World portfolio UCITS

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Now that we have growth in WEBG ETF (676 Million USD), I am starting to think what are the new options for world ETF portfolios based on UCITS. With world I mean full world including EM and Small caps.

I looked at various available options and following is my summary. Of course there are more ETFs available and I did not include all of them. I generally do not prefer ESG unless there is no other option.

So it seems like, if I want to replicate VT type portfolio using UCITS ETFs, following are options

  • IMID (0.17%)
  • SWRD + WSML + EIMU (0.16%)
  • WEBG + WSML + HESC (effective TER between 0.11 to 0.12%)

I wanted to ask for your thoughts on following

  1. What is your expectation on Small cap premium for coming 10-20 years. Specially in context of Digital world and if larger would get larger or would there be space for Small caps to deliver a premium. I am fully aware of what happened in last 10 years, but I am more interested in your view for future in terms of Small cap premium. Reason behind this is if I should bother having Small caps at all or WEBG is good enough.

  2. WEBG is following another World index (neither FTSE nor MSCI) and have 1100 stocks . Does it matter or as long as it has enough global exposure, we are good? I noticed that if you look at WEBG holdings, the last ones are so small in terms of contribution that I start to wonder if it matters to have 1100 stocks of 2000 stocks.

ETF Index TER Large/mid caps (DM) Small Caps (DM) Large/mid caps (EM) Small Caps (EM)
IMID/SPYI MSCI ACWI IMI 0.17% X X X X
VWRL FTSE ALL WORLD 0.22% X X
FWRA FTSE ALL WORLD 0.15% X X
VEVE FTSE DEV WORLD 0.12% X
VFEM FTSE EM 0.22% X
SSAC MSCI ACWI 0.20% X X
SWRD MSCI World 0.12% X
IUSN/WSML MSCI World Small Cap 0.35% X
EIMU MSCI EM 0.18% X X
IEMS MSCI EM Small Cap 0.74%
HESC MSCI EM Small Cap ESG 0.35% X
WEBG Solactive GBS Global Markets 0.07% X X

DM = developed markets
EM = Emerging markets

FTSE All world -: represents 90% of total market
MSCI ACWI -: represents 85% of total market
MSCI ACWI IMI -: represents 99% of total market
Solactive GBS Global -: represents 85% of total market

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For the cheapest TER and avoid US wittholding tax I would recommend the combination:

  • Invesco MSCI USA UCITS ETF, TER: 0.05%, Synthetic
  • Xtrackers MSCI World ex USA UCITS ETF 1C, TER: 0.15%
  • one Emerging market ETF, for exemple: iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc)

With this combination, you have a TER around 0.09%.
If you choose WEBG and you add wittholding tax, you would have a TER around 0.25%

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Personally I don‘t think there is much small cap premium, if all, left. There‘s newer research suggesting, after adjusting for various factors, that there is not much premium left for JUST small cap. I think lots have to do that financing today is way easier than in the past, which reduces the small factor.

But what is still the case, is that other factors such as value and profitability are way more pronounced in small caps. But this is irrelevant for a market cap weighted portfolio, as by definition all factors amount to roughly zero in aggregate. Also the black hole of investing is small vap growth. So if you have small caps, you have some small growth and some small value, which cancels out basically.

All in all I would say there is a small diverisification benefit left and maybe a very small premium. But nothing to fuss about.
If you already include mid-caps, you are pretty much diversified enough imo. So VWRL should behave very similar to SPYI in the end probably.

Just large (as in msci World) I would not be that comfortable with. The concentration at that point is noticeably higher.
Still overall fine of course.

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16 posts were merged into an existing topic: Synthetic and swap-based ETFs

Doesn’t FTSE All-World include the upper range of small caps, about 1000 stocks or so?

The fact sheet says Large and mid caps.
But it could be that it does have larger coverage than MSCI ACWI.

FTSE All world covers 90% of investible market
MSCI ACWI covers 85% of Investible market

IIRC, 70% is large, 15% is mid, 14% is small and 1% is micro cap.

So it seems FTSE All-World has a third of small caps.

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That’s not true.

FTSE All-World (FWRA, VWRL) includes large and mid caps. FTSE Global All Cap (VT) also includes small caps.

Nice summary!
What could also be important is whether the ETF is accumulating and traded at SIX in CHF if you plan to buy with a swiss broker (save fees).

WEBG ETF (AuM 895.4 M USD) already overtook FWRA (AuM 286.44M USD).

Wow
I am impressed by the speed of WEBG growth

I believe FWRA is only such ETF (accumulating and traded in CHF on SIX) . Right ?

I am only talking about pure index ETFs without some ESG BIAS.

SSAC as well.

Would love to see IMID/SPYI or VWCE/VWRA traded in CHF at SIX. IMID/SPYI is my favorite at the moment. Watching it closely :slight_smile:

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Oh yeah. I forgot SSAC . I actually own it :wink:

I don’t expect much of a premium in the small cap universe. But if you can get small caps cheaply (yes, VT), i would do it, the benefit of diversification and spreading is there. Who knows, may be small caps could do better in the coming years, as they lagged large caps substantially, if you believe in reversion to the mean.

IMID/SPYI: it does a lot of sampling, it has some 3500 stocks, while the index has > 9000. It is likely not to matter much, but it is also likely to lead to some tracking error. I would wait and see how it goes with the fund when/if the fund gets more AUM.

If i had to go with UCITS ETFs i would go for VEVE+VFEM. These are quality funds from Vanguard. 5 bps difference with WEBG does not matter, I’d expect Vanguard to be better long term. The only thing that is worth considering is whether Emerging is a good idea. Lots of risk and volatility, and not so much return. I do invest in EM at market weight (not really, the index weights China at 15% or so) only for the purpose of consistency across brokerages.

Cliff Asness popularized this idea

Size matters, if you control your junk

https://www.sciencedirect.com/science/article/pii/S0304405X18301326

As someone on Bogleheads has shown, the “junk” performed rather well. I cannot find that post and with the death of portfoliovisualizer.com cannot quickly make a visual proof. It comes down to the discussion on factor premia, which is a completely different topic.

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I have now started investing into VT, but still have sizeable amount of FWRA shares. Now I’m deciding if I should keep these shares or sell them and switch to VT as well. What would be the (dis-)advantages of doing so?

i guess the only advantage (of keeping) would be some diversification on the etf level (fund, issuer & domicile).

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