Keep buying World Stock (VWRD/ACWI) or switch to ex USA ETF?

Investing / Portfolios
22

Nope.
He was just saying that a good mix of domestic and international is recommended

33% domestic is base case.

The paper also recommended that if your income is correlated to domestic stocks then domestic stocks proportion should be reduced

Full paper

IMG_0182
IMG_01821170×1071 175 KB

The paper also covered the topic of „American exceptionalism“ and what should people do if they are believers in this theory.

1 Like
23

I believe for “domestic” we can/should consider “Europe”, not just CH.

1 Like
24

That’s what I do too.
But the purpose of domestic is in general following

  • psychological as people tend to feel bad if their portfolio underperforms their surroundings
  • Geopolitical risks (locals are supported in general)
  • Taxation benefit

I think European stocks don’t have much of tax benefit for Swiss residents but other factors are still relevant

1 Like
25

@dbu @Abs_max if you consider Europe as ‘home’ do you currency hedge the Europe ex CH?

26

For me home is much bigger -: Europe + IN

With respect to hedging -:

  • No hedges for equities
  • Bond allocation completely hedged (hedged ETFs)
  • No hedge for cash positions but I don’t hold much cash in foreign currencies (EUR, USD etc) anyways
27

How to determine which “Income-domestic stock correlation” you are? :slight_smile: If you are in IT or Pharm for example?
As mentioned before I don’t think it matters much.
For the base scenario (uncorrelated) the home bias practically can be anything between 10 and 50%. I expect the same thing for any of the correlation rows in Panel L.

image
image819×307 20.6 KB

28

I also cannot determine it because its not straightforward. Working in Pharma doesn’t not mean you are correlated to Swiss stock market because Swiss stock market has multiple industries.

So as long as i am between 20-40% for domestic stocks, I am good.

Personally, I think lot of people are obsessed with the breakdown of their geo allocation because they assume it is a predictor of their returns, but in reality it should not matter. The expected returns of all diversified stock portfolios should be same. So the focus should be on risk management rather than return expectations.

29

When you say Europe do you mean Euro zone?
Domestic in the mentioned paper means “Stock market with the same ‘local’ currency”.
For instance someone leaving in France he should consider the euro zone for the domestic part percentage.
Since there is no ETF covering only the eurozone I suppose the next best thing is to slightly overweight Europe?
On the other hand does it worth splitting a single World ETF (VWRL etc) in multiple ones for a ~5% tilt?

30

Oh, there are many tracking for example MSCI EMU.

1 Like
31

Europe for me means MSCI Europe. Eurozone is being tracked by MSCI EMU

For me to execute my strategy. I would need following ETFs -: WEBG (world) , SPICHA, FLXI , UBS MSCI Europe ex CH Fund

1 Like
32

Correct! Never thought about it! Thanks