Pretty much unchanged except that I can increase my contributions in 2024 somewhat:
I think about possibly decreasing emerging markets vfem from 10% to 5%, as the index is clearly lagging behind world and swiss indexes. Seems like throwing money out of the window and I have somewhat lost my hopes it will eventually come back. Any thoughts on this?
I am quite a newbie, hence I’ll stick to what I started doing last year:
I have a couple of outstanding issues to take care of, though :
Correct me if I’m wrong, but by being invested in VWRL you have some emerging markets in that index already (~10%). → 10% out of 80% allocation is 8% of your portfolio. Additionally, you have another 10% of your portfolio in VFEM, giving you a total of 18% exposure to emerging markets.
You could sell your your whole stack of VFEM and put it all into VWRL, giving you about ~9% exposure to emerging markets (which is much more reasonable in my opinion).
I’m uncertain about the accuracy of the numbers you’ve presented. It’s advisable to verify the weighting and specific allocation of VWRL and VFEM. There might be overlapping investments in the same companies between the two indices. A single allocation to VWRL seems more suitable for simplicity and cost efficiency, as the percentage appears likely to be lower than 18%.
I see the same upsides in KMLM as you. I also think the 1% ER is offset by the zero tax basically. Say compared to a Bond fund with for example 3% yield, where 0.75% is already going away to taxes.
Thanks for highlighting this so clearly to me. Seems excessive in hindsight 
My goals will be to:
This. When I started investing, I aimed for 25% of Emerging markets. They have been lagging now for 7 years straight… I did not sell any but eventually stopped investing more. Now I’m at about 16.5% EM …
Same here, I was young & naive, listening to a German finance influencer (“Finanzfluss”) who promoted the idea of equity-allocation according to GDP (= 30% EM). Really dumb idea, because globally successful companies don’t emerge from domestic/regional GDP…
I’ve reduced EM to cap-weight levels at some loss (no regrets, could have made worse mistakes as a beginner)
GDP growth is actually even slightly negatively correlated to stock returns. That’s what the research says at least. It’s super counterintuitive.
I still hold about 10% EM, it’s a good diversifier. But only factor funds from Avantis. I feel like they weed out many of the absolute trash companies with their methodology.
Which ones do you hold?
I guess one explanation could be that political stability, strong rule of law, top-league universities (innovation power), entrepreneurial freedom etc. tend to give birth to or attract great companies.
Maybe. Personally, I’m not convinced of value investing, I believe price reflects fundamentals and behavioural aspects (both matter equally, because markets are nothing but a human construct). However, I think value investing won’t do much harm either because it’s mostly market beta-hugging (maybe there’s some concentration risk vs. passive total market, and higher ER, of course).
I’d probably rather look for a fund that’s trying to weed out EM for some of the criteria mentioned above (maybe FRDM, haven’t looked into it yet, or a fund like EMXF with some ESG criteria that hopefully work).
Yeah I also used to have a slightly higher allocation in EM. A lot of Germans do this with 30-40% which is just crazy and will have a huge performance drag. Now I’m at 8% and will leave it there.
I had also around 10% of AVEM in the past but had to sell to get more cash for the downpayment of the mortgage. At that time I was surprised by the good dividend but else it did not influence much my portfolio to the down or up. I am considering in the future maybe to have a mix 5% AVEM and 5% AVES. What is your mix? or do you have just one? At the time I got AVEM, there was no AVES afaik.
Currently 5% AVEM and 5% AVES, but will switch the latter to the new AVEE once it’s fully built. AVES has too high of a dividend yield of 4% for my liking, which isn’t the most tax efficient, else I would keep it.
AVEE is not strictly small cap value, it’s “only” small caps, but as it’s Avantis, it still has a pretty strong factor tilt, as you can see at morningstar: AVEE – Portfolio – Avantis Emerging Markets Sm Cp Eq ETF | Morningstar
Are you familiar with Fama/French research? Im pretty convinced, especially in Avantis approach to combine factors methodically. So far their funds also have proven themselves. Their core funds for example have mostly outperformed their classic mcw counterparts (VTI vs. AVUS for example)
I think concentration risk is actually increasingly getting higher with market cap weighted funds. Just look how the top 10 stocks dominate the S&P more and more.
But Im not hoping for some crazy outperformance, after cost some 0.5% over the longterm. The discovery of teh factors certainly put some damper on their return.
There is also XSOE from wisdomtree, that specifically excludes state-owned companies, that may be interesting to you.
Yep, it’s crazy that this is so widespread, due to Finanzfluss. It doesnt make any sense and is not rooted in any sound theory. Anything above 15% is just gambling on EM somehow doing crazy outperformance in the future. It’s in the same category as stock picking in my opinion, overweighting a region like that.
See above, that’s my exact mix right now.
Yep, it’s interesting, but I believe we’re like 40 years too late to exploit that risk premium, it’s been pretty much arbitraged away now that many institutions hold value, and ETFs offer value everywhere… (except for maybe US private equity and Ex-US space). But it’s better than most other forms of active investing if you hold close to market beta, which most DFA/Avabtis products do
Interesting indeed, I’ll have to check if FRDM screens for state-owned companies too.
Interesting this AVEE… so basically it is a mix of AVES+AVEM but only including small caps if I understand correctly. The TER is quite high though it’s around an extra 0.1% fees compared to AVES or AVEM. Probably one advantage of AVEE is that if you already have VT you don’t include again all the large caps EM stocks. Will have to keep an eye on it.
Main issue with emerging markets for investors as far as I know: the huge GDP growth is mostly due to companies that aren‘t even on the stock market. Either not publicly listed or too small in the beginning to profit from any significant growth.
Good point.
To be more targeted on EM, I have added ETFs tracking specifically Latin America (ALAT/LTAM).
