ETF World Portfolio - which stock exchange? Vanguard vs. iShares?

Hi all,

thanks for the very informative resources on this website!

I decided to go for an ETF World Portfolio (2-3ETFs). I have an IB account. Now I have the following questions:

  • I am thinking of iShares vs Vanguard. Why is this community leaning towards Vanguard?
  • There are US versions of the funds and EU (Ireland) onces. Since I am planning to buy in the same currency as the funds (USD), I would buy them from LSE. Any points to consider? Or shall I directly buy in the US?

Vanguard in EU requires 2 ETFs (Developed+Emerging), the US Version 3 (Developed-ex-us, US, emerging). Yet, the US TER is much lower than the EU.

I would like to follow a BIP weighed portfolio rather than a market weighted portfolio. Thus, I don’t want to buy an all world ETF.

US funds are better for swiss investors as you can reclaim withholding tax on US dividends with DA-1. With Irish funds you will get double taxed: fund pays 15% tax on US dividends that you will not be able to reclaim, and you yourself will pay full swiss income taxes on distributions from the fund.

Vanguard US is structured in an investor-friendly way.

But why?

More specifically, you can reclaim U.S. withholding tax on distributions from the fund. Which aren’t levied in the first place when an Irish fund distributes.

The difference is on the level of the fund receiving dividends from stock it holds:

  • U.S. funds receive dividends from U.S. companies free of (U.S.) withholding tax
  • Irish funds receive dividends from U.S. companies with 15% tax withheld in the U.S. - which is not reclaimable by the fund or the ultimate investor.

VWRL has 10% EM

Thanks for your inputs! With that in mind, I am considering:

  • VOO (maybe VTI)
  • VEA
  • VWO

from ARCA

  • VWRL: I would like to have the flexibility to adjust weighting (re-balancing).
  • BIP vs Market Weight: I think US is overvalued at the moment.

What about your 3rd pillar allocation?

What is BIP?
Tried to google but found nothing (in English)

I use Viac Global standard portfolio for 3A.

BIP = Bruttoinlandsprodukt (DE) = Gross domestic product (EN) = GDP

Regarding GDP vs. market capitalization, I found this interesting article in German (Google can translate it): https://fairvalue-magazin.de/etf-indexfonds/etf-portfolio/bip-gewichtung-etf-portfolio/

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I think the GDP weighted strategy is flawed. There is a pretty good Vanguard paper on GDP weight.

There’s no strong theory why GDP weighting ought to perform better. Some popular writers in german world (Kommer et al) wrote about backtests from the 70s that showed it performed better back then and shove that stuff in everyone’s face ever since. But if you invested in it, last decade or two you’d actually have lost money to simple market cap weighting.

The simple truth is that most of world’s best and highest quality companies are in the US, it’s #1 for a reason. US companies also have a fairly high share of sales from abroad, something like half. It’s misleading to compare by GDP alone without considering this.

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Let’s take it to the extreme: Nestle makes 98% of his revenues abroad. So while being a Swiss company, is that even relevant at this point? I couldn’t care less where their headquarter is located, it wouldn’t change a lot about their business.

Actually 99%, or 98.7% to be precise, according to their latest financial report

I would be happy to have the paper.

Some insights:

In short, the GDP approach is outperforming the cap-weighted approach due to EM representing a huge part.

I agree that a cap-weighted approach is closer to reality as explained by @Cortana due to exports. More analysis would be needed, but an MSCI World + overweight of EM would be the same results.
In any case, I don’t think GDP weighted ETF exists, so the strategy is hard to replicate unless reconstructing buying each country.

Many thanks for your valuable feedback! As the discussion is around portfolio weighting strategies, I assume the “technical part” (IBKR, Vanguard, Selection, US Stock Exchange) is reasonable. :slight_smile:

With my selection, I can better weight the three “regions” - that gives me some flexibiltiy over an all-world ETF at the same cost.

Less than European ones, I read in the paper, a couple of days ago:
U.S. listed companies: 60% domestic earnings, 20% Europe, 20% rest of world.
European companies: 50% domestic (Europe), 10% U.S., 40% Emerging and Asia.

Oh I just saw it’s from MSCI: https://www.msci.com/documents/10199/5caee365-79ba-44a4-8643-15b7dbea5999

Either way, market cap weight gives you a revenue exposure of 35% in EM and 28% in US. So GDP is totally accounted for because of the revenues. There is no need to underweight the US and overweight other regions.

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