Global ETF Portfolio

[chewyjoint]

Hello again

I wanted to test out my planned Global ETF Portfolio. It's based broadly on Tim Hales Global Tilt portfolio. I'm struggling with formatting it as a table, but here goes;

S&P 500 ETF Vanguard VUSA 25%
Developed Europe ex UK ETF Vanguard VERX 7%
FTSE Mid Vanguard ETF VMID 8%
FTSE 100 ETF Vanguard VUKE 7%
Developed Asia ex Japan ETF Vanguard VAPX 4%
Japan ETF Vanguard VJPN 4%
Emerging Markets ETF Vanguard VFEM 15%
Global Value Factor ETF Vanguard VVAL 15%
F & C Global Small Companies IT 15%

As I said on a post on the fool forum I am struggling with the last one, an alternative was offered of VVAL but this would mean having 30% of my portfolio in one fairly risky ETF.

This portfolio has an average yield of 2.02% and average cost of 0.25% (this is bumped up by the F&C IT with a charge of 0.85%)

I have seen reference to the tax status of some ETFs (possibly US ones?) but I don't fully understand it and, as this is to be held in a SIPP, I'd appreciate if anyone can shed light on that point?

[Lootman]

I have seen reference to the tax status of some ETFs (possibly US ones?) but I don't fully understand it and, as this is to be held in a SIPP, I'd appreciate if anyone can shed light on that point?

I think I can. In the US mutual funds (a category that includes open-ended funds, ETFs and the US version of investment trusts) are taxed rather differently from here. In particular they are all required to distribute not just dividends, as in the UK, but also realised capital gains - both short-term and long-term.

ETFs have a distinct advantage for US taxpayers because, due to their unique internal structure, they generally do not distribute capital gains. It can happen in some more obscure cases but, for the major market ETFs, gains are effectively deferred until the fund holder sells, as here.

For a UK taxpayer holding LSE-listed ETFs, that advantage is moot. The rather more limited tax advantage of UK ETFs, at least over investment trusts, is that there is no stamp duty to pay, in the same way as you pay no stamp duty for UK-listed open-ended funds.

The other tax advantage of ETFs over ITs is that the latter pay UK corporation tax and the former do not. In most cases that is a trivial benefit and mostly helps for a fund with a lot of overseas income, for reasons I don't claim to fully understand but I'm sure an accountant here could.

More generally I like your portfolio, but would probably try and find an ETF to replace the F&C smaller companies IT for cost reasons.

[TedSwippet]

I have seen reference to the tax status of some ETFs (possibly US ones?) but I don't fully understand it and, as this is to be held in a SIPP, I'd appreciate if anyone can shed light on that point?

There is a niche advantage specific to pensions. By switching from VUSA to VOO you might be able to sidestep the 15% tax on dividends paid to the US internally by VUSA. More in this Monevator article: ETFs and the peculiar effects of withholding tax.

Not all UK platforms will handle W-8BEN or reclaim US tax withholding in pensions, and higher broker charges for platforms that do might wipe out your advantage. Trading on the NYSE may be more expensive than local exchanges. The US has a rapacious estate tax that starts at very low levels for non-resident aliens and which would encompass VOO but not VUSA (although UK citizens can use a decent US estate tax treaty that mostly neutralises it).

[hiriskpaul]

As this is a SIPP you could take advantage of the zero withholding tax benefit of US listed ETFS. Check your provider first though. Hargreaves Lansdown and Youinvest are OK, not sure about others.

You could then replace your F&C IT with a split between Vanguard's small cap ETF (VB) and international small cap ETF (VSS). I do this, but hold Vanguard's small cap value ETF (VBR) instead instead of VB.

You may be better off holding Vanguard's US listed S&P 500 ETF (VOO) as well to avoid the 15% dividend withholding tax that their LSE listed fund pays. That will be give you about 0.3% more per year compared to VUSA.

Whether the withholding tax savings are worthwhile to you will depend on your holding period and with HL how much you want to invest as the cost of trading US ETFs with them is tiered. You will gain each year by paying lower charges, but you pay much higher trading costs due to the foreign exchange levy.

[Mapfumo]

FWIW, the bulk of my portfolio (outside of pension) looks very similar to what you have.

I don't have %ages in my head, although I do know that I'm underweight VUSA relative to the others, but I have a reasonable mix of VUSA, VERX, VMID, VAPX, VJPN & VFEM supplemented by a Pyad style HYP (which is why I don't have FTSE-100 ETF) plus some VWRL when I've made a top-up and couldn't be bothered to work out where to allocate it, plus a small-cap ETF (from Blackrock?) whose code I don't remember and a small amount in REITs.

[Hariseldon58]

There is a very comprehensive global small cap fund from Vanguard and a slightly more expensive ETF from state street WOSC.

It holds 1800 holdings as opposed to 4000 in the Vanguard fund. ( to be fair the state street samples the index but the number of holdings has risen significantly from a few years ago)

Worth considering

https://www.spdrseurope.com/etf/spdr-ms ... tf-ZPRS-GY

[Radiccio]

I'm not far off that allocation but have recently moved away from Vanguard to reduce fees in YouInvest:

40% SPDR UK FTSE All Share FTAL
15% DB X-Trackers ex-UK XDEX
15% Vanguard Emerging Markets VFEM
15% Vanguard UK Bonds VGOV
5% iShares Global Bond SGLO
10% UK Property IUKP