Passive Thematic ETF Investing Strategy

Morning All,

Does anyone here have thoughts on structuring your core portfolio around mega-trends that are likely to shape our future? E.g. Dollar cost average over 5-10 years into the following ETFs and rebalancing on a monthly basis by investing in the lowest value ETF (this can easily be done with Pearler):

1) NDQ - US tech
2) IXJ - Global Healthcare / Biotech
3) ACDC - Batter Tech & Lithium
4) RBTZ - AI & Robotics
5) ATEC - Aussie Tech

Perhaps I'd even add in an ESG ETF.

I figure some of these industries are quite expensive at the moment but if you dollar cost average and rebalance then you will still be buying if/when the values come down as well.

Overall I am wondering if this strategy might be worthwhile as opposed to just choosing something like VDHG....

Thanks,
Mark

 

I think it's about the goal. We want a certain income in retirement.

We have an 80/15/5 strategy - 80% of portfolio in core (50/50 VGS/VAS); 15% thematics and large caps (currently ACDC, NDQ, WES, etc.) and 5% speculative (currently 3 x lithium, 3 x copper and some specific "bets" DUB, RAC, etc.)

We rebalance quarterly and do a big "restrategy" annually or when we think something has peaked (e.g. sold FMG at $26), or there is a global/local change (e.g. China releasing stores of copper, oil, etc)

Do you have your goal? Will your strategy achieve it?

 

The problem with thematic investing is that it is often luck that chooses the right investment.

15 years ago BRIC was all the rage and it did not work out.

At least if you go 80/15/5 you won’t stuff it up too much and you still get a bit of fun. I know some great investment advisors but they all have a very high minimum balance to start with.

 

Thanks both!

Maybe I need to dial it back and treat the thematic investing as a satellite rather than core. I guess it is the higher risk option vs something like VDHG. I guess I thought that diversifying into 5 or 6 key themes reduces the risk a little.

Ultimately I just want to build up the biggest portfolio I can over 5-10 years. It would be brilliant if it was a portfolio paying nice fully franked dividends but I am not sure I want all my money in Australian stocks and would be ok with drawing down let’s say 4% per year off a portfolio with a low yield.

 

Theme based investing, they are even narrower than some sector ETFs

The problem is that theme's and trends come and go, and when a trend is hot others jump on board (look at bitcoin and the other coins, and then the numerous sheetcoins that followed)

Not for me, I'm keeping it simples

High Burnout Rate for Thematic Funds

 

Specialised ETFs: high fees, poor performance | The Evidence-Based Investor

Summary
The above findings demonstrate that the ETF industry is great at capitalising on the naive retail investors for investment fads. In general, they are mainly issued in response to the demand for trendy investment themes — the fund sponsors are responding to investor sentiment, which studies such as Global, Local, and Contagious Investor Sentiment, The Short of It: Investor Sentiment and Anomalies, Investor Sentiment and the Cross-Section of Stock Returns and Investor Sentiment: Predicting the Overvalued Stock Market have found to be a negative predictor of future returns. The high fees and cash flows into these poorly performing securities is just another example of retail investors behaving badly.

 

Thanks mate, Ben Felix is brilliant! Not to self…. When discovering a new idea I should just search on his page for his well researched opinion.

 

Awesome, thanks Honkey Monkey and everyone else. This is all super clear. Thanks for putting the effort into responding.

I think I will just go with 85%+ in DHHF / VDHG or my own low fee version. Not sure what I will do with the remaining 10-15% yet but maybe that will be for riskier bets to keep things a little more exciting.

 

You want excitement? Take up sky diving, buy a motorbike or head down to the casino and put some money on red or black.

While I like excitement just as much as the next person, I want my investments to be boring and predictable. VAS & VGS are boring and predictable. Invest for results and not entertainment. Will allocating 10% of your portfolio to a particular sector or tilt deliver higher returns? Maybe or maybe not. Even if you get it right and pick the right sector or tilt will 10% of portfolio allocated make a significant difference to the performance of the entire portfolio?

In my opinion it’s a lot of effort for at best a chance of extracting the slightest bit of extra alpha.

 

If you want to play on the wild side with
10-15% take a look at Microcap / Small Cap value exposure. There is evidence for long term outperformance with higher volatility, but no guarantee.

Simple way to think about thematics ; when you invest in these growth factor exposures you are saying you believe that the market is currently undervaluing the future cash flows. Lots of room for Dunning Kruger here. Of course it sounds sexy to play tactical asset allocation games and fund promoters will always be able to meet market demand for this type of stuff.

 

Can’t argue with that. It’s always good to get a reality check.

Now I just need to decide whether to go with DHHF/VDHG or dollar cost average into something like VAS/VGS with Pearler putting the next round of money into the one that is below the target %. I’ll look into that today.

 

Yeah that’s what I was thinking. I do own some small cap stocks and like the idea of keeping some exposure there but I will aim get my core portfolio going first. I already have enough money in small CAPs and would need to invest for at least a year in something like VDHG before I need to worry about anything else. And as the Big A said, there is probably a better way to spend my time. Ultimately if I could get the average long term historical returns of a mix of the ASX 200 and the US market I’d be very happy.

 

There's always this

 

Yes I got in on the the excitement yesterday and picked me up some VAS at 1% down. Wasn’t as exciting when it finished 2% down.

 

Was it? Is it? How do you know this?

 

Hahaha I put a big chunk of my money in yesterday morning and thought I had timed things nicely. By the afternoon I was annoyed that I rushed in and then the SPI 200 futures overnight indicated another big drop coming today. That's enough stress for me.....

Anyway, I am going to go with 50% VAS and 50% VGS for now. I looked at emerging markets / VAE for a small % of the portfolio but got put off by the higher MER. I'll look into that a bit more in the future.

 

Is was. It is. I know everything.

P.s. no idea what your are referring to.

 

Lol. Super annoying isn’t it.
I said since the start of this year I would stick to the strategy of investing available capital immediately and not play the timing game and that’s exactly what I have been doing.
Resist the temptation and stay the course.

 

Listed Investment Companies (LICs) 2019 [LIC & LIT]