost and had to donate a million to a charity of Buffets choice. From 1970 a study was done to compare the index with funds, only 11 out of over 350 funds beat the index. And the funds are naturally people who have a lot more time on there hands than me to pick stocks.

Good points on the dividends getting double taxed! I hadn’t considered this at all.

I’ll still have my individual stocks that I’m comfortable with, but over the next few years these will probably only represent a small portion of my portfolio. At the moment it’s pretty easy to pick stocks and I think a lot of people are probably over confident right now in this, but I’m going to plan for the next 30 years or so (all being well obviously).

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I’m currently really over weight in certain markets, but I’m only about 6-7 months in so I’m not overly concerned in the long run.

You’re right on the US equites being over valued at present, but in the long run I think this is place to be. When I say the place to be in, I mean in companies with actual businesses and revenues opposed to just ideas and a nice investment presentation.

I think I’ll probably stay simple in the US with the S&P500 and an ESG version of it also.

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Is there also any value in bonds in a long term portfolio? I’m ignorant on this subject at the mo.

It’s the next few chapters in my current read, which I’m sure will be riveting.

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Yep definitely, just not developed markets bonds. The way to go is emerging market debt (5% Yield and very attractive returns)

EMLC as an example

Can you recommend anything for a read?

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Cheers mate, I’ll stick it on my reading list

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@Jobloggs, I would say that it depends on what your objective is.

If your objective is to use bonds as a way of appreciating your portfolio, then the greatest risk bonds are the ones with the greatest yields and premiums/coupons, such as emerging market bonds and “high yield”/“junk bonds”.

If what you want is something that will act as a bit of a hedge if there is a big crash in the market then government bonds from strong countries such as the USA or Germany can do that. If you look at the March crash, pretty much everything crashed except government bonds from strong and stable countries, which actually rose.

I am not an expert in bonds, I just know the very basics.
I’d actually like to do some reading myself to understand how existing bonds are affected by increasing interest rates and how much the impact is. My guess is that existing bonds at a low interest rate (current) would be worth less, as investors would ratherinvest in new bonds at the higher interest rate. If that is the case that could be a risk for bonds. But then equity is quite expensive considering the possible medium term impact of the pandemic on the economy (particularly US large cap technology and growth), so not necessarily a positive for equity either.

If you find a good book or detailed source please let me know, I would like to learn more about them :smile: .

If you are interested in bonds you should also look at Wisealpha. They offer fractional corporate bonds. I don’t want to spam the T212 community with 3rd party services so if you want to PM me I can give you more info.

It is just another layer of diversification of your overall wealth.

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In the end I went really simple, I don’t think a lot of people will agree with me in fairness, but here it is.

80% VUSA
10% VFEM
10% FCSS

My rationale for this is that I have time on my side and over long periods of time the S&P500 has proven to be a consistent winner.

When I say long I’m talking 30-35 years, which is my intention.

Here’s an extract to explain my thinking.

I also want some exposure to Emerging Markets abs specially China as when I was looking at global GDP share the aforementioned were on the up over the next few years. Of course a forecast is fiction so we’ll see how that goes. It was hard for me even to put in FCSS and VFEM.

Thanks for all your reply’s though! Very helpful.

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Missed this thread but reckon you have made a good choice. What made you choose VFEM particularly? I only ask as I am considering an emerging markets ETF so curious to know ideas, I like that it still has good China holding too.

I reckon the 80-20% is a solid split between US and emerging/China markets. For my long term (like you sorta 30+ years I do feel I need a bit more on China so I would probably settle more on like a 70-30% split, BUT shot term I am sure US will outperform and be more table, China equities more risky but unless you feel China will fail as a country/economy then their equities markets will keep maturing. Without sounding cliche I see it like Buffet investing in lots of the US boom years decades ago, I feel China is our generations boom market but I completely appreciate I have experience of China and chinese culture so feel more at ease putting more weighting there than many others hence your 80-20 i think already will outperform 90% of people over 30 years. Just dont worry if short term dips with China/EM.

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I picked VFEM for a couple of reasons, it still has a high exposure to China, Brazil, South Africa and India. Taiwan semis isn’t available in the ISA, but there such a strong chip maker so it gives me a decent exposure to them.

The fee is only 0.22% with a 1.81% dividend. The PE ratios are high, but low compared to US equities at 18 odd.

It would also weight my exposure to China at around 14.4% which seems sensible right now.

VFEM is also pretty well diversified over sectors as well.

Here’s the link for more detail.

Nice its on my watchlist as I read a bit more and work out my desired weighting for it. With that in mind, any free website/calculators to input holdings of ETFs and it gives you overall holdings as there is inevitably some crossover between ETFs so I want to compared this ideally not manually.

I personally don’t know of anything but it would be really handy.

It’s a bit off topic but, for emerging markets, I think it’s worth considering an active approach through an investment trust rather than going the passive route with ETFs. Inefficiencies in emerging markets and small caps make active management a much more attractive proposition. As an example, JMG has a five-year return of about 200% versus 100%ish for VFEM. I imagine TEM has similarly outperformed too. Just my two 2p worth though!