IE vs US domiciled funds (VWRL vs VT)

[San_Francisco]

@Cortana

But I’ll probably transfer chunks of my ETFs from IBKR to a Swiss broker once I reached a certain amount (200k+)

My take is a similar one: I intend to diversify my risk among brokers and/or jurisdictions, not wanting to keep everything at IBKR/in the US.

I am already holding the biggest part of my current liquid assets at IBKR (to benefit from fee waivers).
It’s mainly a portfolio of single stocks though, and a few funds I can’t get elsewhere, not index funds.

The biggest part of my monthly savings, on the other hand, are invested into index funds.
Since I want to avoid increasing my exposure to IBKR, I do so through European (E.U.) brokers…
…who wouldn’t let me purchase U.S. ETFs anyway.

Side note: As I stated above, about half a year ago, I’ve settled investing half my savings on Quality ETFs, not VT or VWRL. I’m not sure if there’s an MSCI Quality ETF domiciled in the U.S.

@Bojack

• if you invest in IE: are you not missing these 0.2% annually, due to cumulation of various costs?

At most. Tendentially less. I’m not losing any sleep about that.

[xorfish]

Distribution yield isn’t that much different to make up a 0.35 basis point difference. The difference in yield would need to be around 1.2% for a marginal tax rate of 30%. However looking at the data from vanguard, the difference in yield is around 0.32%. Another data point that points toward that ~30 basis point difference in return between the two funds.

I also don’t see why VWRL covers small cap better than VT, this doesn’t seem true.

[Bojack]

@wapiti

BTW, VT and VWRL doesn’t track the same index… VT includes small caps

Good point, it adds up to the confusion I guess the easiest thing to compare would be VOO vs VUSA, they track exactly the same index.

@TeaCup you still didn’t answer my question: how do you make a reasonable comparison if you don’t have reliable start/end points?

@San_Francisco

I intend to diversify my risk among brokers and/or jurisdictions, not wanting to keep everything at IBKR/in the US.

That was the intention I had when opening this thread. I would like to stop funnelling money to IBKR and maybe open up a brokerage account at PostFinance and continue buying VWRL there. Just want to make sure if I’m not sacrificing too much profit by doing so…

@San_Francisco

Usually they don’t (change by multiple per cent within hours)

Here the difference between high and low was 3%. There are more days like this. And the difference between Europe closing and US closing is 6 hours, enough to make a big gap.

[xorfish]

VT has more than twice as much holdings as VWRL.

A factor regression against international markets(no EM) shows a higher negative SMB loading for VWRL than for VT. Although I’m not sure how valid a regression of a all world fund against the international market is.

So VT is probably the one that covers small caps better

[wapiti]

@TeaCup

Because VWRL covers Small Caps, but VT not

Wrong.

VT = FTSE Global All Cap Index
https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=GEISLMS&IsManual=false

VVWRL = FTSE All World Index https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=AWORLDS&IsManual=false

[Bojack]

@TeaCup

I keep mixing up tickers, might be just the reverse

Are you serious? Mixing up the tickers? And we should discuss which one is better? Lol I’m out. It’s the other way round, bro. VT (the US one) includes small caps, VWRL does not. In general, the European products of Vanguard are inferior to the US ones, when it comes to the number of constituents etc.

@TeaCup

This would not be fair. A US based MSCI USA will always perform better than an Ireland based one

??? Is this not the point? Take two seemingly identical products from US & EU and compare the difference. I said the difference is something like 0.2-0.3%, which may seem small, but once your portfolio is $1’000’000, that’s possible $3’000 lost each year.

[wapiti]

@Bojack

I said the difference is something like 0.2-0.3%, which may seem small, but once your portfolio is $1’000’000, that’s possible $3’000 lost each year.

Yes, correct.

https://www.bogleheads.org/wiki/Nonresident_alien_investors_and_Ireland_domiciled_ETFs

@Bojack In some cases, Ireland ETFs are better. For exemple, Emerging markets, choosing an Irish ETF will avoid US withholding tax.

[nabalzbhf]

@wapiti

For exemple, Emerging markets, choosing an Irish ETF will avoid US withholding tax.

Can you give an example of countries where US-<country> vs. IE-<country> withholding is significantly different?

[anonym]

So, instead of deciding between IE vs US, wouldn’t it be better to go for both? I’m thinking of the VTI + VXUS mix, but “just” change VXUS for a IE domiciled version.

So you would profit from 0% witholding tax on VTI and better tax treaties for the ireland equivalent of VXUS.

Only thing is there doesn’t seem to be an ireland equivalent of VXUS, or atleast I can’t find one.

What do you think about this?

[wapiti]

@nabalzbhf

Can you give an example of countries where US- vs. IE- withholding is significantly different?

ETFs like VSUX don’t exist in IE. You’ll need to take multiple ETFs: Europe, Asia, emerging market. The idea is good, but the execution too complex

@anonym

So, instead of deciding between IE vs US, wouldn’t it be better to go for both? I’m thinking of the VTI + VSUX mix, but “just” change VSUX for a IE domiciled version

If your ETFs include US stocks, select the US version otherwise select the Irish one.

[San_Francisco]

@Bojack

Here the difference between high and low was 3%. There are more days like this. And the difference between Europe closing and US closing is 6 hours, enough to make a big gap.

I think it doesn’t matter much, once you compare multiple data points. I’m largely with TeaCup on this one. I also tried to estimate it from the ICTAX figures a while ago (even posted it on the forum), and estimated the difference between VT and VWRL to about 1% every six years or so.

@Bojack

It’s the other way round, bro. VT (the US one) includes small caps, VWRL does not

While true, isn’t it a bit pointless?

Realistically, an investor that wants to keep things very simple will choose between VT or VWRL (such as thread title suggest). Whatever little nuances in index composition.

I’ll shout out my opinion:

You’re all getting too hung up on small nuances and overanalysing!

My take is this:

• It’s safe to assume that a few small caps aren’t going to make a very substantial difference. So VT and VWRL are reasonable subsitutes.
• It’s also safe to assume that a U.S.-domiciled World ETF will be slightly more cost- and tax-efficient (when comparing physically replicating ETFs)
• The difference is not going to be huge. It’s reasonable to assume that it’s more than 0.1% but less than 0.3% per year.

As long as costs are all and everything one care about and one feels compelled out the last fraction of a percentage point in performance, he or she absolutely should prefer VT (though beware of the small tax pitfalls).
As long as you’re comfortable to pay a bit more and don’t lose sleep over a fraction of a percentage point in performance, you can just as well buy VWRL and stop worrying. Also makes the tax declaration (slightly) simpler.

[nabalzbhf]

FYI my post was a bit mangled due to markup

I mean is there an example of a third party country where IE is more advantageous wrt L1 withholding, bonus point if it makes a significant fraction of the world market cap (e.g. > 1%).

[Bojack]

I agree with all you wrote. I didn’t bring up this point about small caps. It really boils down to these two last points:

• if there is nothing to worry about with the US, it’s probably better to invest there
• but if the difference in return is actually smaller than 0.1% then it’s best to stick with IE

I created this topic to discuss these two issues:

• how real is the threat of running into complications when owning US stocks?
• how big is the real performance difference between US & IE?

[s-g]

@Bojack

@TeaCup

This would not be fair. A US based MSCI USA will always perform better than an Ireland based one

??? Is this not the point? Take two seemingly identical products from US & EU and compare the difference.

I disagree with him on the VT vs VWRL part, but I think TeaCup has a point on this: he was pointing out that the comparison is heavily influenced by the index you focus on. For MSCI USA the US domiciled found will always be better because they have 0% L1WT.

[Bojack]

Yeah… as pointed out in my first post. I’m trying to figure out if this theoretical difference is real in practice. And if so, is an extra 0.3% annual performance worth the hassle of owning US stock.

[s-g]

@Bojack

how real is the threat of running into complications when owning US stocks?

As @MrCheese said I think the chances of retroactive liability is very small. If there’s any other mayor change in policy and taxation it should be an easy job to sell the US funds and buy the IE ones. Meanwhile I’m ok with the US domiciled funds and getting the higher returns.

[xorfish]

The Difference between VT and VWRL is around 0.3% * (1-your marginal tax rate)

It seems that ICTax does use the dividend after the withholding tax. So you would expect VWRL to perform a few basis points(~6) better than VT in ICTax. However this changes if you take the Withholding taxes(~38 Basis points) into account as they reduce the performance of VT in ICTax.

Everything adds up in the end and the US domiciled funds are around 30 basis points cheaper. You see this in the difference in yield and the performance that is shown the Vanguard product pages. Money that is invested over 30 years, will gain around 9-10% more with VT.

[nabalzbhf]

@ProvidentRetriever

That’s also an argument against, actually. When the size of a fund is too big (I’m not thinking of that one in particular), it cannot do transactions without impacting the market because the volume of the transactions outweighs the best asks and bids.

Shouldn’t that impact all ETFs equally? When new things get added, all ETFs following that index will get impacted equally (though I’m curious how they do it in practice, if they all e.g. buy at the closing option they’ll all get impacted equally).

Edit: and if they buy in the open, they don’t actually show how much they are going to buy by just bidding the entire number of shares they want, I don’t think anyone does that (to avoid going far down in the order book and to avoid signaling too much). Something like Dark Ice Algo | Interactive Brokers LLC

[xorfish]

@TeaCup

I see that the actual difference seems to be minimal to non existant and I do question why everyone eters such amjor US exposure.

0.3% might not seem like much, but over the years it will be quite a sum of money.

I don’t think small cap makes up 13% of the overall market cap, that sounds more like small + mid caps.

ETF.com lists that VT has around 5% in companies that have a market cap that is smaller than 600M:

https://www.etf.com/VT#fit

[San_Francisco]

@TeaCup

But there is, at least to date, no IE based International ETF

There‘s dozens, taken the meaning literally.

Call it an ex-US ETF if you will (the fund providers themselves actually do). But I find the idea that „international“ means „everything but the US“ irritating. Now of course that view of of the world might be prevalent in the US itself. But we as members on this forum neither resident or citizens of the US.