I definitely agree with your point above, I had to re-read to entire thread you posted above to avoid asking other stupid questions.
There was one question in the thread that didn’t get an answer, if the MSCI Quality index is so good why do companies use the sector neutral adjustment?
If I can ask are you still invested in the MSCI US and Europe Quality (the Amundi and UBS funds)?
As a starter I recommend you this Rational Reminder podcast:
also available as video if you prefer:
Then if you want to more details you could read this PDF:
True there is mostly positive comments except the usual (high TER, low AUM, new ETF/company, etc) and I would also be interested to read some more critical comments if any are available.
Thank you, I guess I know how I am going to spend my day tomorrow 
I don’t know. If I remember correctly, iShares even switched from one to the other on their US-domiciled Quality ETF.
One consideration might be sector biases. What if the sector itself has low return and bad economic prospects? You don’t necessarily want to overweight these sectors - according to your “factor”, and there are other factors than “Quality” - just because stocks in one particular sector are relatively cheap, small or have had momentum. I wouldn’t.
Superior operating characteristics (“Quality”) of companies operating in particular sector though would be the one factor and reason to overweight a sector - as long as I don’t overpay.
Also, if you read that PDF linked by mabi (chapter 6.1), Ben Felix…
…makes a point that retail ETFs often provide relatively little factor exposure while being relatively expensive. Tracking difference, costs, portfolio turnover (which, inevitably, can often be higher than in market cap-weighted funds)…
Yep - just thinking if I should the US with a US-domiciled fund (tax).
EDIT: actually… maybe not, unless I can find an MSCI Quality ETF with U.S. domicile
I listen to the podcast, it was super interesting, thank you again for the suggestion.
I read the white paper as well and I like the theory behind the diversified portfolio with the factor tilt proposed by Ben.
I am starting to get a clearer picture regarding the next steps, in particular:
I have changed my strategy on finpension to invest in MSCI World Quality ETF.
I am going to introduce in my portfolio the value/size factor through either the Avantis fund or SSON. I need to read more about Fundsmith before taking a decision here. Further resources on Fundsmith are welcome 
I think I want to add to my alpha by increasing my exposure to ARKK to 10%, still a bet but I believe that they are investing in growth companies that will become value companies in the future and have monopolies in their respective sectors.
I am not going to introduce any home bias given my situation with the 2nd pillar (I consider this to be invested mainly in bonds and with a CH focus).
Completely agree with the statement below, however and I know @San_Francisco you have stated before that the iShares Edge MSCI World Quality Factor UCITS ETF USD is not ideal because it still keeps the same sector weights of its parent index. But don’t you think it is a pretty easy way to get some exposure to quality? I know it might not be the best but I think I should still consider it given that it seems to capture some of the alpha returns.
In the end, excluding my 2nd and 3rd pillar holdings, I am leaning towards:
Any comments?
Funds that had excellent performance in the recent past usually achieve it with taking high idiosyncratic risk and be lucky with it. There is a good chance that ARKK will underperform the market by quite a bit in the next 10 years. You can’t expect unexpected returns to materialize.
I wouldn’t recommend the quality fund as they may or may not capture profitability and investment factors. I would rather stick to someone who has a sound methodology that is based on the most recent research on factors.
If you are able to buy AVDV and AVUV, why not use VT instead of VWRL?
Here is my recommendation for someone who wants a factor based portfolio:
I know that and it is a very valid point, however I like the theory of hunting in the market what could become the next Amazon/Apple and revolutionize a sector.
I have subscribed to all the newsletter, I listen to their podcast, I am tuning in for all the market update and quarterly call and I really like all the pieces of research they put out.
At the moment the 10% doesn’t represent a big amount in dollar terms so I am okay with risking a more to have exposure in something I find interesting and it could have some nice gains in return. To be honest I feel less secure in having almost 10% invested in my company than ARKK from a pure diversification point of view.
Yeah I think you might be right. I need to understand better the definition of Quality. In the MSCI doc it is mentioned only “Sound Balance sheet stocks”.
Nothing in particular really, when I started I think I got spooked when I read that access to US was going to be restricted in 2022 and only UCITS were going to be available. I started investing in VWRL for simplicity, no need to convert CHF in USD and kept going that way.
Now I am just planning to do the rebalancing between February and March (hoping that March’s bonus is at least the same as last year ).
Investing in technological revolutions doesn’t seem to give investors good returns.
What would you do if it falls 50%? Would you rebalance? Would you find the next thing where you can invest 10% of your portfolio? What if you have bad luck again?
Two 50% falls over the next 10 years would cost you 7.5% of your porfolio. This would add a performance drag of 0.78% per year or around 15% of the expected equity premium of global stocks.
From what I have researched end of last year about Fundsmith there is not so much available about the company itself or I am looking at the wrong places. Know that Fundsmith is a small company with just a bunch of employees and a charismatic CEO named Terry Smith, nothing more and maybe that’s the whole strength of it but can also be scary. I’ve watched a few shareholders annual meeting and other videos of him presenting at conferences. I like the guy but this is just my gut speaking and nothing really rational based on facts. For the basic facts their website present all you need to know really.
If you haven’t read that post yet on the forum have a look through it:
If you find anything exciting or less biased about Fundsmith feel free to post the resources on that forum thread.
There is also a recently released book of Terry Smith which is “just” a collection of articles written by him:
https://www.amazon.co.uk/Investing-Growth-companies-anthology-investment/dp/0857199013
If you are interested in quality have you read one of the annual letters to shareholder’s on Fundsmith’s webpage? I had underwhelming experiences with factor ETFs personally [EDIT: just saw the post from Mabi so see you are getting multiple pointers to FS]
It should definitely give you a quality „tilt“ and less sector bias. In the end though, sector weightings are just a meaningless number. I see no point in adhering or being constrained by that.
Though I think one should be aware of sector bias - and have an opinion on it.
Well said. Personally, I don’t want a factor based portfolio. What others call sound methodology based on research, I tend to consider overengineering in the face of uncertainty.
I‘m also not much of an index investor.
Though do I do believe MSCI World Index is a good starting point for portfolio.
And that it can (hopefully!) be enhanced by emphasising or de emphasising certain stocks.
PS: There’s not necessarily anything wrong with factor investing and the logic behind it 
I still have to watch Ben’s video but I know how he feels about these funds (I am halfway through his last podcast and there he is also talking about ARK Invest).
Currently I have just invested 5k on ARKK, I would consider going up to 10k if I see the opportunity. The objective of the next rebalancing it is going to be the focus on value through the Avantis/Fundsmith funds.
I completely see your point but again, I don’t consider that target 10% to be that material if the amounts we are talking about aren’t so big. If such big drops were to happen I would expect to see a systematic issue in the broad stock market as well. In the end ARKK is quite concentrated but on 30/40 holdings and I wouldn’t expect them to materially underperform for a prolonged period of time the market.
I could be terribly wrong and maybe I am, however I would still be inclined to increase my exposure after having adjusted the portfolio for a factor tilt. I am not rushing it, I want to read and document myself more and I could come to a different conclusion in the next weeks/months
Thank you for the resources above, I am going to go and spend more time to read everything and report back
Definitely, I was just considering still IWQU due to the fact the MSCI World Quality index can be bought only with Finpension.
For sure the sector neutral is going to have its shortcomings, however I am still thinking it add some value over the foundation of my portfolio which is VWRL. I am still open to other options but I am not discarding the one of adding it to the portfolio.
Side note (also regarding the sector bias):
When you look at MSCI World Quality’s vs. “vanilla” MSCI World’s sector weightings…
| Sector | MSCI World Quality | MSCI World |
|---|---|---|
| Information Technology | 35.04 | 21.1 |
| Health Care | 20.08 | 13.07 |
| Consumer Staples | 13.18 | 7.8 |
| Communication Services | 9.5 | 8.94 |
| Industrials | 9.28 | 10.72 |
| Consumer Discretionary | 5.46 | 11.95* |
| Financials | 3.92 | 12.78 |
| Materials | 2.79 | 4.48 |
| Real Estate | 0.39 | 2.73 |
| Energy | 0.3 | 2.76 |
| Utilities | 0.05 | 3.19 |
* There’s also an MSCI World Consumer Discretionary Index, 32% of which are Amazon and Tesla combined. But then, they both aren’t very profitable, if anything.
…MSCI Quality does happen to overemphasise sectors driven and growing by technological innovation. Though you’re not quite getting the early-stage (though hardly profitable) growing hotshots featured in ARKK.
Hi @xorfish , firstly thanks a lot for sharing your portfolio and explaining about factor investing.
I am a newbie with whatever miniscule information I have gleaned from this forum.
A few questions -
Are you still with the same ETFs and allocation, especially with the US (Core and small value),
considering the rate hikes ?
Also, can you kindly explain why you picked DFAU over AVUS and DFAI over AVDE ?
The TER is marginally higher for both but seems they are better performing
https://www.etf.com/etfanalytics/etf-comparison/DFAU-vs-AVUS
https://www.etf.com/etfanalytics/etf-comparison/AVDE-vs-DFAI
I am thinking of mostly replicating your portfolio but with a lower exposure to US and change from Dimension to Avantis
TER Weight US: AVUS 0.15% 25% US small: AVUV 0.25% 10% Intnl core : AVDE 0.23% 30% Intnl small: AVDV 0.36% 10% Emerging: AVES 0.36% 25% Avg 0.26%
My holding period will be around 25-30Y
I plan to invest around 400k CHF and plan to DCA for 2022 and 2023, including savings of 4-5k each month.
What do you think ? Thank you.
This is my current portfolio allocation:
@xorfish Thank you!
I see we are quite similar with the composition. May i ask why you choose to have both
Avantis Emerging Market Equity ETF AVEM and Avantis Emerging Market Value ETF AVES
Also, do you plan to still be at 56.6% allocation in US ?
AVEM only has a weak Tilt like AVUS and AVDE. AVES has a stronger tilt, like AVUV and AVDV, just with all caps and not small. caps.
I hold US at roughly market cap based on data from MSCI. There are other reasonable weighting methods. I just haven’t found one that is reasonable and automatable.
I try to minimize the impact of personal judgment on my asset allocation. So I’ll just stick to my method, even if it feels like I have too much US.
You don’t gain that much with a factor tilt of 10-30% and 50% seemed like a sensible option. A cheaper option would be a 60% tilt with market cap weight funds.
MSCI Value weighted or some of the Research affiliates indexes are good options are also good options.
