I meant creating a long-term growth (accumulating) portfolio similarly to the boglehead’s three-fund, gone fishin’, lazy portfolios
Long story short, my original portfolio at the top of this thread, tries to replicate-ish the three-fund portfolio in the most efficient way.
I have tried to put something together to replicate the 3-fund portfolio by using ETFs that are available in the UK and Europe.
Please take this as an attempt to provide similar cover (with some additional options) for the three-fund portfolio. By all means, this is not a fully comprehensive analysis but more of a prompt for a conversation about how we could achieve something similar in the most effective way, always keeping an eye on simplicity and low cost. The aim is to create a portfolio that could generate good returns with “acceptable” volatility and minimal maintenance.
Moreover, I have used justetf.com as the primary screener for finding suitable ETFs.
There are three sections, one for each fund of the three-fund portfolio. Each one of the three sections comes with two replication options.
Please let me know your thoughts and ideas about how you would build this type of portfolio and which ETFs you would suggest to use.
As I often say, I am here to help as much as to learn!
1) Vanguard Total Stock Market Index Fund (VTSAX) - U.S. equities, including small, mid and large cap growth and value stocks.
Replication option 1
Vanguard S&P 500 UCITS ETF (USD) Accumulating (VUAG) – this ETF tracks the 500 largest US stocks. However, unlike the VTSAX, it does not include small-cap stocks. Hence, the addition of the ETF below.
Invesco S&P SmallCap 600 UCITS ETF A – this ETF tracks 600 small cap US stocks.
OR
Invesco Russell 2000 UCITS ETF Acc – this ETF tracks 2000 companies from the US small cap stocks.
Replication option 2
SPDR S&P 500 UCITS ETF - this ETF tracks the 500 largest US stocks. However, unlike the VTSAX, it does not include small-cap stocks. Hence, the addition of the ETF below.
iShares MSCI World Small Cap UCITS ETF – this ETF tracks small sized companies in developed equity markets globally.
2) Vanguard Total International Stock Index Fund (VTIAX) - Exposure to developed and emerging markets Ex U.S.
Replication option 1
SPDR MSCI ACWI UCITS (ACWI) – this ETF tracks large and mid-cap stocks from 23 developed markets and 24 emerging markets worldwide.
Replication option 2
Xtrackers MSCI World ex USA UCITS ETF 1C – this ETF tracks large and mid-cap stocks from developed markets worldwide.
Vanguard FTSE Emerging Markets UCITS ETF Acc – this ETF tracks stocks from emerging markets worldwide.
3) Vanguard Total Bond Market Fund (VBTLX) - U.S. investment-grade bonds (somebody might want broad exposure)
Replication option 1
iShares US Aggregate Bond UCITS ETF (Acc) – this ETF tracks USD denominated fixed rate bonds including Treasuries, government-related, securitised and corporate securities. Rating: Investment Grade.
Replication option 2
Amundi Global Aggregate Bond UCITS ETF DR (C) – this ETF tracks bonds issued in emerging and developed markets worldwide. Rating: Investment Grade.
Interesting read on the subject.
/https://www.spglobal.com/spdji/en/documents/education/education-index-construction-matters-the-sp-smallcap-600.pdf
That is interesting. I’ve never looked into the differences between the indices that closely before. It could well be a better option.
I just don’t think small-caps will make that much difference in the long-term.
Where I think smallcaps can really shine is outside the US where markets are less efficient and there’s more scope for active management to outperform.
I used to have small-cap exposure alongside things like emerging markets and private equity which you could similarly argue should outperform long-term.
But I questioned what they’re really adding and, on balance with the risks, it wasn’t a lot.
There’s also an opportunity cost to the extra complexity. I can now ‘set and forget’ my one equity ETF and never have to intervene.
Ultimately, if your goal is to try to better the returns of say the S&P or MSCI World – I’m not convinced that adding more passive equity ETFs is the best answer.
I mentioned Sharpe Ratio as simple analysis ratio, as it’s easy to calculate and there are lot of information on that for each fund and ETF in financial sites (e.g. Morningstar).
But as you said, it isn’t the best performance ratio, that why I don’t appreciate it. For the reasons you mentioned, the sharpe ratio don’t distinguish between good and bad volatility, for that I prefer the Sortino Ratio that measures the bad volatility (that why I mention it earlier).
Please see below a quick simulation for a couple of portfolios trying to replicate the Boglehead’s Three-Fund Portfolio.
As you all probably know, it might be rather challenging to fully replicate this portfolio since it was originally created to use Vanguard funds trading in USD for US investors.
I have tried to find suitable ETFs that provide similar allocations and distributions whilst ensuring they are traded on the LSE in GBP for UK investors.
Note1: I have been struggling to find decent Bond ETFs, so what I have posted here in relation to bonds is still WIP.
Note2: all ETFs are available on the LSE and are traded in GBP
Option 1 (no small-cap stocks)
Vanguard FTSE Developed World UCITS - TER 0.12% (no additional management fees)
Vanguard FTSE Emerging Markets UCITS - TER 0.22% (no additional management fees)
Vanguard Global Aggregate Bond UCITS GBP Hedged - TER 0.10% (no additional management fees) can be replaced, see option list below.
Option 2 (with small-cap stocks)
Vanguard FTSE Developed World UCITS - TER 0.12% (no additional management fees)
Vanguard FTSE Emerging Markets UCITS - TER 0.22% (no additional management fees)
Vanguard Global Aggregate Bond UCITS GBP Hedged - TER 0.10% (no additional management fees) can be replaced, see option list below.
iShares MSCI World Small Cap UCITS - TER 0.35% (no additional management fees)
Other Bond options (all Accumulating and up to 0.15% TER)
Vanguard ESG Global Corporate Bond UCITS ETF GBP Hedged
iShares Global Aggregate Bond ESG UCITS GBP Hedged
Amundi Global Corporate SRI 1-5Y UCITS DR Hedged GBP
JPMorgan EUR Corporate Bond Research Enhanced Index (ESG) UCITS ETF GBP Hedged
iShares UK Gilts 0-5yr UCITS ETF
On a slightly different note, I would like to consider the geographic allocation of the Vanguard FTSE Developed World UCITS. This ETF is heavily tilted to the US (around 66%). I know that two ETFs would add management complexity; however, they would allow to achieve a different split more tilted toward ROW. What is your opinion about this option, considering all the pros and cons of splitting world with 2 ETFs instead of one?
The main challenge about this potential option lies on being able to find an Ex-US ETF traded on the LSE in GBP.
Although the Xtrackers MSCI World ex USA UCITS is available on the LSE, it is only traded in USD.
Thoughts are welcome, as usual!
Thanks
I’ve tried to quickly backtest Option 1 and 2 on curvo.eu, making a few assumptions:
And Option 2 beats Option 1, but Vanguard FTSE Developed World UCITS consistently spanks both them 
. Have you tried back testing already? Any thoughts about allocation of the ETFs within the 2 portfolios?
Yes, I have. However, I tend not to rely too much on backtesting as it is based on hystorical data and we all know that the future might be very different.
That said, I still use it to get a feel for the portfolio in comparison to others (whether it is right or wrong).
Ultimately, I tend to look at what “could” be a decent strategy for the furture in terms of geographic and market allocations (i.e., US, Europe, large-cap, small-cap, etc.), and then I try to create something that strikes a decent balance whilst remaining cost effective and relatively easy to manage.
Regarding the weighting of these two portfolios, it really depends on everybody’s strategy, as in risk appetite and time horizon. Bear in mind that despite different views, you could adjust the weighting of your portfolio as the time horizon gets closer to the end, or as you enter a different situation. For example, the portfolio could be equity tilted and then shift all the way to bond tilted.
I only possess 3 ETFs as the Core and Satellite Strategy but 2 of them I need to add more to over the next few years.
VAPX is 11% whilst ISJP (Japanese Small Cap) and PSRF (US 1000 companies based on Value) are around 5%.
@Venetia1993, could you please elaborate on what you are trying to achieve, so we might be able to help?
I apologize for being naïve, but I’m not clear what the objective is here. Is it to find a once and forever portfolio which can be left for a lifetime?
Well, you might want to say that we are looking for a long-term solution that could be used to build your retirement pot.
I’m wondering, why the emphasis and time/effort on finding low fees and diversity? That might save fractions of a %.
For me it would be more profitable to spend the time finding sectors which are doing well over relevant time periods.
Assuming you can predict the future (I am only joking 
), and find sectors that perform well in the future. What would be your recommended portfolio?
You’re predicting the future what, 20, 30, 40 years until you retire?!
If you really want to forget all about your savings, or just pay in £X a month, then traditionally XLK (tech) would give best returns.
If you’re going to look at it at all, then I would say it all depends how frequently.
What I do is look at the screeners at the big fund holding co’s (AJ Bell, ii, Fidelity etc) to see which fund or sector has been doing best over the previous week, 3/6/12 months. Make a table in a diary. T212 is fine for some things, except there’s no screener.
Going back a year or so that has been India, running at 55% pa. I use that, but keep looking. Other sectors come to the fore, but some very briefly. There have been, usably, the tech sector, semis, Japan, small cap US, Utilities, and real Estate, in about that order. India has dropped to around 45%, whereas say the better Real Estate fund/ETFs have been getting me 3% a week. There are always corporate binds, with one I use at 25%pa, pretty steadily. Oh yes and the SPY 500, but there is almost always something better over a period of a month or so.
I used KWEB (China) for a while but it didn’t stay long enough. The others have been OK though.
If something goes too flat I sell it. It takes a few days to “settle” in a fund holder, but when it does it’s quick to jump into something on the rise with the freed-up cash. I assess how long something has been doing well, and what the catalyst is, such as the 0.5% rate drop.
Not everything is on every platform, but there’s usually something on T212. (Not a great India ETF/P, or range of shares, sadly, but look at ICICI bank).
I have used NVD3 for a few weeks when it’s been imitating a mountain goats, but those need watching .
A monthly adjustment, with a couple of mid month extra sells, would have got me 70+% this year without anything leveraged.
If I have sold a couple mid month if they’ve finished a good rise, it gives more time to look around.
I bought some SABRA at start of month, now up 10%. If I sold it now, well 10% in a month is OK. It’s on T212, so that one’s quick.
I tend to keep checking, so eg, another swingable R.E. related one is NAIL That’s only available on T212 on CFD though, which costs too much to keep overnight.
At the moment I have a mix of mostly India, Real Estate, and Utilities because they’re currently beating India.
Everything is on the phone of course, so for me the idea of leaving and forgetting is arcane.