ETF Long Term ongoing ETFs ideas

I am learning a lot from this thread, and researching

Thank u everyone for sharing

 

Thanks @Hockey Monkey, I agree 40% is a massive bet which got me compare some past performances between VAE and VGS

I compared the drawdown between 24th Feb 2020 and 23rd March 2020 and the reversal from 23rd March 2020 till today, and both VGS and VAE have very similar returns since the reversal, however, VGS had significantly bigger drawdown during the fall. Also, VAE has been in downturn since Feb, otherwise it would have surpassed the returns of VGS.

Having said that I am thinking of continuing with the original plan, but when the opportunity is present (e.g. with VAE currently), I would be willing to swap my allocations between VAE and VGS depending on whichever is cheaper.

VAS - 25%
VAE - 40%
VGS - 35%

Any feedback or correction is welcomed and as always, thank you all for your responses. This thread has certainly been lot more interesting and I have personally learnt a lot about long term investing.

 

One year is a blink of the eye in the investment world. 10, 20 or 30 years would be better, but even then we are looking at past performance which is not a good indicator of future performance.

A better comparison might be VGE vs VGS, or actually the wholesale fund versions which have been around much longer (VAN0005AU vs VAN0003AU).

Since 1998, the wholesale emerging markets fund VAN0005AU has returned 6.96% vs VAN0003AU which has returned 6.16%, so there is outperformance with emerging markets over the very long term but you need to be comfortable that there may be long periods where it underperforms. Eg the past 10 years emerging markets 6.87% p.a. vs 14.09% p.a. for global developed markets.

If you don't have the stomach to stick to your plan in such circumstances, you would have been better off never tilting in the first place.

Article on rebalancing once you settle on your allocation Portfolio Maintenance - Rebalancing — Passive Investing Australia

 

In the past 10 years one of the simplest trades has been sitting long S&P500. Pretty much anyone chasing alpha in all the far-flung corners of the world would have done better just buying IVV and be done with it.

The question is will this continue for the next 10 years (and longer)? Maybe it can given the level of stimulus going on over there, but the Asia story is pretty compelling too. I am not quite bold enough to be 40% Asia/EM but I can see the appeal.

 

I don't think this period really tells you anything about the likely future performance of the two funds. This was driven in a big part by the shocking handling of the covid outbreak by developed countries (US, UK, EU) relative to Asia (and China in particular.)

 

Easy to say in hindsight. Not sure many investors would have the conviction to stick to a 40% EM tilt over the same period.

How much of the positive sentiments about Asia is already priced in?

Note, I hold VAE at Market Cap, so I'm not against it. Just not convinced to overweight it.

 

Emerging markets are a good investment, but I would recommend reading Elroy Dimsons work to learn more about just how volatile they are. Here's a short summary:

Should you invest in emerging markets? | London Business School

And read as many of the credit Suisse reports he's done as you can get your hands on.

Investing heavily in VAE is betting that China does not do anything to ruin your investment. Personally I'm not 100% confident they won't close their exchange and attempt to keep foreign money, so I can't overweight it.

 

Really depends how important tracking market returns is for the individual.

Three Rational Allocation Strategies

Emerging Market Allocations: How Much to Own?

Market cap 13%, GDP 40% or mean variance

In short, a review of the three standard approaches to EM allocation suggest global equity investors should allocate somewhere in the range of 13% to 39% to EM.

So choose your own adventure.

Personally I'm in the 5-10% range, and probably biased to the lower end.

 

I'm a big fan of VAE. 40% is ridiculous though IMO. I have it at 10%. Sits nicely with VGS @ 30%.

 

Keep in mind, if you include Hong Kong, the China/HK allocation to VAE is just shy of 50%. If you include Taiwan and Korea, it's up around 80%.

 

Thanks @ChrisP73 - this chart for me is exactly why I chose VAE over VGE.

I like the 22/23% in HK & Korea and I certainly prefer it allocated there over Brazil, Saudi Arabia, Russia etc..

 

I have a small holding in VAE and plan to keep it fairly small, but every time I plan to buy it those spreads on the brokerage screen, it's normal for VAE to have 10-15 cents spread, and that's midday, whereas VAS and VGS are often 2-4 cents max. That's probably where my main gripe with VAE is.

 

Spreads when foreign currency are involved usually reflect the local pricing v the Japan yen pricing. Its a transfer pricing cost based on currency spreads. Thats a cost of foreign denominated currency movements (intraday)

4c on $90 for VAS is 0.000444 or .044%
15cents on VAE at $70 is .2142%

Vanguard are a low cost provider. The cost is priced in. Its still low. The VAS is just really low which makes the other look worse. Its like comparing cashouts at a ATM to a foreign card charge.

 

Paul, why does the yen impact VAE spreads?

 

The ASX track and publish average spreads on a monthly basis at ASX funds statistics

For April
VAS 0.03%
VTS 0.04%
VGS 0.05%
VEU 0.14%
IEM 0.17%
VGE 0.18%
VAE 0.20%
VISM 0.25%
IWLD 0.26%

As a long term investor, I mostly ignore the spread, avoiding the first and last 30 minutes of trading to allow market makers to get established.

 

Thanks @Hockey Monkey , appreciate all your inputs. The only reason to compare last year was to see drawdown and recovery but understand that we cannot take only that drop into consideration for bigger picture.

Just like @twisted strategies, I also have a question if 40% is big bet for Emerging and suggest keeping it according to Market Cap or within 10-20% range, where would the rest of the 40% be invested?

 

If it was me for a simple market cap weighted portfolio, VGS (or VGAD if you need more AUD exposure) or a bit of VISM if you want to diversify into small caps.

Small cap value is another option to tilt into if you believe the academic research about factors. We don't really have any great options for that on the ASX.

 

Thanks @Hockey Monkey , I wish we had an ETF option to track S&P500 index like they have in US. Would have been an easy pick. Will take a look at VISM, probably a good option considering all other ETF picks are investing in large caps.

How about this one?
VAS - Australian Shares - 25%
VAE - Asia Ex Japan Markets - 15%
VGS - International Shares - 35%
VISM - International Small Companies - 25%

 

VAS - 25%
VGS - 55%
VAE - 10%
VISM - 10%

 

We do, IVV is S&P500, but VGS is already about 70% overlapping IVV with the other 30% diversified into ex-US large and mid caps.

25% VISM is a big tilt too. Global weight is 13.5% or 10% once you factor in your 25% weighting to VAS.
How to get worldwide index exposure on the ASX — Passive Investing Australia

Personally I'd go with something more like
25% VAS
50% VGS
10-15% VAE
10-15% VISM
depending which one you decide to tilt.