Is VWRD the one ring to rule them all?

Index tracking funds and ETFs
ap8889
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Is VWRD the one ring to rule them all?

Postby ap8889 » November 29th, 2016, 4:49 pm

Title says it all: Is Vanguard World the best global ETF?

I ask because I am looking to begin to add a proportion of my funds to a passive investment ETF for overseas exposure to complement my UK focussed HYP, and VWRD seemed to fit the bill. I know I dont want anything other than an ETF to avoid paying a fee to my platform provider, (so dont be suggesting no funds/OIECs/unit trusts etc), and I own several ITs for income already.

So what are my options?

TedSwippet
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Re: Is VWRD the one ring to rule them all?

Postby TedSwippet » November 29th, 2016, 5:15 pm

It's an excellent global ETF, but don't forget that 6.1% of it is currently invested in UK stocks, so that bit may overlap with your existing holdings in some way.

Lootman
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Re: Is VWRD the one ring to rule them all?

Postby Lootman » November 29th, 2016, 5:27 pm

TedSwippet wrote:It's an excellent global ETF, but don't forget that 6.1% of it is currently invested in UK stocks, so that bit may overlap with your existing holdings in some way.

Yes, that's the theoretical difference between a global fund and an international fund. "Global" includes the UK (or US if that is where the fund is based) and "International" is foreign only. Not that the name is a 100% reliable indicator of course.

The same issue can arise with European ETFs - some include the UK and some do not, wryly reflecting our ambivalent approach to the EU, perhaps?

Another approach is to hold a US ETF, a "Europe ex-UK" ETF, and some combination of Asian and Emerging Markets ETFs to cover the 94% or so of the global market cap that isn't the UK. Such an approach should self-rebalance in most circumstances.

TedSwippet
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Re: Is VWRD the one ring to rule them all?

Postby TedSwippet » November 29th, 2016, 5:38 pm

Lootman wrote:Another approach is to hold a US ETF, a "Europe ex-UK" ETF, and some combination of Asian and Emerging Markets ETFs to cover the 94% or so of the global market cap that isn't the UK. Such an approach should self-rebalance in most circumstances.

That's what I do, though with funds and not ETFs. My oldest portfolio pre-dates cost-effective global funds/ETFs. It is a bit more fiddly than the one-ring-to-rule-them-all approach, but not horrible, just mildly annoying.

I find looking at the differences that have opened up between funds since I set it up initially the most irritating part ("...if only I'd put it all in the US rather than spread it around!"). That would all be opaque in the one-fund solution.

GeoffF100
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Re: Is VWRD the one ring to rule them all?

Postby GeoffF100 » November 29th, 2016, 6:59 pm

I think you mean VWRL.

hiriskpaul
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Re: Is VWRD the one ring to rule them all?

Postby hiriskpaul » November 29th, 2016, 7:24 pm

Is it going into a SIPP? If so you might want to consider a US listed ETF instead, such as Vanguard's Total World Stock ETF (VT). This has a lower TER of only 0.14%, but more importantly will pay dividends from the contained US shares completely free of withholding taxes. This will rely on your SIPP provider supporting this zero-WHT option. Hargreaves Lansdown and Youinvest do.

Hariseldon58
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Re: Is VWRD the one ring to rule them all?

Postby Hariseldon58 » November 29th, 2016, 8:35 pm

Vwrl is the version aimed at the uk buyer, vwrd is the same thing but aimed at other markets.
Veve is a developed world only version at .18% against .25% for vwrl and if you threw in a side of vfem (emerging markets) at .25% , ratio say 9 parts vwrl, 1 part vfem you effectively have the same thing at a lower cost.

mc2fool
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Re: Is VWRD the one ring to rule them all?

Postby mc2fool » November 29th, 2016, 9:04 pm

Hariseldon58 wrote:Veve is a developed world only version at .18% against .25% for vwrl and if you threw in a side of vfem (emerging markets) at .25% , ratio say 9 parts vwrl, 1 part vfem you effectively have the same thing at a lower cost.

Or for folks who don't want a UK component, the Vanguard FTSE Developed World ex-U.K. Equity Index Fund at 0.15% with a similar smattering of VFEM for an even cheaper mix.

https://www.vanguard.co.uk/adviser/adv/detail/mf/overview?portId=9210&assetCode=EQUITY

GeoffF100
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Re: Is VWRD the one ring to rule them all?

Postby GeoffF100 » December 2nd, 2016, 6:29 pm

Interestingly, VFEM is a better match for Vanguard Developed World ex UK than the Vanguard emerging markets OEIC.

QCG1
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Re: Is VWRD the one ring to rule them all?

Postby QCG1 » December 4th, 2016, 2:32 pm

On the assumption that stirling is low at the moment and will rise in the future(*) is it sensible to buy a World Tracker now?

(*) I accept that this assumption may be rubbish.

Hariseldon58
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Re: Is VWRD the one ring to rule them all?

Postby Hariseldon58 » December 4th, 2016, 5:39 pm

QCG1

I would be cautious about making assumptions about the next movement for Sterling.

The answer is who knows ? I have watched the $ : £ rate for 30 years and around 1.60 is my gut feeling for fair value but in the 70's it was more like 2.40 and my parents who lived in the states in 40's and 50's remind me they saw much higher rates as the norm in the past.

My equity exposure was already low sterling and I brought my exposure down to about 15% in February which seemed a good idea, to follow momentum and looks that way now, but what will the next movement be ? I presently have no idea, my currency gains may vanish or increase.

What I do know is that I am happy with a globally diverse portfolio, I will be equally happy in 5 years time and I will take it as it comes unless something occurs to provide clarity. Foreign exchange moves are very difficult to predict and I am aware that my previous success is probably just luck.

If you wish to consider a position in a global equity portfolio and don't know whether now or later is a good time then I would suggest you drip feed the money in over a couple of years, you will be neither right nor wrong but will strike an average and in the absence of a reliable crystal ball thats as good as any.

QCG1
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Re: Is VWRD the one ring to rule them all?

Postby QCG1 » December 4th, 2016, 5:50 pm

Hari,

good idea re:Drip feeding. And I do accept that predicting currency movements are hard (!?).

Cheers for the input.

QCG

GeoffF100
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Re: Is VWRD the one ring to rule them all?

Postby GeoffF100 » December 4th, 2016, 8:28 pm

Nobody knows whether sterling will rise or fall. You can hedge your bets by buying 50% UK and 50% overseas, which is currently about what I have.

An alternative plan is to put 50% in an overseas tracker, and 50% in sterling cash/bonds, which hedges your bets on currency position and on whether the equity markets will rise or fall.

fellrunner100
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Re: Is VWRD the one ring to rule them all?

Postby fellrunner100 » December 8th, 2016, 7:12 am

speaking of vanguard, does anyone know what the lower limit to invest next year will be when they go direct to customer.
fellrunner

Mapfumo
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Re: Is VWRD the one ring to rule them all?

Postby Mapfumo » December 8th, 2016, 9:42 am

If you believe in efficient markets enough to buy a world tracker shares ETF, why would you think that you can predict movements in the (much larger I believe) currency markets?

I've been drip feeding money into VWRL for some time, so I think the answer to the OP's question is yes, but there is a case to be made for the Vanguard LifeStrategy offerings which combine a passive global equity tracker at a certain percentage with the remaining percentage allocated to bonds.

Radiccio
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Re: Is VWRD the one ring to rule them all?

Postby Radiccio » December 9th, 2016, 4:35 pm

I have invested my son's child benefit and CTF into VWRL in his ISA as I couldn't be bothered allocating between different ETF's and I don't need a bond component.

In my wife's SIPP I just use Vanguard LS80 and in my own I used to have the Vanguard ex-UK fund to complement my Vanguard UK All share but YouInvest upped the fees so moved to the SPDR and DB X-Trackers ETF versions of each instead.

ap8889
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Re: Is VWRD the one ring to rule them all?

Postby ap8889 » January 4th, 2017, 9:16 pm

Thanks for all the feedback. I am now the proud owner of a chunk of VWRL.... couldn't decide on a HYP share this month and decided not to sweat it but to go passive this time.

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Re: Is VWRD the one ring to rule them all?

Postby 1nv35t » January 4th, 2017, 10:11 pm

VWRL has a 0.25% management fee applied to it. It benchmarks to the world net of taxes index, which for instance means after 30% of dividend withholding tax applied to US stock dividends (and where the US makes up around half of all holdings). Other countries have varying rates of dividend withholding tax, but keeping things simple lets assume that US rate is applied to all of dividends.

So the index it benchmarks to is the index price gain + 70% of dividends. Assume a 2.5% average dividend yield and the benchmark index is 30% of that 2.5% dividend (0.75%) lower than the gross total return index value. Add on the 0.25% management fee and you're up at 1% below the gross total return index levels.

Being domiciled in Ireland however and the US dividend withholding tax rate is reduced, like for the UK, to 15%. Run all the figures and broadly you end up with actual rewards comparable to the net total return index when management fees are also included. If however interest rates/inflation/dividend yields were to rise (not a unreasonable assumption sooner or later) and dividend withholding taxes increase in £££ terms.

Generally you might anticipate lagging the gross total return index by around 0.625%/year assuming a 2.5% gross dividend. More if dividend yields generally rise (less if they fall). When your portfolio value is up at 7 digit levels that 0.625% amount is not insignificant (£6250/year+). And that's before other dividend taxes such as the more recent taxation HMRC now applies.

That all said, other approaches will equally incur such 'costs'. If you hold a bunch of stocks directly yourself, then you only save on the 0.25% management fee amount, less any costs you incur during managing that portfolio of stocks. The exception is if you hold a portfolio of non (or low) dividend yield stocks where dividend taxation risks/costs are reduced. Some would have you believe that non dividend stocks lag higher dividend yield stocks, however that is a fallacy ... except if measured on a value weighted based structure. For equal weighted the two compared near identically in total return (annualised) since 1928, but where non dividend had higher volatility along the way (standard deviation in yearly gains). Interestingly if you look at just years when nominal losses occurred then the two had comparable std. dev's. in those yearly losses. Much of the higher volatility of non dividend was towards the up side. In effect non div reflect either growth or stress cases. High yield can also be a indicator of a stock under stress and the indications are that the downside risk of high yield versus non-div are similar, but where non-div had the higher upside rebound potential/average; But that came with overall significantly higher portfolio volatility such that when compounded out the two broadly compared equally in total gain terms.

A better choice would be a global non-dividend diverse set of stocks, somewhat equally weighted, and low cost. There is no such ETF however that fits that bill. Leaving BRK-B as perhaps the closest match, but that involves considerable idiosyncratic (single stock) risk. A more realistic choice is to blend BRK-B with VWRL in proportion to how much single stock risk factor you feel comfortable with. Or if you have sufficient that saving the 0.625% made it £££ worthwhile, then maintain your own diverse global non dividend portfolio. Your own management/trading costs however would eat into that 0.625% amount. At towards 8 digit amounts, it becomes more reasonable to work-that-job for oneself (perhaps a 50K 'wage' for being your own 'fund manager'). For most (average-Jo), some BRK-B, mostly VWRL seems to be a reasonable choice.

1nv35t
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Re: Is VWRD the one ring to rule them all?

Postby 1nv35t » January 4th, 2017, 10:22 pm

VWRL holds cap weighted exposure amounts. If you hold a more equal weighted blend then something like a combination of

BRK-B
VJPN
VMID
VERX
VAPX
VFEM

has 16.6% risk exposure per holding and is a more global equal weight blend of assets.

During the 1970's and 1980's the US dropped from being around 75% of global share to 25% as Japan rose from next to nothing to being near 50%. Japan's 1990's onwards crash saw much of those gains being given up and the US rebounding back to 60% type levels.

Initially equal weight bought and held will subsequently find its own cap weightings for each of the holdings. Buying into current weightings is a bit like having bought a prior initial equal weighted that has found its own weightings, but at a late date into that.

Initial equal weighting of the above, bought and held, has a initial management fee yearly cost of around 0.15% and unlike VWRL doesn't 'tilt' heavily into the past relatively strongest performer (US), that might falter in the forward time direction or be superseded by another such as China. Its also a set that is more dividend tax efficient compared to VWRL. Potentially better outcome (via equal weighting rather than cap weighting) with lower ongoing costs.

1nv35t
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Re: Is VWRD the one ring to rule them all?

Postby 1nv35t » January 4th, 2017, 11:11 pm

To the close 4th Jan 2017, using Bloomberg data for

BRK-B
VJPN
VMID
VERX
VAPX
VFEM

Gross Total Return 29.96%
Net Total Return 29.70%

i.e. costs of 0.2637% fund expenses and dividend withholding taxes, excluding UK dividend taxation.

In contrast VWRL has 0.25% fund management cost, before any dividend withholding taxation.

Individual figures for EPIC, Year gain %, Div Yield, Expense ratio, 15% div withholding tax cost

Code: Select all

BRK     48.8    0       0       0
VJPN    24.5    2.71    0.19    0.0285
VMID    6.59    2.94    0.1     0
VERX    20.55   0.95    0.12    0.018
VAPX    32.63   1.97    0.22    0.033
VFEM    37.21   0.92    0.25    0.0375


For Talmud choice of third each land (home, including gross imputed rent benefit), merchandise (stocks ... as per above) and reserves in hand (gold), net total return = 22.4% (i.e. gold +30.1%, London home prices +3.7% and 3.7% imputed rent benefit).


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