3

I am 29 at the moment at looking to start investing as much as I can and build a long term portfolio (aiming at around 2000 USD/month). Since I am based in the EU, I have no access to US based ETF funds. Which means that I mostly have to do with whats traded on the LSE ETF exchange and located in the EU. That being said, I feel that at this age I can allocate almost exclusively to Equity and keep it that way for a few years. After a bit of research and playing with the Ishares Core Builder tool, I have came up with the following portfolio to start with.

  • EU Equity (iShares Core EURO STOXX 50 UCITS ETF EUR, CSSX5E) - 30%

  • US Equity (iShares Core S&P 500 UCITS ETF USD , CSPX) - 45%

  • Japan Equity (iShares Core MSCI Japan IMI UCITS ETF USD, SJPA) - 15%

  • Asia - Pacific (iShares Core MSCI Pacific ex-Japan UCITS ETF USD, CSPXJ) - 5%

  • Emerging Markets (iShares Core MSCI EM IMI UCITS ETF USD, EIMI) - 5%

I wonder if I can get some advice on the chosen funds as a basis for a diversified equity only portfolio. Any kind of feedback would be much appreaciated

UPDATE:

So after a bit of reading and taking your points, I altered my allocation to look like:

  • S&P 500 - 20%,
  • S&P Mid Cap 400 - 15%,
  • S&P SmallCap 600 - 15%,
  • FTSE Developed All Cap ex US Index - 30%,
  • MSCI Emerging Markets Investable Market Index - 10%,
  • Bloomberg Barclays US Aggregate Bond Index - 10%

I think this should give me a pretty good diversification across most sectors. Maybe you have some remarks? What I wonder about however is the fact that I am unable to find a EU domiciled ETF that aims to track the FTSE Developed All Cap ex US Index... There is one that tracks FTSE Developed but that includes the USA. And since I already have significant exposure to US Stock, it does not work quite well. Also, its interesting to see that the expnse ratios of EU domiciled Ishares ETFS is quite higher than for their equivalents in the US. Is that something that should bother me much ? For example iShares S&P SmallCap 600 UCITS ETF, ER is 0.4 %.

  • 2
    You've got no bonds in your portfolio. Contrary to what you might think, your portfolio's overall returns can be enhanced by including some fixed income instruments, and not because bonds have a better return than equities. See this question for why holding some fixed income investments can be advantageous, and this question for why a cash position may also be worthwhile. – Chris W. Rea Apr 9 at 17:08
3

I'm in a similiar situation (age, available funds, location) and while I'm also doing a 100% equity asset allocation, the first thing I would like to point out is: Your biggest decision is already done, if you decided for 100% stocks. The asset allocation is the main factor determining your short & long term gains, so you really have to find out first how much risk you are able to and willing to take. For a lot of people, this is to risky.

Regarding your funds choice, it certainly isn't "wrong" in terms of diversifaction, but I would also say you are making some implicit choices here and I'm not quite sure, you are aware of them. For example, your EM portion is really low, compared to what most others would choose to put into EM. Your portfolio is therefor quite heavily weighted towards the industrialized world. Also your EU and US funds lack Small Caps and you have a slight home bias (EU portion of your portfolio to large in comparison to it's global market cap). Another choice I would feel most people wouldn't make.

I hope I'm not coming across as judgemental, but I'm not really seeing that you have a well thought out strategy here. If I would have to give an advice to you, I would say either invest a lot more time into finding out what choices are implied when you choose one fund over the other, or when you weight one region of the world over another, or if you don't want to invest so much time just buy:

70% MSCI World or FTSE Developed
30% MSCI Emerging Markets or FTSE Emerging Markets

or as pointed out in the comments by @wide.writing.immediately, an even simpler one-ETF strategy (wich doesn't give extra weight to EM, as the above solution does):

100% MSCI ACWI or FTSE All World

... and call it a day. :-)


Regarding US funds: Most likely it would be possible for you to buy US based funds, if you find the right broker, but it is definitely more costly in terms of transaction costs and also may have tax implications (those implications are for most european countries in terms of tax complexity and not in terms of higher taxes though), also a lot of Vanguard funds recently got available in Europe, in particular the FTSE ones are an alternative to the iShares MSCI funds.

  • Regarding the Emerging Markets allocation: I'd argue 30% (38% if you use MSCI world, which already includes EM) is too high. The "neutral" amount is currently 10%-12%, depending on the index. That's the percentage of money invested in public companies worldwide that is invested in emerging market companies. So I'd change your allocation to "100% MSCI World and call it a day" : ) – wide.writing.immediately Apr 9 at 16:17
  • 1
    @wide.writing.immediately I think, your are talking about the MSCI ACWI (which consists of MSCI World and MSCSI EM). The MSCI World definitely doesn't contain any EM as far as I know. Nonetheless you are right, that doing 100% MSCI ACWI (or FTSE All World) is an even simpler strategy, than what I proposed. And of course you are also right, that 30% EM is higher than the "neutral" distribution and that I should have pointed out, that this is an active choice to be made by the investor and that diffferent people will come to different conclusions on this matter. :-) – s1lv3r Apr 9 at 16:41
  • 1
    You're correct, I was thinking of the MSCI ACWI. FTSE also has the FTSE Global All Cap Index, which is followed by Vanguard's VT (etf) and VTWSX (mutual fund). – wide.writing.immediately Apr 9 at 17:06
  • @s1lv3r, thanks a lot for your insights. You certainly do not come as judgemental. I did a bit more research but still hitting some walls. Its pretty inconvinient that most of the interesting material out there gives as examples etfs that are not available to EU retail investors... – Zahari Apr 14 at 12:04
  • @Zahari I think most people in Europe (or atleast most people I happen to know) use justetf.com to research for ETFs. They have 1355 ETFs in their database at the moment ... that has always been enough of a choice for me. :-) – s1lv3r Apr 15 at 10:30

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.