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Taurus1

ETF Portfolio advice

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Hi

 

This is my current Portfolio of ETF's.  The Y/N indicates a monthy Debit Order Investment.  

 

Do I have too many ETF's  in my portfolio?  Is there any changes that I can make to the portfolio for better growth?  

 

Any suggestions welcome.

 

Thanks

 

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Edited by Taurus1
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Hi Taurus and welcome to the forum.

 

Disclaimer - I'm not a financial adviser - just a forum member with a few years of self-study and experience who invests and trades on the JSE, and the following discussion is based merely on my own observations and opinions.

 

Yes, you have too many ETFs. It's not so much the number though, but rather that you have some that track exactly the same index/companies which duplicates your costs and skews your perceived exposure.

 

A few observations:

 

1.  A massive chunk of your investment is indirectly invested in a single company - namely Naspers. The Satrix Indi, Top 40 and RAFI are basically all investing in exactly the same few companies, but in differing percentages. The Indi is largely Naspers, which has historically performed exceptionally well, but now that the fundamentals of TenCent (of which Naspers owns 30%) has changed, the future may not be anywhere as near as attractive. I'd definitely be nervous with such a big percentage of my portfolio in Indi (plus, it's never a good idea to have such a big chunk of a portfolio in a single sector). If it were me, I'd combine all three of these into Satrix 40.

 

2. The Satrix S&P 500 and the Sygnia Itrix MSCI World are pretty much the same thing with a tiny bit of extra emerging market exposure in the MSCI world ETF. This is duplication and skews your exposure.

 

3. If you're looking for diversification in property, I'd go at least 20% property (10% local property (PTXTEN) and 10% offshore property (GLPROP)), since it's a different asset class and doesn't necessarily correlate to stocks. If the stock market crashes, these may very well shine. In fact, in the long term, property has always done well.

 

4. Ashburton Government bonds - a different asset class which is good for diversification but in the long run doesn't do as well as equities. Having these in your portfolio depends on your risk tolerance - these are much safer than stocks, but underperform in the long run (longer than 10 years). If you want diversification with bonds, go at least 10% bonds. Otherwise, it just doesn't add any value to your portfolio, because at 2% of your portfolio, the purpose of this asset class (risk reduction) simply isn't significant and you may as well put it in something higher risk with better potential returns.

 

5. Sygnia Japan and Eurostoxx: These are already covered in MSCI world. The combination of S&P500, Japan and Euro is pretty much what MSCI world has done for you anyway - you're just duplicating the Sygnia MSCI world ETF and splitting it up into it's components. All you get by having all of these is more costs and a skewed sense of diversification. Why not just combine all of these into MSCI world?

 

6. Nasdaq and Sygnia 4IR: I personally like tech shares and I think these will do well. Personally, I'd buy more than your 2% in tech - maybe 5-10%.

 

7. Satrix Quality: I love this ETF. The companies in this portfolio are fantastic with amazing fundamentals. The dividends from this ETF are also extremely attractive.

 

8. Satrix Fini: This sector is already very well represented in the top 40. Just more exposure to the same thing.

 

NB: Your current exposure to the local Top 40 is 68% of your portfolio (26.14% Indi + 20.32% T40 + 12.03% RAFI + 9.07% Fini, which all have the same companies, especially Naspers, which is more than 20% in your case) This is the whole point - you think you're diversifying, but you're not!

 

If it were up to me, and you asked me to re-balance your portfolio using your selection of ETFs, I'd sell INDI, RAFI, FINI, S&P500, Japan, EuroStox, and combine a whole lot of your ETFs to buy:

 

60 % Core Shares (Local and Global):

STX40 - 20%

STXQUA - 10%

SYGWD - 20%

GLODIV - 10%

 

20% Property (Local and Global):

PTXTEN - 10%

GLPROP - 10%

 

10% High-risk but high potential tech shares:

STXNDQ and/or SYG4IR - 10%

 

10% bonds (If your proposed investment period is less than 10 years)

or better still, buy 10% in emerging markets (STXEMG) instead.

ASHWGB - 10%

(Alternatively, rather than bonds, I'd use this 10% to buy emerging markets in the form of STXEMG, which has exposure to China, Brics countries etc. - lots and lots of long term potential).


 

 

 

Edited by SaurusDNA
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Yes, there is duplication.  I would definitely re-balance my portfolio.

 

Thanks a stack SaurusDNA.  Thanks for taking the time in providing me your advice.  It is much appreciated :)

 

 

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I would wait. The market is at a 52 week low and INDI, for example, is down 25%. I'd hang on to what I have for now, and start balancing it out by only buying those that you have too little of.

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Hi

 

I started contributing to my EE TFSA this year and have seen some dividends payed out that are now reflecting in my "funds to invest"tab.

 

Since I have already maxed out my 33k annual contribution, would reinvesting those dividends be seen as exceeding the 33k limit? Or would it still be seen as investing/buying/selling within the amount what I have contributed.

 

Thanks a lot! 

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Only new deposits from outside the account to inside the account contribute towards the limit.

 

Anything that happens within the account doesn't count towards the 33K limit. This means you can reinvest dividends, buy and sell ETFs as you wish within the account - change back and forth between Cash and ETFs etc, as long as you don't withdraw them from the account. None of these affect the limit.

 

So basically, it's only brand new deposits into the account from outside the account that contribute to the limit.

Edited by SaurusDNA
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Hi Guys.

 

I'm also looking for some guidance please.

 

My TFSA currently looks like this:

 

30% Satrix Divi Plus (Down 1.68%)
15% Satrix SWIX Top40 (Down 8.14%)
15% Sygnia MSCI US (Down 14.26%)
40% Sygnia MSCI World (Up 3.92%)

 

Would you suggest I leave them as is and continue investing as they are, or would it be better to add some other ETF's to replace any of these or as an additional investment ?

I currently have 3K available for investment.

 

Thanks in advance.

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Posted (edited)

Hi e4et

 

That's a pretty solid core portfolio. A few thoughts though...

 

Your 55% global ETFs, I'd keep exactly in the percentages they're in - 40% world and 15% US feels well diversified. No criticism here.

 

Your local ratios might do with a little tweaking in my opinion though. In a bull market, momentum shares thrive (like Satrix Top 40, SWIX Top 40 and CTOP50). In a bear market such as we had in 2018, value/quality shares do better (like Satrix Divi and STXQUA). This is why your Divi ETF is doing much better (or much less badly, to be precise) than your other ETFs (that's of course putting aside the World ETF which is up because of the weak Rand). However, when the JSE starts going up again, you may miss out on the rapid growth that momentum shares usually experience. In my opinion, now would be the ideal time to even out your local shares ratio and go half value (Satrix Divi (STXDIV)) and half momentum (like Coreshares top 50 (CTOP50)), since momentum ETFs are really cheap at the moment.

 

My biggest concern is that SWIX T40 is 28% Naspers at the moment and that percentage is getting bigger and bigger. With the uncertainty in Tencent at the moment, the future of Naspers is unclear. Fortunately you only have 15% in SWIX T40 at the moment, but I wouldn't invest more in SWIX if I could avoid it.

What I feel you should have instead of SWIX top 40 is a well rounded local core momentum ETF that doesn't have excessive Naspers exposure. Due to your already high exposure in Naspers, I'd go for the Coreshares top 50 ETF (CTOP50) as it is capped at 10% in any one company, limiting further exposure to Naspers.

 

If it were me, I'd keep your current portfolio as it is and use the 3k to buy CTOP50.

 

After that, I wouldn't buy more SWIX T40 (rather continue buying CTOP50) but maybe keep the SWIX anyway as it is a small enough percentage of your portfolio to warrant the risk and it may shine if Naspers recovers.

 

Then in the long run, try and get your portfolio to something like:

 

Local (45%):

CTOP50: 20%

STXDIV: 20%

SWIX Top 40: 5%

 

Global (55%):

Sygnia MSCI US: 15%

Sygnia MSCI World: 40%

 

In summary, the only real long term changes I'd make is to eventually move away from the SWIX Top 40 and replace this with a capped local core ETF like CTOP50 (which is much better balanced and much safer), and then drop your Satrix Divi to only half of your local exposure.

 

 

Edited by SaurusDNA
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Hi SaurusDNA.

 

Thank you very much for the time and effort you put into your detailed reply, as well as explaining the reasoning behind it.

I will certainly use your advice to try and balance the portfolio accordingly as well as going forward.

 

Thanks again, appreciated.

Etienne

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On 12/6/2018 at 2:32 PM, SaurusDNA said:

60 % Core Shares (Local and Global):

STX40 - 20%

STXQUA - 10%

SYGWD - 20%

GLODIV - 10%

 

20% Property (Local and Global):

PTXTEN - 10%

GLPROP - 10%

 

10% High-risk but high potential tech shares:

STXNDQ and/or SYG4IR - 10%

 

10% bonds (If your proposed investment period is less than 10 years)

or better still, buy 10% in emerging markets (STXEMG) instead.

ASHWGB - 10%

(Alternatively, rather than bonds, I'd use this 10% to buy emerging markets in the form of STXEMG, which has exposure to China, Brics countries etc. - lots and lots of long term potential)

 

@SaurusDNA Also thanks for this, I am also not as clued up with where to invest in, so I've been using this method here and diversify to invest like this currently.

 

Also another questions I am unsure off, do you guys just invest and let it go... or do you guys sell high and buy low constantly, not sure what is the best method with Stocks and Bonds or the method?

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Posted (edited)

Investing is very different to trading. Selling and buying long-term investments is not generally considered a good idea - the costs of buying and selling are high, taxes come into effect when selling, and timing the market is near impossible. If, like me, you also want to take advantage of the short-term movements in the market, better to open a separate trading account for that purpose and keep your long-term investments as buy-and-hold. As the age old long-term investment advice goes: "It's not about timing the market, it's about time in the market."

 

 

My strategy to maximize gains from shorter-term movements (in my long-term investments) is to plan at the beginning of the year what I'm going to invest for the year. Then, each month, I buy what is cheap and then just hold forever. So, if the rand is strong, I buy my global ETFs, so that when the Rand weakens, I get further gains from the exchange rate. When the Rand is weak, I buy my local ETFs. Similarly,  I buy my ETFs when they are at a low. But I never sell!!! For example, I bought all my 2019 PTXTENs already since it is at a 52 week low. NB: Note, however, that this strategy works for ETFs that are intended for long term investment, where the ETF is diversified. It does not work for single stocks, since a 52-week low in stocks may indicate weak financials or other reason. Buying the low in the long term is only really suitable for ETFs or unit trusts, not for single stocks!!!

 

Edited by SaurusDNA
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Posted (edited)
1 hour ago, SaurusDNA said:

Investing is very different to trading. Selling and buying long-term investments is not generally considered a good idea - the costs of buying and selling are high, taxes come into effect when selling, and timing the market is near impossible. If, like me, you also want to take advantage of the short-term movements in the market, better to open a separate trading account for that purpose and keep your long-term investments as buy-and-hold. As the age old long-term investment advice goes: "It's not about timing the market, it's about time in the market."

 

 

My strategy to maximize gains from shorter-term movements (in my long-term investments) is to plan at the beginning of the year what I'm going to invest for the year. Then, each month, I buy what is cheap and then just hold forever. So, if the rand is strong, I buy my global ETFs, so that when the Rand weakens, I get further gains from the exchange rate. When the Rand is weak, I buy my local ETFs. Similarly,  I buy my ETFs when they are at a low. But I never sell!!! For example, I bought all my 2019 PTXTENs already since it is at a 52 week low. NB: Note, however, that this strategy works for ETFs that are intended for long term investment, where the ETF is diversified. It does not work for single stocks, since a 52-week low in stocks may indicate weak financials or other reason. Buying the low in the long term is only really suitable for ETFs or unit trusts, not for single stocks!!!

 

 

Great! makes a lot of sense now, thank you so much for explaining, much appreciated! I guess you then just gain benefit from the dividends in the long run as well? For either re-investing or taking for yourself.

Edited by Shirou

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