However, Iām not sure it really applies as my portfolio is geographically balanced at near-real world percentages via other funds
Could you not sell those funds and replace them with a global index ETF, like MSCI ACWI or FTSE All-World? Or are there tax implications?
One, it gives me more control. Say I thought the US was going to go through a Japan-style period, I could easily underweight it.
The key phrase here is Say I thought. If you are wrong, you will under-perform. Why not follow the global market wherever it goes, as country allocation weights shift in a global index?
And two, I think active can more easily beat the index outside of US markets and this has been borne out by my experience.
Search for the SPIVA report which is a report that shows how active funds perform relative to simple indices. Spoiler: Most underperform and the number increases with the amount of years.
If professional managers fail to beat the market, what makes you think you can do it?
One ETF in my Isa (SWLD) and one in my Sipp (VEVE) which form the majority of each account.
I agree with you in many ways @HuskyDogg. I like a core-satellite approach as it allows me to simply track the market cheaply with a big chunk of my portfolio.
With the rest, I do try to eek out some outperformance. I suppose I donāt want to 100% settle for average returns.
After all, even if most donāt, some active managers do beat the market.
Rather than pick stocks myself, I figure I have a better chance of trying to identify good management which specialises in a given area, eg NAVF and Japanese value.
Thereās only a few 100 trusts, so Iām looking in a much smaller haystack.
I have had a lot of luck along the way. Thereās also been an opportunity cost in terms of all the learning, research and thinking Iāve put into it.
I could underperform but I am hopeful it will pay off long term.
And even if it doesnāt, at least itās a calculated risk with the potential damage limited to a certain proportion of my portfolio that Iām comfortable with.
Interesting.
I didnāt realise that the UK government bonds had significantly higher yields than italian bonds (4.2% vs 3.6%).
Iām assuming that is based on the same bond duration.
Is there a particular platform/method to track economies and sectors? I am asking this because I am building a model to help me do exactly that and I would welcome any sort of insights.
Hey, tracking global market shifts for ETF portfolio allocation sounds like a smart move! Building a model to stay on top of economies and sectors could really give you an edge. You might find some helpful insights on platforms that specialize in financial analysis.
I am looking to potentially rebalance an ETF portfolio by adding a Europe-focused ETF to the lot.
The chart below shows the original 3-ETF portfolio compared against two revised 4-ETF portfolios.
The main difference between the two 4-ETF portfolios is that one used the Vanguard VUAG and the other one the iShares SMEA.
Moreover, I am very on the fence about introducing bond ETFs since I am not convinced (I am still thoroughly researching) that they still offer the balance and potential shield they used to inside an ETF portfolio.
Any thoughts?
Rather than adding another equity ETF and move further away from your principle of simplicity, perhaps you could swap out the S&P for a developed world index? That would give you the European exposure you want, plus a bit more diversity, while still being 2/3rds S&P500 anyway.
As for the bonds - why do you want them? If youāre trying to build a life-strategy style pie, fair enough - but you could just keep some of your holdings as ācashā if all you are looking for is something less volatile than stocks - 5.2% is pretty good.
I will start from the end. I am not a fan of Bonds because of their overall performance. Looking at historical performance, I think I should be able to match/better (their performance) just by allocating the same amount as uninvested cash on T212.
According to financial-planning.com, bonds returned an average of 1.6% a year over 10 years starting in 2012. Moreover, the top-performing bonds never match the 5.2% available on T211 for uninvested cash. So, I agree with you about considering this option instead of using bond ETFs.
Regarding a potential Europe or world-focused ETF, I would like to keep my core with the S&P 500, and I am wondering if it would add any value to introduce something like VUAG or VEUR.
I was also considering swapping my India-focused ETF with an Asia-Pacific ETF, including India. However, I noticed that the India-focused ETF (e.g., FRIN) considerably outperforms the other ones. Obviously, being focused on one country only exposes the portfolio to more volatility, and for this reason, I am trying to understand if I am happy with this risk considering Indiaās growth trajectory.
The other option would be to add an Asia-Pacific ETF excluding India.
At this point, it would be necessary to consider whether to go for an ex-China or including China.
In a nutshell, I am happy with my current 3-ETFs portfolio, and I think I am definitely rebalancing it by adding uninvested cash at 5.2%
Now, I need to understand whether I want to add a couple of ETFs, one Europe-focused and one Asia-Pacific-focused.
I will run some simulations and get back here with more details!
I think your plan sounds reasonable, but there are a couple of things you said that sound incorrect to me. (Note I am neither qualified to advise nor experienced in investing - hopefully someone will correct me if Iām telling you bad things!)
āLooking at historical performance, I think I should be able to match/better (their performance) just by allocating the same amount as uninvested cash on T212.ā ā¦ I, too, am dividing all my holdings between cash and equity atm, but not because I expect cash to outperform bonds (it probably wont), simply because it very safe and much easier to predict future value than any tradable instrument. Bonds (individual or funds) should do better than cash over long time frames - in fact, if they werenāt significantly better, nobody would buy them and they wouldnāt exist.
ābonds returned an average of 1.6% a year over 10 years starting in 2012ā ā¦ 10 years is just about one āeconomic cycleā - bonds (and cash) have performed unusually poorly relative to equity (or housing) over the last 10 years - the 10 years before and the 10 years following wont play out the same. 212trading have only been offering 5.2% for a few months - for most of the 10 years during which the bonds averaged 1.6%, the very best cash savings rates were around 1%. (This is only from memory, not research!)
The likelihood is that bonds will beat cash but underperform against equity. They also lie in between cash and equity in terms of riskiness. They also have one significant additional benefit: their performance is only weakly correlated with that of equity, and diversity of asset classes in a portfolio should reduce volatility when āsomething happensā in the markets. As I say, I donāt have any bonds or bond funds. I hope to retire in 20 years, so will probably start selling equity and buying bonds in about 10 years time - at that point in life the reduction in risk and volatility is going to be more valuable to me than future growth potential.
@tom1 I tend to agree with you; and I was not saying that cash would outperform bonds. However, looking at the current conditions on T212 cash would perform like a bond with 5.2% return (which is not too bad) and also gives you that extra predictability. Should T212 revise down their rates, then you can move that cash into bond ETFs.
I am in the phase where I am trying to grow my pot as much as possible, and same as you I might rebalance in future with less volatile products.
Below you can see a quick comparison of three different portfolios. The performance is very similar with different levels of differentiation.
You already know āsimpler is betterā but seem determined to complicate things anyway - I am exactly the same! A simple portfolio might be a single global index tracker and nothing else. That will probably beat whatever alternative I come up with, but I canāt help myself. Personally, I have a āboringā pie, which is where most of my regular investments go, and a couple of āI know betterā, stupidly complex pies. If they pay off (ie. if I get lucky), I will have (just) beaten the market overall, and if they do terribly, I will have performed almost as well as the market overall.
I would like to keep my core with the S&P 500, and I am wondering if it would add any value to introduce something like VUAG or VEUR. VUAG is S&P500, isnāt it? So nothing added if your core is already that. VEUR would certainly be more diverse. But you would get a very similar exposure by just swapping the S&P500 for an all world index. That could be your ācoreā, making up the vast majority of your holdings, and you can tilt towards particular markets you like with smaller, focussed ETFs. For example, if you have a global index as your core, you already have about 65% exposure to S&P500. If thatās not enough for you, add VUAG as as tilt. Doing it this way means youāre not missing out on any markets, but still leaning towards the markets you favour, and you will have a more diversified (and probably cheaper) portfolio, and you will achieve this with far fewer instruments to keep track of.
Just want to say that this is a great thread, very informative, especially for relative beginners. I have learned a lot here. So, thanks to everyone contributing.
You are more than welcome, and you are right that all the contributors here are adding great value to the quality of the thread. Stay tuned because I am planning to post a brief analysis about bond etfs against uninvested cash on T212
