Boglehead/Vanguard way to retire.

Thanks for your input guys its much appreciated. I want to avoid the LICs and keep to a simple 3 ETF portfolio. (not a fan of the LICs due to there human/management factor).

As pasted from from Betashares, a comparison of EX20 to ASX200.




Performance comparison to date.



In regards to my original question i was seeking opinion directed more to the general characteristic difference from removing the top 20. How would this affect volatility/growth/dividends/risk etc? (generally speaking, crystal balls aside)

 

Could make sense coming up.

Have a look at how many financials in the top 20. AMP, ANZ, CBA, MQG, NAB, SUN, WBC at least. Then there are insurance companies: IAG, QBE, SUN and resources: BHP, RIO, WPL. It means you have a lot of exposure to these sectors. For example, if there are issues in the finance sector, what will happen to your ETF? An ETF with holdings in the top 20 would be great to pick up after a crash.

 

Ex-20 cap weighted ETF, no thanks. Way to much rubbish especially resource stocks and AReits.

As per SPIVA research:

Accept the fact that given the amount of rubbish outside the large cap sector in Australia, active management might be a necessary evil. Yes I know it's a scary thought that a human might be involved in the decision making process.

In terms of Boglehead investing like a lot of investing literature out of the US there's a popular saying "beware the well meaning American". Don't just take everything you read as gospel. Think about it then adapt it to suit OUR market, not the US.

Each to their own.

Not advice.

 

If you feel the need for a top 20 ETF there's this one that has been around for a few years:
https://www.blackrock.com/au/indivi...ares-s-p-asx-20-etf-fund-fact-sheet-en-au.pdf

 

I don't really have an issue with the reits, but am not a fan of mining companies wether big cap or small.

what I really want is an all au ETF minus the big 4 and miners.

 

Just need a crash and some cash

 

A recent interview with Bogle. He certainly hasn't changed his view on Smart Beta index funds:

 

Good read Austing, thanks.

I have been doing a little smart beta reading lately, haven't found anything too exciting.

 

Bogle also recently restated his bias against emerging markets and non-U.S. assets, saying, “I wouldn’t invest outside the U.S,” primarily because of currency costs.

He's always had a home-country bias, Warren Buffett also says to bet on the USA

Bogle: Vanguard Proves Smart Beta Does Work After All

Strong words by Jack

Rob Arnott has a good document worth reading here on moving beyond cap weighted indices

 

Yes I've been doing quite a bit of reading on it myself. There's still nothing I've read yet that can entice me to take the leap into investing in Smart Beta. Maybe I'm just boring and old fashioned.

In fact there so much of this Smart Beta product coming to market by the time they all end up competing with each other traditional index funds might turn out to be "smart".

I also read some other great articles by Bogle. It seems that the important thing with Smart Beta is to stick with a particular strategy, don't chase performance. In fact it was Bogle who introduced the first so called Smart Beta index funds a couple of decades ago from memory. One was "growth" and the other "value" factor active indexes. They're still the largest funds around I think? But overall the performance is no better than traditional market cap index funds but they come with higher risk.

More here:

 

I think Bogle's views (being in the US) make sense:

My God what's happening? I'm conversing on the Boglehead thread.

 

interesting read!!! I must be the second type of investor, those who don't know that they don't know the market!!!

 

"So, the end of 20 or 15 years – 25 years' company – excuse me – and both funds had given a 9% return. Then you see – I mean I don't mean to brag, but that's not too bad. I said they'd be the same and they were the same. And aye, there's the rub. And that is the investors in both funds did about half as well whether you are in the balanced fund or the growth fund because the money comes into the one when it looks good and goes out into the other one when it looks bad."

Knowing they are both going to give the same returns - reversion to mean - you can go 50/50 and re-balance (buy the gloom) for guaranteed out-performance!*

*We will ignore, costs, taxes and anything else that may screw up my solution.

I'll admit I was seduced by some beta when I started down the ETF/LIC path. Thankfully I went VHY instead of some of the truly awful yield ETFs.
MVW is the other one that I jumped on after reading about the problems with our index, unfortunately, equal weighting is a solution to weighting/concentration at the expense of returns.

Interested to read about MOAT a bit more. It is equal weighted unfortunately and is comprised of ~50 stocks. Guess a lot of it comes down to how much value you put on morningstars moat analysis. Doesn't tick the dividend invetors box either at under 2%.

 

Well you do hold VGS after all

 

Yes but only under duress. Bogleheads will go to any length to force us into submission:

 

Bogle: Vanguard Proves Smart Beta Does Work After All - Real Smart Beta

 

No argument at all about the benefits of small caps, dividends and value investing. These pretty much govern the choice of LICs I invest in.

My only concern is using Smart Beta for some of these factors in the AUSTRALIAN market which as you know is vastly different to the US due to concentration and a heap of spec mining rubbish.

I'm not too thrilled with the Smart Beta ETFs being used locally for dividends and small caps. For dividends there's low fee LICs which I think are superior for a number of reasons including tax. And I'm convinced that active management is likely to do better here for small caps due to reasons mentioned above.

But certainly for value investing locally there may be the potential for factor ETFs such as RAFI and similar to outperform. But in the real world given higher fees, tax and transaction costs etc whether these factor ETFs outperform cap weighted indexes here will be interesting to see over the long term.

However as you know I think these factor ETFs can be excellent in giving a 'tilt" to some flavour in the portfolio rather than as a "core".

Trouble is though there's getting to be too much choice out there. The greatest enemy to investors going forward will be their ability to avoid chopping and changing! If one is going to commit to a strategy you need to stick with it no matter how painful it may get at times. That's what Bogle highlighted. Vanguards growth and value funds weren't designed for performance chasing but for different types of investors (eg accumulators vs retirees from memory). Those that tried to switch from one to the other chasing performance did badly.

 

Bogle's take on the world

On why he only invests in U.S. stocks and bonds: "I'm a great believer in the U.S. Since 1993, the S&P 500 has gone up about 800%. The MSCI EAFE index of international stocks has gone up around 280%. I'm in no position to say whether the same thing will happen in the future or not. But I don't mind betting on U.S. Half of revenues and profits of U.S. companies come from abroad anyway. I'm not some island of 'American first' at all."

As for me I've been adding to my international (ex US) and Australian funds over recent times as the US index has been expensive

Many investors forget when international stocks last gave U.S. stocks a beating. It wasn’t that long ago. From December 31, 2001 to December 31, 2010, Vanguard’s International Stock Market Index gained a total of 107.89 percent. By comparison, U.S. stocks (measured by Vanguard’s Total Stock Market Index) gained just 41.64 percent.

 

I agree most of the smart beta ETFs for AU market are pretty ordinary, with exception of QOZ which I still like....Most of these will fall over, investors wont stick with them when they underperform for 2 years. Investors are looking for a magic bullet that will give them wonderful risk adjusted returns. Doesn't exist....be happy with an additional 1-2% pa after fees/tax over 20 years if lucky. If you are going to do it, i'll quote the great man himself... "stay the course". It will be easier for most just to hold the index.....you wont be disappointed as you will hit your benchmark less fees everytime!

 

I'm keeping a close eye on AUMF. I've posted back-testing in another thread. It should pay it's first dividend in April. Will start to get a view of how it is actually performing. Volumes have been low because it is new. It's a wait and see for me and will consider investing with AUMF in my super ( assuming I can convince ING Direct to add it to their shopping list ).

The performance of the back-tested portfolio is 26%pa above the ASX 200 index over the last 2 years.