Hello dear community,

Recently my portfolio and its logic was presented in an article by Business Insider and analyzed by Konrad Kleinfeld from SPDR. There was some exciting feedback, but of course I would also like to activate your swarm intelligence and get your feedback 🙂

First of all: Although I am pursuing a core-satellite strategy, the "satellite" does not aim to outperform, but is simply for fun and offers room for investments that do not fit into the logic of the core. The satellite consists largely of ETFs (e.g. in commodities, real estate, private equity, REITs, etc.), but only accounts for <10% of the overall portfolio and is not included here.

My goal is broad diversification that goes beyond a pure market capitalization-based index as well as long-term returns.

In doing so, I rely on a rule-based approach and diversify along factors based on the selection criteria of the indices. As I deliberately do not want to make any sector or regional bets in the "core", but instead focus purely on the selection criteria of the indices, the relatively significant dividend block serves to reduce the US lump, as high-dividend companies are more frequently found in Europe.

Since the portfolio is quite granular, the portfolio overview function would be very confusing, so I hope it is easy to understand in text form:

1. MSCI World Block (40%):

$SPPW (-0,53 %) MSCI World (10%)

$XDEM (-1,03 %) MSCI World Momentum (10%)

$XDEQ (-1,09 %) MSCI World Quality (10%)

$XDEV (-0,68 %) MSCI World Value (5%)

$WSML (-1,32 %) MSCI World Small Cap (5%)

Momentum, Quality and Size in the sense of the "normal", market-capitalized MSCI World are weighted slightly higher, as they have historically performed better and should logically perform better in a long-term positive market environment.

2. emerging markets block (20%):

$SPYM (+0,38 %) MSCI Emerging Markets (6.67%)

$SPYX (-0,24 %) MSCI Emerging Markets Small Cap (6.67%)

$5MVL (+0,04 %) MSCI Emerging Markets Value (6.67%)

⚠ There are currently no ETFs on the MSCI EM Quality and MSCI EM Momentum indices that are available in UCITS form and tradable in Europe. Therefore, the logic of the EM block does not yet exactly reflect the structure of the World block. As soon as these ETFs are available, the block will be adjusted accordingly. Consequently, the "normal" MSCI EM as well as the value factor and small caps are currently equally weighted here.

3rd Dividend block (30%):

$VHYL (-0,58 %) FTSE All-World High Dividend Yield (5%)

$TDIV (-0,63 %) Developed Markets Dividend Leaders (10%)

$ISPA (-0,51 %) Global Select Dividend 100 (10%)

$ZPRG (-0,17 %) S&P Global Dividend Aristocrats (5%)

As mentioned, this block serves 1) to reduce the US lump, is also distributing and thus provides cash flow, which 2) is used for rebalancing at the end of the year (so I don't have to spend any additional capital on this, which has a psychological effect for me) and 3) the monthly distributions motivate me to continue investing intensively. In addition, 4) the tax-free allowance is utilized without having to actively sell shares in the other "blocks". The top 10 holdings of the individual ETFs differ greatly here despite the common denominator of "high yield". However, the financial sector is a large lump. The weighting here is derived from the high yield and diversification in the sense of complementing the other "blocks" (i.e. little tech and little US).

4. hedge bonds (10%):

$IBCI (+0,36 %) Euro Inflation Linked Government Bond (10%)

My equity allocation is (roughly) based on the rule "120 minus age", so 10% is currently left for bonds. The purpose of a bond block in the portfolio is stabilization and further diversification. With shares, I give a company capital, i.e. I become a stakeholder in the company. Corporate bonds have the same logic, because here I am also giving capital to companies. That's why I opted for government bonds in the eurozone. TIPS have performed comparatively well here in the past and the logic of inflation-linked interest rates also appeals to me.

📈 Additional considerations:

1. i deliberately do without the "Low / Min Volatility" factor, as i assume a rising market in the long term and would like to participate more in the positive phases instead of reducing the vola.

2) I don't see overlaps between ETFs as a problem, but rather as a deliberate overweighting of companies that fulfill several criteria at the same time. Of course, many companies currently overlap in the classic MSCI World and the Quality and Momentum variants. However, the selection criteria are different and as soon as a company no longer meets the quality criteria, for example, it automatically drops out of the index and the weighting is reduced without me having to actively do anything about it.

3) I have actively decided not to invest in a multi-factor ETF because I want to have transparent control over the allocation of the individual factors and many of the factor ETFs available combine the selection criteria underlying the individual factors in such a way that the corresponding product would have performed well in the past, which of course represents a hindsight bias and does not necessarily correlate with future performance.

💡 To those of you who have read this far:

First of all, thank you for your time! The portfolio is intended to dynamically reflect a section of the market that could develop positively in a diversified manner based on the different selection criteria of the indices, without taking bets on specific sectors or regions. What do you think of the allocation and the strategy? Do you see any room for improvement or things you would do differently?

Thanks for reading, showing interest and thinking along. 😊

#etfs
#portfolio
#portfoliocheck

Hi Community,

Is there an MSCI World Quality Factor Etf ($XDEQ (-1,09 %) ) as a distributing variant or a comparable Etf?

Thank you

$XDEQ (-1,09 %) Here is an interesting analysis for anyone interested in the World Quality Index. According to this, the index also "performs" the S&P 500 Index in the long term.

https://info.brownadvisory.com/hq-stocks-long-run

Smart Beta ETF

Part 1 What is Smart Beta & Quality ETF

Reading time: 8-10 minutes

Table of contents

• What is a smart beta ETF?
• Categories of Smart Beta ETF?
• Z-Value
• Methodology Quality ETF
• Conclusion and outlook

Disclaimer: No investment advice or recommendation, this article is for information purposes only. Before you decide on an ETF, take a closer look at it in terms of positions, sampling, regions, etc. I can't describe everything here as it would go beyond the scope of this article.

What are smart beta ETFs?

To understand smart beta ETFs, it is first important to know what "beta" is. Beta is a financial ratio that measures how much an asset/share (or a group of shares) fluctuates in relation to the underlying market. Simplified: if the German stock market has a volatility of 16 % and the DAX of 10 %, then the beta is 1.6.

The reference value for the beta is therefore the market. For "normal" ETFs, the beta should be close to 1, as the iShares Core MSCI World ($IWDA), for example, attempts to replicate the MSCI World Index and both are weighted according to market capitalization (not quite 1 due to tracking difference).

In contrast, smart beta ETFs attempt to achieve a higher return or lower risk (volatility) by selecting a different stock from the underlying market capitalization-weighted index (beta), e.g. by equal weighting or applying certain parameters such as price/earnings ratio or price/book ratio.

In addition to smart beta, there are also terms such as "tilt" or "enhanced" for this "smart" stock selection, i.e. the determined over- or underweighting of various characteristics.

Smart beta ETF categories

Roughly speaking, smart beta ETFs can be divided into the following categories:

• Quality (approx. 12 billion invested volume)
• Value (approx. 12 billion invested volume)
• Low Volatility (approx. 8 billion invest volume)
• Momentum (approx. 4 billion invest volume)
• Multi-factor
• Growth & Small-Cap (approx. 12 bn Investvol)
• Dividend (approx. 16 bn Investvol.)
• Equal-Weight

Even if one or the other strategy has been mentioned several times before, it is surprising that the investment volume of all smart beta ETFs is lower than that of the $IWDA (-1,03 %) (EUR 73 bn)

So what is the approach behind the individual smart beta ETFs and could this present an interesting investment opportunity? To find out, let's take a look at the individual tilts and their methodology.

The Z-value

In order to understand the methodology of Smart Beta ETFs, it is necessary to deal with the so-called Z-value, as MSCI in particular seems to have fallen in love with this parameter for its Smart Beta ETFs.

The Z-value is a figure that shows the number of standard deviations of a data point (e.g. P/E ratio) from the mean value. In this respect, it is a ratio that compares the key figure of an individual stock with the key figures of all stocks in the index.

Simplified example based on P/E ratio

Share A: 10

Share B: 15

Share C: 20

Share D: 50

Mean value: 24

Standard deviation: 15.67

Z-value A: -0.88 (read: P/E ratio of 10 is 0.88 standard deviation below the mean)

Z-value B: -0.56

Z-value C : -0,24

Z-value D: 1,69

If the ETF now wants to overweight shares with a low P/E ratio, for example, it would weight the shares with the lowest Z-value higher.

If you are still stumped by this example - like a clumsy fireman - we recommend the following video:

z-Standardisierung (z-Transformation)- Einfach erklärt - DATAtab

Now to the individual categories, each showing a selection of the largest ETFs:

Quality ETF

Overweighting of companies with solid fundamental indicators such as high return on equity, stable earnings growth and low debt.

💰 Z-Score MSCI Quality ETF

There are 4 larger ETFs with the same methodology but focusing on different regions (TD = tracking difference):

• $IS3Q (-1,09 %) (World | TER 0.30 % | TD 0.10 % | 3.5 bn Invest | 3Y outperformance vs World + 1,5 %.)
• $IUQF (-1,32 %) (World | TER 0.25 % | TD 0.04 % | 1.7 bn | 3Y outperf. vs. world + 1,7 %.)
• $XDEQ (-1,09 %) (USA | TER 0.20 % | TD n.a. | 1.9 bn | 3Y outperf. vs. S&P 500 + 0,3 %.)
• $IEFQ (+0,04 %) (Europe | TER 0.25 % | TD 0.0 % | 3Y underperf. vs. Eurostoxx 600 - 4,1 %).

Index methodology:

• The ETFs are based on respective "parent indices", e.g. the MSCI World.
• In the first step, the variables are named for the quality ETF:
• Return on equity (12-month earnings per share [EPS] / latest book value per share [BVPS])
• Leverage ratio (total debt / book value)
• Stable earnings growth (measured by variability [standard deviation] of y-o-y eps for the last 5 years)
• The Z-value (see above) is determined for each share for the individual key figures
• Extreme values are then eliminated
• The Z-values are then added together for each share
• The shares with the highest total Z-scores are included in the ETF
• Rebalancing takes place every six months

On a site note: if you want to save some TER, you can use the Xtrackers ETF, these are usually 0.05% TER cheaper than the iShares counterpart with a similar tracking difference & are based on the same index & calculation logic.

💰 Wisdom-Tree-Quality-ETF

Track dividend payers with higher growth prospects at the same time

• 
  $GGRG (-1,05 %) (World | TER 0.38 % | TD 0.32 % | 0.7 bn | 3Y Underperf. vs. World -2 %.)
• 
  $DGRG (-1 %) (USA | TER 0.33 % | TD 0.02 % | 0.4 bn | 3Y outperf. vs. S&P 500 + 7,1 %.)

Index methodology:

• Variables:
• Growth factor: based on expected earnings growth (expectet eps)
• Quality factor: based on the last 3 years return on equity (ROE) and return on assets (ROA)
• Stability factor: earnings per share (EPS) must be higher than dividend per share (DPS)
• Exclusion criterion: Companies that do not meet Wisdom-Tree's ESG criteria are excluded
• Weighting: After the variable filter, the companies in the index are weighted according to the annual dividends paid
• Rebalancing takes place every six months

💰 Invesco RAFI Index:

• $PFT (-1,07 %) (USA| TER 0.39 % | TD 0.33 % | 0.5 bn | 3Y underperf. vs. S&P 500 - 2,7 %.)
• $PEH (+0,69 %) (EM | TER 0.49 % | TD n.a. | 0.04 bn | 3Y Outperf. vs. Emerging Markets IMI + 10,8 %.)

Index methodology:

• Variables:
• Cash flow, sales & dividends: Weighting from average values of the past 5 years and current book value
• The index weights are determined in proportion to the fundamental values of the companies. Calculation: fundamental values / market-capitalized free-float values.

Conclusion on the Smart-Beta Factor Quality

In the first part of this series, we looked at quality ETFs. The smart component consists of screening the stocks contained in the "parent index" according to quality factors such as earnings growth, leverage, book value, etc. and weighting them on the basis of their relative strength compared to the other stocks contained in the index.

If you want to track the world index, I would recommend the $XDEQ (-1,09 %) However, the difference to the normal MSCI World is not so great that one could speak of real diversification.

I also find the smart beta approach exciting in order to set the focus of the smart beta ETFs differently on geographically different markets (e.g. USA Large CAP/Momentum, Europe: USA Large CAP/Momentum, Europe: Small CAP & Growth, Emerging Markets: Quality & Value). Unfortunately, the only Emerging Markets Quality ETF has a very low investment volume of only around EUR 40 million. Those for whom this is not an obstacle are welcome to take a look at the $PEH (+0,69 %) as it has clearly outperformed the MSCI Emerging Markets and, in my view, quality factors can make good use of their opportunities, especially in such markets.

In the next parts, we will look at the other classes of smart beta investing - stay tuned!

Fill up a little.

World vs. world quality

Facts, figures and data (as at 06/2024)

A few days ago, I shared a comparison between the MSCI World Index and the MSCI World Momentum Index on getquin, which was quite well received [1].

@FlorianoPerlini I suggested in a comment that I should also post a comparison with the MSCI World Quality Index. Since the World Quality Index has also been around for 30 years, there is nothing to be said against it. Here you go!

Stop talking, I'm here for the numbers!

All right. Here are the average annual returns of the MSCI World Index and MSCI World Quality Index over the last X years:

5 years, World: 13.31%, Quality: 17.31%

10 years, World: 9.71%, Quality: 13.17%

30 years, World: 8.32%, Quality: 11.88%

You can find the source at [2].

I suck at math. Impress me with absolute numbers!

If you invested USD 10,000 in the MSCI World 30 years ago, today it has become USD 109,966.28. If you had opted for the MSCI World Quality Index instead, you would now have USD 290,117.36 😳. Almost three times as much.

That is indeed impressive. What's the catch? Gigantic risk?

The max drawdown of the World over the last 30 years is 57.46%, that of Quality 48.01%. The Sharpe ratio is 0.43 for the World and 0.68 for Quality. You can find further comparative values at [2].

And now? Sell everything and switch to World Quality?

A comparison with the World Momentum Index [1] has already made it clear that this is a very good alternative or addition to a diversified equity portfolio. The World Quality Index adds another 0.62% average annual return compared to the Momentum Index and could therefore also be integrated into your own portfolio with a clear conscience.

Donkey, you're boring me! This post looks exactly like the one a few days ago when you compared World and Momentum 😠.

Okay, I'll let you in on a little secret. As I wrote in the last paragraph, you could put the World Quality Index in your portfolio with a clear conscience. If there was an ETF on it.

What are you talking about? I'll just get the $XDEQ (-1,09 %)
and that's that.

But it's not based on the MSCI World Quality Index, but on the MSCI World Sector Neutral Quality Index. And the two are different. The MSCI World Sector Neutral Quality Index was launched in 1998 (Quality Index: 1994), 10-year performance at 10.28% / year (Quality Index: 13.17%), 5-year performance at 13.61% / year (Quality Index: 17.31%). The MSCI World Sector Neutral Quality Index still outperforms the MSCI World [3] over the long term, but not as clearly as the MSCI World Quality Index.

If you look at the comparison of quality ETFs from JustETF [4], there is actually no ETF listed that is based on the MSCI World Quality Index.

Your wisdom seems to be infinite. I think I'm in love 🥰. What ultimate tip do you have for me?

DYOR - do your own research. Get to grips with the products you're investing in and don't rely on superficial information. And certainly don't trust some random donkey on the internet.

Sources (the fact sheets are constantly updated, this article is not)

[1] https://getqu.in/CDEnfS/

[2]

https://www.msci.com/documents/10199/344aa133-d8fa-4a15-b091-20a8fd024b65

[3] https://www.msci.com/documents/10199/f22aa42d-3d6b-478e-a4e4-26d56428ede4

[4] https://www.justetf.com/de/how-to/invest-in-quality-etfs.html

A comparison with the MSCI World Value Index and a summary of World vs Momentum vs Quality vs Value can be found here: https://getqu.in/TD3OT2/

Different TER (costs) for ETFs

Recently there was an interesting article here by @DonkeyInvestor. It was about restructuring his ETF portfolio. Specifically, about saving in alternative, new ETFs with lower management fees (TER). I made a note of that.

During my research, I noticed that prices are shown differently on different platforms. For example, various articles state that UBS has lowered its ETF prices everywhere.

The UBS ETF MSCI World UCITS ETF (USD) A-acc for example, is said to have annual costs of 0.10 % according to Onvista. In Trade Republic, however, the ETF is displayed with costs of 0.29%.

Does anyone know why this might be? Different markets? These are actually global products.

I am currently saving:

$XDWD (-0,98 %) (TER 0.19%) -> Xtrackers

$IEMA (+0,17 %) (TER 0.18%) -> iShars

$IPRV (-0,58 %) (TER 0.75%) -> iShares

$XDEQ (-1,09 %) (TER 0.25%) -> Xtrackers

$XDEV (-0,68 %) (TER 0.25%) -> Xtrackers

Of course, there are not alternatives from other issuers for each of these products. $IPRV (-0,58 %) is comparatively expensive, for example, but rather rare as a product.

Would be grateful for tips, on the one hand why a) the cost display is so different and b) which alternatives are cheaper.

And am I c) that if I decide to invest in new, cheaper ETFs, it is better to keep the old ones in my portfolio instead of switching them and (immediately) paying tax?

#etf
#etfkosten
#etfanalyse
#xtrackers
#ishares
#ubs
#getquin