My (bi-) monthly ETF savings plan portfolio. > 40% Emerging Markets

Investing / Portfolios
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After the recent market downturn, we’re now at a level where I am feeling comfortable to go “all in” on equity at least with my monthly savings. So I adjusted my regular ETF savings plans, trying to commit to saving and investing as much as I can from my monthly take-home. This is what my allocation looks like:

33% IE00BK5BQT80 Vanguard FTSE All-World UCITS ETF (VWRA)
14% IE00BKM4H197 iShares MSCI Emerging Markets Consumer Growth (CEMG)
12% IE00BP3QZD73 iShares Edge MSCI World Size Factor (IWSZ)
08% LU0533033238 Lyxor MSCI World Health Care (HLTW)
06% IE00BYZK4883 iShares Digitalisation UCITS ETF (DGTL)

27% the remainder in a couple of Emerging Market single-country funds (roughly equal weights)

Few notes:

  • VWRA is the IE equivalent to VT, but accumulating. This should be the backbone, as a highly diversified world fund. Curiously having been listed as zero taxable income on ICTAX for 2019.
  • I like underweight sectors I dislike (banks, airlines, car manufacturing, oil) and like to overweight sectors I like, with CEMG, HLTW and DGTL
  • CEMG contains a lot of stocks I like individually, for emerging market exposure, whereas many other EM funds and markets tend to overweight financials.
  • The remaining 27% in individual EM country funds might be a bit high for my liking. If I’m able to save to save more I’d rather put it in the top 4 funds. Might lower this to something like 15 or 20% overall, if I get round to it.
  • The numbers add up to approximately 44% emerging markets exposure. That’s a lot. But I will also gradually be reallocating my pillar 3a to 60-70% equity, where I will take a more conservative approach, not unlike some portfolios having recently been posted on the forums. My current 3a balance is equivalent to 6 years of monthly savings/investments at my current rate. Thus, my overall allocation is going to look much more “conservative” than above.
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Interesting picks, thanks for sharing.
Any special reason for:

  1. Accu. vs. Dist. for the core one? (perhaps the current 0 taxability listing?)
  2. Lyxor vs. another iShares similar one for healthcare?
  3. Doing overweight (i.e. non market cap, but kind of equal-weight) on mid-cap with IWSZ?
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  1. Accumulating: I found it hard to decide between these two.

It mostly depends on personal circumstances, I think. I.e., if I need to withdraw to cover living expenses (thinking of taking some time off from work at some point in life), and of course applicable tax regime. In some countries accumulating are a real mess to be taxed, while in others they are superior.

In the end, the deciding factor was that I plan on keeping them long-term - and will probably transfer transfer them to a securities account at my day-to-day bank. Where ETFs aren’t only very extremely expensive to buy (bi-) montly, but they also charge processing fees and currency conversion costs on distributions.

Also, for the time being, in the “accumulation phase” it’s more efficient to reinvest distributions, as the ETF savings plan is an “automated” standing order, for a fixed amount of money.

Side note: VWRA has been introduced less than a year ago. They’re probably going to calculate “virtual” distributions only after the first full year.

  1. I’ve already had the Lyxor for a while.

And it’s “free” (of transactional costs) for a promotional period. Has been for a while, actually. Of course I wouldn’t be astonished if there’s some “hidden” costs in spread, time of ordering and currency conversion. Long-term it doesn’t matter much though.

I’m not fixated on iShares. U.S. accounts for almost two-thirds, country-wise, whereas Switzerland comes in second at 9,something percent - though I’m already heavy in Swiss health care due to 3a.

  1. I prefer the idea of equal-weighting. Just haven’t found a good, inexpensive equal-weight world fund yet (as an alternative to VWRA).

We’ve discussed it previously here on the forum.

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…except, maybe, this one available in Europe:

NL0009690221 VanEck Vectors Global Equal Weight

(Which does equally weight individual companies, not countries, so still 38% U.S. and 16% Japan).

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Not that much difference to VWRL/VWRA in the end. However, instead of these two, and inspired by Fundsmith’s selection criteria, I swapped the Vanguard fund for a quality-factor fund. I like the companies in the latter more than a plain MSCI World (“less crap”), also it has outperformed MSCI World in 10 of the last 14 years.

I also readjusted the percentages a bit, as I felt Emerging Markets was a bit too much, and has its uncertainties with currency rates.

So here we go:

35% IE00BP3QZ601 iShares Edge MSCI World Quality Factor (IWQU)
15% IE00BP3QZD73 iShares Edge MSCI World Size Factor (IWSZ)
15% IE00BKM4H197 iShares MSCI Emerging Markets Consumer Growth (CEMG)
7.5% LU0533033238 Lyxor MSCI World Health Care (HLTW)
7.5% IE00BYZK4883 iShares Digitalisation UCITS ETF (DGTL)
20% (Emerging-Market country ETFs, to counterbalance the overweighting of China in CEMG)

I’m not too sure if allocating 7.5% each to to my sector ETFs is worth it in the grand scheme of things. However, I’ve had both for a while, months or (MSCI World Health Care) a couple of years. And they have - understandably - held up really well in this current crisis.

It is noteworthy that CEMG isn’t a pure “Emerging Market” index, as it intends to track “companies that derive high or growing revenues from emerging markets”. As such, among the top 20 holdings are:

  • Unilever
  • Philip Morris
  • Netflix
  • LVMH
  • Nike
  • Reckitt Benckiser
  • Anheuser-Busch InBev

Still, approximately two-thirds of geographical exposure are “classic” Emerging Markets, with roughly half of that (or a third overall) accounting for China.

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