Critique my ETF portfolio

[Below]

Hi all, new to all of this and would like some advice. Started filling up my TFSA and it looks like this at the moment. 

 

ASHGEQ - 40%
STXEMG - 15%

GLPROP - 10%
CTOP50 - 10%
NFEMOM - 15%
SYG4IR - 5%
STXNDQ - 5%

 

I'm thinking about changing it to this:

 

STXWDM - 50%
STXEMG - 20%

GLPROP - 10%
NFEMOM - 10%
ETF5IT - 10%

 

Thoughts? Sell off ASHGEQ, CTOP50, SYG4IR and STXNDQ at a profit (covering the costs) and reinventing it. 

[Bandit]

33 minutes ago, Below said:

Thoughts? Sell off ASHGEQ, CTOP50, SYG4IR and STXNDQ at a profit (covering the costs) and reinventing it. 

 

If it was profitable then yes, sell off and "reinvent" or keep the ones that you do not like/are duplicated and stop contributing to them.

 

It helps if you theme your portfolio meaning: 80% offshore, 10% local, 10% property... or in your case 80% (50% developed markets, 20% emerging markets, 10% tech stocks), 10% local, 10% property. Get the "theme" right so you know what you want to do and then use the appropriate ETFs to do so.

 

 

 

 

 

Edited August 14, 2020 by Bandit

[SaurusDNA]

A few things to think about:

 

1) Why do you want to sell ASHGEQ in favour of STXWDM? A quick graph comparing the two may suggest that STXWDM is outperforming ASHGEQ, but this is not the case, since ASHGEQ pays dividends, but STXWDM does not. Despite the higher TER for ASHGEQ, the graph looks different once you plot the total return for both. In the graph below (since the inception of STXWDM), the dark blue line shows ASHGEQ before dividends. the light blue line is STXWDM total return, and the grey line is ASHGEQ total return (the return once dividends are included). The longer the time period, the better ASHGEQ has been doing compared to STXWDM (the grey line rather than the dark blue should be considered for the full picture).

 

(Click on the graph to zoom)

 

 

2) ETF5IT has had an amazing run in the past year. But just about 40% of it (39.33% to be precise) is made up of just two companies - Microsoft and Apple. Since a large chunk of this ETF's performance has been due to good annual returns of these companies for this year, the annual returns next year may look different, and then the ETF may perform very differently. On the other hand, SYG4IR consists of many smaller, newer, developing companies with (possibly) more potential for long term growth. Also, in STXNDQ, exposure to Microsoft and Apple is less at only 24%, giving a more well-rounded ETF. But I get your point - the two smaller ETF's having only 5% of your portfolio each feels like they are not making any difference, so you want to combine them into one. I'm not convinced that ETF5IT will continue to do better than STXNDQ or than SYG4IR going forward, but I may be wrong.

 

3) Personally, I like the idea of going 20% with STXEMG. This ETF is one third China, and with emerging markets, the potential for (very) long term growth is massive. However, with this one, patience is the key. If you're planning to sell it in the next 15 years, you may as well just sell it now. This one is for the long haul, but has huge promise over the 15+ year period. Especially considering your new proposed portfolio has 70% in developed markets already, the 20% in STXEMG actually feels small. Interestingly enough, the ETFSA international portfolio product has 20% STXEMG in it.

 

4) I see you want to drop your local exposure from 25% to 10% by dropping NFEMOM to 10% and by selling CTOP50 and buying foreign ETFs with it. If this is the case, then why not put the extra 5% each into SYG4IR and STXNDQ, making these 10% each, rather than going 50% STXWDM? Also, I assume you have sufficient local exposure in other products (pension/RA) etc. to warrant the drop here?

 

5) Personally, I prefer your existing portfolio more than your new proposed one. However, if you do want to go only 10% local, if it were me, I'd do:

 

ASHGEQ - 40%
STXEMG - 20%

GLPROP - 10%
NFEMOM - 10%
SYG4IR - 10%
STXNDQ - 10%

 

6) Importantly, don't make the mistake of selling the 5% NFEMOM just so your portfolio gets to its new percentage allocation quicker. If you are going to drop the allocation to 10% , just hold on to what you have and don't buy more until it's just 10% of your portfolio.

 

7) P.S. Welcome to the forum!  

 

Edited August 14, 2020 by SaurusDNA

[Below]

First off, thanks for the feedback. Thought it best to rather ask for advice before jumping in blindly. Reason for wanting to switch from ASHGEQ to STXWDM was for the bigger exposure to the US (probably a risk I know), then just supplementing with a bit more exposure in emerging markets. All in all, I think I'll stick with my existing portfolio, valid points were made. I'll have to do a reshuffle on some of the percentages though, would love some advice on the local side of things, as you can see my trust in SA just isn't there at the moment.

[SaurusDNA]

ASHGEQ is only 7% emerging markets. The other 93% is basically the same index as STXWDM anyway. What makes the ASHGEQ so attractive here is that the 7% emerging markets exposure is only the best emerging market companies in the world, so in addition to the 93% that is the same as STXWDM, you're getting a 7% of carefully chosen top performers as well, so out-performance is expected. I think most on this site, as well as Simon Brown and Kristia van Heerden from JustOneLap, prefer ASHGEQ to STXWDM. In fact, Simon and Kristia call ASHGEQ the "One ETF to rule them all" and mention on their website that if they had to put all their money into just one ETF, it would be ASHGEQ.

 

Regarding local ETFs, there are two reasons why some local exposure is important:

 

1) Most importantly, South Africa has higher inflation than the developed markets. This means higher growth. If a can of beans at Checkers costs R100 now and we have 6% inflation, next year, the can of beans costs R106, and the profit that Checkers makes goes up by 6%, so Checkers grows by 6%. Now, in a country with no inflation (Europe) or 1% inflation (US), that means a company similar to Checkers only grows by 1% because the price of their sales only increases by 1%. Over ANY 10 year period in history, South African market growth has been higher than the developed markets indices, simply because we have higher inflation. As long as the Reserve bank continues their inflation targeting policy at 4-6%, South Africa market growth is expected to be higher than foreign markets. Higher inflation = higher growth. For the same reason, that's why over the long term, emerging markets (which have higher inflation rates) always outperform developed markets. Don't be overly seduced by the high returns of the US in the past two or three years - there are short-term factors at play too - but as I have mentioned, choose any 10 year period in history, and South African growth is higher than the developed markets.

 

2) South African share prices and growth don't depend on the value of the Rand. If the Rand weakens, your local shares stay the same and your foreign shares make money from the exchange rate. However, if the Rand strengthens, you lose on Foreign shares, but not on local shares. Hence, local shares decrease your downside risk if the Rand strengthens. In other words, local shares reduce your currency exposure risk.

 

With regards to local ETFs, it's anyone's guess which ones will do best. Vanilla ETFs such as STX40 have probably been the ETF of choice up till now, but it has extreme exposure risk due to the heavy weighting of a few companies at the top of its constituent list. Smart Beta's like Coreshare's SMART just haven't lived up to their promises. And then globally, the momentum factor is consistently being shown to perform better than other ETF methodologies, so NFEMOM is probably not a bad choice. CTOP50 is an attempt at doing a top 50 without the concentration risk, which is probably also not a bad idea either.  But I think any combination of STX40/CTOP50 and NFEMOM is good.

 

 

Edited August 14, 2020 by SaurusDNA

[SaurusDNA]

Just a update on ASHGEQ: The proposed restructuring was approved by the majority of shareholders.This means that ASHGEQ will now become a feeder fund (owning the ETFs that make up the index rather than owning the individual companies). So while the index will remain exactly the same, the management costs and TER for ASHGEQ should now come down significantly.

 

The individual constituents comprising the S&P Global 1200 Index are:

 

 iShares Core S&P 500 ETF
 iShares MSCI Europe UCITS ETF EUR Dist
 iShares S&P/TSX 60 Index ETF
 iShares Core TOPIX ETF
 iShares Asia 50 ETF
 iShares Latin America 40 ETF
 SPDR S&P/ASX 50 Fund

 

(Source: ASHGEQ SENS announcement 11 August 2020)

[SaurusDNA]

So ASHGEQ will suspend trading on 9 September and the ETF will be replaced with the Ashburton Global 1200 Equity Fund of Funds ETF (ASHEQF) (also launched on 9 September). This is the new feeder fund discussed in the previous post. (Source: ASHGEQ SENS announcement 1 September 2020)

 

We shouldn't notice any immediate difference in our portfolios, I guess, except the change of code from ASHGEQ to ASHEQF.

 

 

 

[Bandit]

Great... changing the ticker code...

[SaurusDNA]

Which also means all the history graphs disappear...     

[Bandit]

Yeah. Don't get why they are changing the name at all. It still has the ASH prefix and the name has a lot of material (podcasts, posts, articles etc) connected to it

[Outlook]

What is a good Africa ETF?

 

I'd like to go 50% into SP500 and 50% Africa