3Mon·

A doubt of mine

Why people keep on buying $IWDA (-0.27%) or $VWRL (-0.17%) as core of their portafolio when the following index perform way better (in fact they beat even the sp500 on a long range, meanwhile keeping global diversification and diversification from the big7).

$XDEV (+0.04%)
$WSML (-0.23%)
$XDEM (+0.61%)

8 Comments

Dylan V.@Legend14

3Mon

Lower risk

•

Investor D.@passiveincomefuture

3Mon

@Legend14 thanks for the comment… let’s think about msci world value, it has more usa diversification then classic core world and you have not speculative ipervalueted stocks and so none of the big 7 that istead are so pump bcs everybody keeps on buying them just bcs they are the biggest in terms of market cap. And still over long term the world value goes better then the core world. About small cap and monentum it’s another kind of argument. Let me know ehat you think

•

DEW_7240@DEW_7240

3Mon

@passiveincomefuture I use all three as part of a GTAA Momentum portfolio.
The Momentum and Value World ETF are less broadly diversified.
In good times they outperform the MSCI ACW IMI. But not last month. There the strategy had a bigger draw down.
And the volatility is higher even in normal years.

Therefore if you are not specifically building a strategy around those ETF and are aware of the potential ups and downs, the old and boring All-world or ACW IMI is the "go to and don't think about it too much" for your ordinary kitchen table investor.

•

DEW_7240@DEW_7240

3Mon

As a satellite strategy both momentum and value MSCI can also make sense, if you want to specifically over weight certain type of companies.
The small cap is just not necessary if you go for a ACW IMI which contains small caps already.
Therefore it can be an addition to your already existing All-World portfolio.
But if you want to focus specifically on small caps, you wouldn't want that ETF. Too much chunk in it and too little return for the volatility

••

Investor D.@passiveincomefuture

3Mon

@DEW_7240 which etf you reccomand for small cap ?

••

DEW_7240@DEW_7240

3Mon

@passiveincomefuture it depends on your strategy.
Small Cap investors recommeded to me to:
A) go for all cap ETF
Or
B) invest the time and go stock picking

I did include a small cap etf in the selection for my GTAA Momentum strategy. Not because I think I need to cover small caps with that strategy but because the other ETFs don't cover them. And therefore it is a separate category in the portfolio. And if they ever show a higher momentum than S&P500 or MSCI Momentum/Value or EM... Then I take it and invest in that ETF.

••

financial_genius_3404@financial_genius_3404

3Mon

Many reasons:

- Lower volatility
- No cycle risk
- way lower TER, minimal turnover
- Broader: 1,400 vs 350 stocks
- No crowding risk: factor premiums can fade; market-cap weighting can’t be arbitraged away

••

Investor D.@passiveincomefuture

3Mon

@financial_genius_3404 thank you for your feedback. Just don’t you think that the crowding risk nowdays it’s more in the market cap based etf, they inflate always the same companies bcs they are the biggest ones. For example 80 % of people investing trought passive investments buy Nvidia as first assets in a blind way and following all the others. A value company it’s a company bought at fair value/discount price even if a lot of people buy it trought the index in a blind way. The fundmentals are there, but ofc more volatility and especially cyclicality it’s a “problem”. But the thing that a factor value or small cap/momentum it’s a factor and can fail meanwhile a msci world or ftse all world will always work it might be same false idea. Isn’t the strategy of buying in according with market cap also a form of factor investing ? And when everybody does that passively and in a blind way aren’t we expose the same at cyclicality and crowding risk ?

••