thanks for your feedback
for me the links still work
i probably referred to the view point from taxes, in which case it still is. with TER, they are already different. from the underlyings, too
Hello! First of all let me tell you this is my very first post . I’ve spend some time reading silently this forum and has been tremendously helpful however I wanted to ask you what do you think about this Total Withholding Rate comparison between
(VTI+ VXUS) vs FTSE All-World UCITS ETF
base on the bogleheads article previously mention in this post.
For the VXUS L1TW tax Withholding , the rate 7.5% is an estimation coming from the tax withholding paid by US-domiciled US-listed ETF of [ex-US] developed markets stocks (5-Year average) given as example in the bogleheads article. Dividend Yields are as well an approximation I’ve been looking for VXUS historical dividend values but I was not able to find them.
For a lot of reasons it is my choice of preference US-based ETF VXUS + VTI Vanguard ETF’s instated of IE-based alternative FTSE All-World UCITS but even from tax Withholding point of view VXUS + VTI combo has a lower TWR than FTSE All-World UCITS. Of course, I’m assuming here a Swiss fiscal resident person been able to reclaiming 15% out of the 30% by filing the W8-BEN for example with IB and then remaining 15% being credited for your income tax by filing DA-1 with your Tax authority.
What do you think ?
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The same reasoning applies to my investments 
@nugget Out of curiosity , are you using US-domicilied ETF’s ? If your equities portfolio is similar to the US-domiciled based I posted below , have you been able to calculate the TWR of VXUS and VTI? I would be very interested to know if roughly the TWR of VXUS and VTI is lower than the IE-based counter part .
Hey, I also want to remodel my portfolio that it has VTI + VXUS. Can I ask why do you prefer it over VT?
In short lower costs and better diversification but let me copy & past the answer given by the famous boglehead Taylor Larimore in this post .
Usually lower Fund/ETF Expense Ratios: Total Stock Market (VTSAX & VT) = .05%; Total International (VTIAX & VXUS) = .11%; Total World (VTWSX = .21%; VT = 0.11%).
Lower Turnover (hidden cost): Total Stock Market = 4.0%; Total International = 3.1%; Total World = 14.8%
Tax Efficiency (5 years): Total Stock Market =.56; Total International = 1.09; Total World = .82
Better diversification (lower risk): Total U.S. Stock Market and Total International (combined) hold 9,773 stocks. Total World holds 7,774.
More U.S. stocks: Total World contains approximately 53% U.S. stocks. Many authorities, including Mr. Bogle, believe this is inadequate for U.S. investors.
Flexibility: The ratio between U.S. Total Stock Market and Total International is flexible for investors wherever they live in the world or whatever their desire.
Admiral Shares: Unlike Total Stock Market and Total International, Total World has no Admiral shares.
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Very useful post. Thanks. On a closely related topic, has anyone here done analysis of the fees/tax burden of ETFs vs. holding single stocks?
I believe, please correct me if I am wrong, that if I hold stocks in jurisdictions that levy withholding tax (e.g. Germany, France, Switzerland, France, Netherlands) directly I will suffer withholding tax but I will be able to offset that withholding tax against by Swiss tax liability. Whereas, if I hold such stocks through an ETF then the ETF will suffer withholding tax and I will have no capacity to reclaim that tax suffered by the ETF. I’m talking about tax withheld at the ETF level not withholding tax levied when the ETF distributes to me (let’s assume its Irish ETFs so ETF to investor withholding is zero). i.e. after tax my return is worse with the ETF than holding stocks directly.
Have others analysed this and is this correct? For Swiss, German or French shares where the rate of withholding is quite high this seems a pretty significant effect.
Has anyone looked into this?
Thanks
PS let’s not avoid answering the question on the grounds of costs/admin/diversification. With say 250k one could build a 50 * 5k/stock portfolio. So it is at least arguable that with sufficient funds one can create your own portfolio that is (i) comparable or cheaper in direct fees to an ETF (ii) involves a manageable administrative burden and (iii) sufficiently diversified.
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You cannot offset the withholding tax on the dividends payed out by the shares to an ETF holding them, yes. However, the ETF can avail itself of the double taxation treaties of its domicile and reclaim much of it. Many indices of MSCI however assume the worst taxation case (definition of NR). In my opinion, this kind of accountability reduces dividend returns in the end further.
When holding shares yourself, the rule is that you can offset with Swiss taxes whatever cannot be retrieved from the jurisdiction of the company. Swiss double taxation treaties apply. The US makes retrieving part of the dividends quite easy if you use a qualified intermediary. The system is not quite the same for every country. A special refund application might be needed in each jurisdiction, maybe just every few years (this depends on the treaty or local laws). It’s doable - after considerable set-up effort.
Edit: Pretty up to date also for withholding taxes
Edit 2: All the information for all countries directly from the federal tax agency. There is an overview (for each country) a bit hidden after the legal texts for each country.
https://www.estv.admin.ch/estv/de/home/internationales-steuerrecht/fachinformationen/laender.html
Thanks. Admin and timing of reclaims is a good point. I will do some research.
Many indices of MSCI however assume the worst taxation case (definition of NR). In my opinion, this kind of accountability reduces dividend returns in the end further.
When you say the indices often assume worst case taxation of dividends - that’s true but I don’t see how that reduces dividend returns further as the ETFs will be making reclaims that they can and using that money to reduce leakage versus the index they are tracking. That is to say the worst case assumption on the index doesn’t change what the ETF does it just makes it harder for Joe average to spot that he is leaking money on withholding tax.
As I understand it, each ETF is held accountable to how well it follows its index. Are there now sufficient incentives for management to pass on revenue that can be made above the index (e.g. due to better tax treaties)? Why should they reduce 1st level leakage with it, when all their competitors follow the same index? Competition cannot be so strong, as they neither pass on all the revenue from loaned securities.
Maybe I am confused here, I welcome your thoughts!
This would fall under the umbrella term “self-indexing”, I think.
I am a bit sceptical as to whether the economics work out for a non-US, Swiss investor, because
(1) Vanguard US funds deliver really good economics of scale. VEA (developped-non-us) for example has a TER of 0.07 (recurring). European stocks at IB cost usually 0.1% (buy-sell). Edit: Vanguard spreads are also pretty small on their large US-funds.
(2) Swiss Investors cannot and don’t need to do stuff like tax loss harvesting or managing their capital gains.
(3) There is the practical problem of keeping track of ~50 stocks. I assume you rebalance? How much do you value your time and the commitment needed (opportunity cost)?
(4) In the Swiss tax declaration, you need to declare the date of each purchase of each stock and the dividends for each stock. You need a good system to do that for 50 stocks (doable, of course).
I just don’t see good answers to these points yet, answers that make it worthwhile.
I don’t think I can add much. I was just saying that what the index is doesn’t, directly at least, impact an ETFs ability to make reclaims. I would have assumed they made all the reclaims they could and passed that income through but I don’t know for sure. Maybe they charge a big cut of the reclaims for providing that service.
Either way I certainly agree that this use of indices that shows an unrealistic tax burden doesn’t help investors.
As I understand it, each ETF is held accountable to how well it follows its index. Are there now sufficient incentives for management to pass on revenue that can be made above the index (e.g. due to better tax treaties)? Why should they reduce 1st level leakage with it, when all their competitors follow the same index? Competition cannot be so strong, as they neither pass on all the revenue from loaned securities.
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This would fall under the umbrella term “self-indexing” …
I just don’t see good answers to these points yet, answers that make it worthwhile.
I myself don’t know the answer and I am trying to think that through. But talking through the arguments in favour:-
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In pure fee terms it seems easily cheaper. One could buy through IB for 10bp as you point out and if you don’t re-balance (or don’t re-balance often) then this ends up much cheaper than ETFs.
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Then there’s the WHT saving. For European stocks after reclaim the ETF probably averages 85% of the dividend, i.e 15% dividend lost. Let’s call that 10% after tax. x3% dividend yield in Europe that’s 30bp/year for that portion of the portfolio.
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There’s no tax harvesting but there is some tilts one could make to improve tax but I personally wouldn’t really recommend any.
As to whether these advantages are worth the admin and how much diversification benefit one would lose, I’m not sure.
IMHO it’s not worth it unless you have a few millions to manage and make it your full time job
US is the biggest weight in the world, like 50+% and a low hanging fruit to optimize for by just sticking with US domiciled ETFs. The rest of the world however is very fragmented across many low weighted countries: Japan 8%, UK 5%, France 3%… It’s a lot of hassle to do all the rebalancing and paperwork to reclaim taxes - in many cases they withhold more than the treaty rate and you need to file some paperwork to get back the excess from the original country. Most of EM countries you can’t even easily trade directly and will need to buy through an ETF or a fund anyway
The loss is probably also smaller than you estimate, these guys estimate non US tax leakage at 7-10%
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So does the index and the ETF itself take these withholding taxes into account when presenting total return stats? When you go to the MSCI website, you can see the data for price, net and gross return. So the net return is after taking withholding tax into account, yes? But what the ETF is tracking is the price, and this is with the whole dividend subtracted, do I get it correctly? And then what about an accumulating ETF?
So you mean that if there is a dividend of 2%, and 1% comes from USA and 1% outside USA, then 10% of this 1% is lost to withholding taxes of many countries? So in the end its like 0.1% annually lost. That’s indeed not so bad.
I think it’s a bad idea to do self indexing. If you really want to do that you can do it with ETFs.
For exemple: S&P 500 for US + CAC 40 for France + SMI for Switzerland ect, you just need to ensure that the ETF is domiciled in the country of the stocks. You will be able to reclaim through some money in each country.
contra example:
consider VT. imagine you have the capability to select that half of constituents that perform better than the median. have fun tracking & rebalancing 3000 stocks in your portfolio 
IMHO it’s not worth it unless you have a few millions to manage and make it your full time job … the loss is probably also smaller than you estimate, these guys 6 estimate non US tax leakage at 7-10
Useful link on that Canadian study, thanks.
This isn’t really relevant for US stocks where the issue I believe is solved by buying a US ETF in which case it is pure self-indexing versus ETF (and US stocks being the place where self-indexing makes the least sense).
I was focused on mainland Europe with my figure of 15% which I believe is the after withholding tax treaty rate for Germany, France, Switzerland, Netherlands and Spain which is the overwhelming portion of non-UK European stocks.
I’m not really advocating this approach. I’m just thinking out loud and expressing how disappointing it is that investment products out there don’t solve for this type of thing.
That said all said what I’m talking about certainly wouldn’t require that big an investment of time or money, let alone making it a full time job. If you pick 50 and don’t trade the admin will be at most a few days and more realistically a few hours each year. Your 50 stock portfolio would have a bunch in UK, Australia, CHF and other jurisdictions where there are no WHT reclaims to worry about (and indeed one would sensibly tilt the portfolio that way). I don’t know how easily it is to deal reclaims through IB but I suspect it is automated for markets like Gemany, France etc. so you can probably easily get it down to less than 10 or even 5 reclaims that required some manual intervention.
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Unfortunately outside the US, single country ETFs tend to be expensive. For the UK for example, which is one of the biggest non-US markets, I believe the cheapest ETF is FTAD at 20bp. Ishares provides lots of single country ETFs but these are not local vehicles and have expense ratios of as high as 60bp.
Does anyone have info whatsoever on funds domiciled in Luxembourg?
How do they compare to IE-domiled funds?
Are they interesting for the swiss investor?
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