Better diversify with EM or REIT ETFs?

Hello

I currently have an asset allocation of around 60% stocks (100% VT) and 40% stocks (2nd pillar, 3rd pillar). Now although VT is already quite broad in terms of diversification as it covers the whole world I wonder which direction I should better diversify my portfolio.

After looking a while I am under the impression that I should either go for an ETF in emerging markets and / or an ETF in real estate investments. I was thinking of an allocation of around 10% of my portfolio in on of these types of ETF. What do you think?

As I am with DEGIRO for broker I am inclined to the following two ETFs which are free of transaction charge:

For EM: iShares MSCI EM UCITS ETF (Dist) -> https://www.justetf.com/ch-en/etf-profile.html?query=IE00B0M63177

For REIT: iShares European Property Yield UCITS ETF -> https://www.justetf.com/ch-en/etf-profile.html?query=IE00B0M63284

Regarding REIT I chose the European one based on lower riskiness but they also have Asia (IE00B1FZS244), Global (IE00B1FZS350) and US (IE00B1FZSF77) available. But I am not scared of taking more risk here for better performance as this would only be a 10% part of my portfolio and I am anyway in for the long-term.

Looking forward to reading your thoughts…

Cheers,
Mabi

My understanding is that (almost?) all of those companies are already in VT. For example Vonovia SE, who makes 20% of the european etf IS in VT.

Good point!

And I suppose another alternative ETF such as VGSIX (Vanguard Real Estate Index Fund Investor Shares -> https://investor.vanguard.com/mutual-funds/profile/VGSIX) would have the same “issue”?

Maybe I should skip REIT as a diversification class for my portfolio…

Then another alternative type would be small caps ETFs such as VBR (Vanguard Small-Cap Value ETF-> https://institutional.vanguard.com/iippdf/pdfs/FS937R.pdf) because as far as I understand VT has no small cap stocks included. Meaning both VT and VBR should not have the same stocks.

American Towers corp, the second biggest position of VGSIX is part of VT (~89th position). Crown Castle International Corp, the 3rd position of VGSIX is ~113th of VT.

If you pay some wealth tax (~0.3% or more), you can buy swiss real estate mutual funds that owns directly the buildings. But if you don’t, then it is not for you because you clearly want to buy 70 companies, not 70 buildings.

https://www.morningstar.com/etfs/arcx/vt/portfolio

Thanks @yakari for the video about REITs, I will stay away from REITs… and consider EM or small cap ETF instead.

Now regarding VT has no small cap you sent me a link to the portfolio of VT which shows that VT includes large and mid cap. So by sending me this link did you mean to confirm that VT has no small cap in its porftolio?

VT has a little bit of SC, bc it is a small part of the market cap. Buying more SC (or EM) means you want to overweight it. It is not a bad thing, there are good arguments for it. What are yours?

But i will say it again, the main danger is somewhere else: beware of the psychological pitfalls! If SC performs horribly, will you buy more 10-20 years long?

Staying the course is vital and is your responsibility only. You have to trust your strategy. If not, don’t put yourself in this position from the beginning on.



1 Like

Thanks @yakari for sharing these 3 videos.

I am now more focused on going for a small cap ETF which, if possible, is more towards value stocks than growth stocks. It seems to me like VBR (Vanguard Small-Cap Value) it the best fit and has a low TER on top of that. But it covers “only” the US market.

My two other alternatives would be the following two European ETFs:

Any one has experience with these or any opinion on these picks?

You’re welcome.

Scv us: vbr, viov (extreme scv but higher ter and spread)

Scv ex us: avdv (but is US based, so might be less tax friendly than an IE one)

Sc world IE based: wsml

I would go with VIOV and AVDV if you want a SCV fund.

VT is covering 99% of the world and per definiton the smallest 10% are small caps, so VT has close to 20% Mid Caps and 10% Small Caps?

Interesting picks VIOV although there does not seem to be much “movement”.

Maybe I should formulate my initial question differently: does anyone have an idea in VT which stock class/category/etc is not at all or most underrepresented?

Morningstar -> Portfolio
-> stock style map-> weight
-> Exposure -> sector / region

https://www.morningstar.com/etfs/arcx/vt/portfolio

According to morningstar 4% sc and 17% mc.

Doesn’t really make sense? I think morningstar has a different definition. FTSE definition:

70% Large Caps
20% Mid Caps
10% Small Caps

As VT is basically holding the whole world, it should match with those numbers?

Good point. I don’t know the reason.

Thanks @djabsil that’s a nice feature morningstar offers… I was now trying to calculate the “emerging markets” exposre of VT using the very same tool (region) and would it be correct to say that VT has an emerging market exposure of 6.9% ?

I calculated that 6.9% by adding the two regions “Europe Emerging” with 0.69% and “Asia Emerging” with 6.21%. Or should I also add “Latin America” and “Africa/Middle East” to this number? Not totally sure if these should be considered as emerging markets within VT… but then that would sum up to 9.09% exposure to emerging markets.

Why not just ignore Morningstar and go to the Vanguard website? https://investor.vanguard.com/etf/profile/portfolio/vt

I just don’t see the point in disecting this ETF. It’s basically the whole world (8400 stocks that make up 99% of the global free float market cap) with neutral weighting of all factors, regions etc.

Thanks @Cortana for the link to the vanguard website, I should have directly looked at the source like you say. All the information I am looking for is there and in fact it is 9.8% exposure to emerging markets.

My point of dissecting the VT ETF still remains to simply find out what class is mostly underexposed in VT in order to complement that underexposure with another ETF as I am currently 100% in with VT I would like to diversify.

Knowing now that VT has an 9.8% exposure in emerging markets I conclude more and more that small (value) cap is what is mostly underexposed in VT. Except if I am missing something else… hence the discussion in the forum post.

How do you define underexposed? By definition VT has the market based exposure to (almost) all equities. What you seem to seek is to overexpose yourself, I assume based on some criteria like potential for higher reward (with more volatility) for small caps and emerging.

Nothing is underexposed, it’s market neutral. What you want to do is overexpose small value. I’m not sure if it’s worth worth it though! Read the discussion here: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=319805&sid=43000caf8476897d685ceac984d28483

I think VT is the perfect ETF and represents the most efficient portfolio that is possible with stocks.

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