Thoughts on portfolio diversification [2025]

TER is one part of the equation. But yes just comparing TER will not get you far.

The next problem is that funds follow different indices and will therefore have a different return alone.

SSAC for example follows a large cap only index.

TERs change over time and tracking difference may have been worse in teh past with a higher TER as well for example. SPYI is such an example.

FWRA tracks the same index as VWRA, but has a 0.17% TER, and beat VWRA since inception.

1 Like

You are right but comparing tracking difference of UCITS funds is misleading as explained by @Tony1337 in comment above.

In order to compare like to like performances , we need to compare ETF tracking same index

FWRA & VWCE are such examples.

FWRA is newer and has been consistently performing better than VWCE. This is also expected because of higher TER of VWCE

1 Like

6 posts were split to a new topic: Dark side of investing: behavioral aspects

My understanding is that Small Caps/Value performs better when the market (mainly Large Caps) performs poorly. → Good downturn hedge

Even if the premium does not exist anymore…

1 Like

What exactly is “Win ratio”? I thought it’s percentage of years where returns are higher than inflation, but that is not the case for the T-bill column.

1 Like

During the drawdown they perform worse usually, but have a fierce upward swing in the recovery.

Also depends on the type of drawdown. For example an overvalued bubble-like drawdown i.e. Dotcom 2000, favors value stocks, as they are not bubbly & are cheap already. But a drawdown like 2008 will crush small caps and value stocks due to severe economic downturn and those stocks not having as much cushion to survive as well.

4 Likes

Ah, now I see it. Still, years better than inflation would make more sense IMO.

1 Like

If you don’t mind, could you explain what motivated you not to use US ETFs anymore?

The main reason is that US ETFs fall under jurisdiction of IRS in US for estate taxes.

Without proper paperwork, upto 40% of value can be lost in taxes. And I just didn’t feel comfortable with this nuisance in my life.

You can read a bit more about this topic in this thread. Try to read the whole thread to get the full picture.

So does anyone underweigh US in their portfolio? If so, is it based on feeling or is there a rational reason for the number you ended up with (say, capped at 50%)?

I’m asking because everyone (EDIT to clarify: meaning passive investors) seems to use market-cap weighted instruments because that approach is the only sensible one… unless in this case it’s not applicable for some reason.

1 Like

Depends on who you ask. I was talking to a friend last night and by chance he mentioned he invests, I didn’t know and he didn’t know about me either. He said “yeah sure, I invest in nVidia and Palantir, where else would one invest in?” with supreme confidence. Lucky? Dead sensible?

Market cap weight is good enough for a mostly passive investor. I have a +20% US tilt personally and not planning to change that.

1 Like

I clarified my post above, I was talking about passive investing.

1 Like

KMLM and DBMF are both heavily down (even in USD) this year. What exactly was the point, and diversification benefit, of Managed Future ETF?

1 Like

0%. I don’t have 100% trust in them to honor my ownership of their companies.

2 Likes

So you can sleep well at night and are not kept awake by asking yourself “if having MF in a portfolio would have worked, I wouldn’t have lost as much, so thank God I had some”… wait what?

IIRC KMLM uses a 200SMA strategy so it may catch up later.

CAOS did what it’s supposed to do.

But overall yeah, only boomer gold which is not supposed to be a good hedge has been a good hedge YTD.

Trend following doesn‘t work for quick reversals and fast crashes.

So nothing unexpected has happened.

1 Like

My plan is to be between 45-50% for US stocks.
This is to have not too much exposure to one country.

Nothing to do with expected returns. Purely risk management. If I am being perfectly honest, it’s still scary for me because of current administration where they interfere so much with running of companies. Amazon‘s recent drama is prime example.

I don’t know if it would make sense to go to 35% US weight. I don’t have conviction to make that decision yet

Sir, saying underweigh and passive in the same post is blasphemic.

Cardinal Goofy
PPSP (Papal Passive Stock Picker)

I agree. Hence my question in the second paragraph you haven’t quoted: what are the reasons people are not convinced of the pure passive (i.e. market-cap weight) approach anymore?

1 Like