ETF Portfolio

[Huz89]

Hi Everyone,

I am interested in setting up a portfolio consisting mostly of ETFs. I have had a go at buying shares in companies but have realized I will have to do a lot of research which I don’t have time for at the moment. This is why I think ETFs will be a better option.

I have around 40k to be invested. The funds are currently sitting in a bank account earning 3.8% interest. I initially saved this money for my first home deposit but I have recently gone back to university so I wont be doing that for a few years.

My question is what do I look for when choosing what ETFs to invest in? Is there a system that I should use based on risk?

I am only new to the stock market although I am currently studying a commerce degree so I expect to learn more about it.

Thanks

 

[sydboy007]

I've read some articles that suggest using ETFs to construct a portfolio into

* Local Shares
* International Shares
* Bonds / Fixed interest
* Commercial Property

You then need to determine your risk profile and the allocation to each of these asset classes

Then it's a relatively simple process to keep the portfolio balanced

This will force you to selling high and buy low.

Going back to uni you might not be able to do this, but you can still have a reasonably balanced portfolio using ETFs. It's something I'm moving more towards in my investing, especially my SMSF

These are all the available ETFs on the ASX

http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm

Vanguard will nearly always have the lowest MER for a particular ETF class eg investing the world except australia VGAD is 0.21% while WXOZ is 0.42% or QUAL is 0.75%

 

[The Falcon]

Or just buy the vanguard unlisted mix products based on your risk profile and they take care of the rebal.

 

[christianrenel]

Hi Huz89,

The following ETF - ILC - ISHARES ASX20, is an index fund which holds the top 20 companies in Australia. Dividends are paid quarterly and can be re-invested, the dividends are franked as well.

This is passive invested ETF, and if the index continues to go up this will follow.

Kind Regards


christianrenel

 

[The Falcon]

so what you are looking for is sector, size (liquidity), costs. That's if you are looking for cap weighted ETFs without going down the smart beta path. For Cap weighted, look at Vanguard's ETFs first perhaps.

 

[Huz89]

Thanks for the replies,

I have done a bit of research and have come up with an investment strategy. I will most likely be investing in only 1 fund for each asset class to keep the Commsec brokerage fees lower. Is there any advantage in having multiple funds within the same asset class or sector?

Anyway this is what I have so far, any advice would be greatly appreciated.

Local Shares - 40%
ILC iShares S&P/ASX 20 ETF
VAS Vanguard Australian Shares

International Shares - 40%
VGE Vanguard FTSE Emerging Markets Shares
VEU Vanguard All-World EX US Shares Index

Government Bonds / Fixed Income - 10%
VGB Vanguard Australian Government Bond Index ETF
AYF Australian Enhanced Income Fund

Australian Property - 10%
VAP Vanguard Australian Property Securities Index ETF

 

[Phiber]

Are there any risks in holding an ETF rather than the actual shares? Like the ETF going out of business?

 

[DeepState]

Are there any risks in holding an ETF rather than the actual shares? Like the ETF going out of business?

An ETF is not a business. It is a trust in which shares are held and you own shares in that trust. If the manager of the trust goes belly up, they can't claim on the assets of the trust. There was only a contract between the trust and the manager for management services...sort of the same as saying the auditor goes bust and can't claim on the trust assets. The trusts generally do not lever, although some do...which brings its own risks.

The main issue relates to turnover which you did not cause and embedded tax liabilities when you waltz in. There are break-evens all over the place to figure it all out and decide what is best. However, for balances of around $100k or less, say, it's tough to jump past the ETF given accounting fees and hassle associated with managing a diverse stock portfolio (which doesn't have to match the full index to get the general outcome).

 

[Vixs]

Thanks for the replies,

I have done a bit of research and have come up with an investment strategy. I will most likely be investing in only 1 fund for each asset class to keep the Commsec brokerage fees lower. Is there any advantage in having multiple funds within the same asset class or sector?

Anyway this is what I have so far, any advice would be greatly appreciated.

Local Shares - 40%
ILC iShares S&P/ASX 20 ETF
VAS Vanguard Australian Shares

International Shares - 40%
VGE Vanguard FTSE Emerging Markets Shares
VEU Vanguard All-World EX US Shares Index

Government Bonds / Fixed Income - 10%
VGB Vanguard Australian Government Bond Index ETF
AYF Australian Enhanced Income Fund

Australian Property - 10%
VAP Vanguard Australian Property Securities Index ETF

A major issue would be your international share exposure. You've got emerging markets and world markets excluding US shares, so you've not got any exposure to the US.

In addition, the VGB fixed interest ETF has a duration of 5.02 years at the moment. Given where we are interest rates wise (lowest ever but with maybe 1 or 2 more cuts to go) there is a fair bit of downside risk when rates go up, but not much upside potential. If we were at the top of the rates cycle and just starting to cut then a long duration fixed interest portfolio would be a better option, but at the bottom that could hurt.

 

[Phiber]

An ETF is not a business. It is a trust in which shares are held and you own shares in that trust. If the manager of the trust goes belly up, they can't claim on the assets of the trust. There was only a contract between the trust and the manager for management services...sort of the same as saying the auditor goes bust and can't claim on the trust assets. The trusts generally do not lever, although some do...which brings its own risks.

The main issue relates to turnover which you did not cause and embedded tax liabilities when you waltz in. There are break-evens all over the place to figure it all out and decide what is best. However, for balances of around $100k or less, say, it's tough to jump past the ETF given accounting fees and hassle associated with managing a diverse stock portfolio (which doesn't have to match the full index to get the general outcome).

Thanks for clarifying, very useful post.
How can I go about finding out whether the ETF uses leverage?
Looking at VAS right now but also seeking an option for US Stocks index.

 

[DeepState]

Thanks for clarifying, very useful post.
How can I go about finding out whether the ETF uses leverage?
Looking at VAS right now but also seeking an option for US Stocks index.

To check, each ETF is usually offered by some manager. In their various websites, a Fact Sheet or Information Sheet or, failing that, info line is provided. Details as to whether it is levered or not will be evident in these or via questions to their info lines.

 

[christianrenel]

To check, each ETF is usually offered by some manager. In their various websites, a Fact Sheet or Information Sheet or, failing that, info line is provided. Details as to whether it is levered or not will be evident in these or via questions to their info lines.

The following ETF -IVV -ISHARES S&P500, is an aussie based ETF for the US Index. This ETF is unhedged if the AUS $ continues downwards, then this ETF will go up.

This ETF pays income quarterly, and is one of the largest ETF in the world, based on funds under management.


Kind Regards


christianrenel

 

[needsajet]

If I was doing it, I would not include the bond portion for reasons previously mentioned (not much more income than cash; downside capital risk much greater than upside opportunity). Also, 10% is not enough to attenuate the equity volatility, the oft-mentioned reason for using bonds to balance it. I would double or triple the property portion to reduce volatility instead.

I would also include a US equity ETF.

This is not advice or a suggestion to buy, sell or hold anything.

 

[thembi]

FYI, a new ETF just launched on ASX that tracks the NASDAQ 100 Index - (ASX: NDQ) - its an interesting index providing exposure to leading tech stocks including Apple, Google, Facebook. May be worth a look?


http://www.betashares.com.au/products/name/nasdaq-100-etf/#each-overview

 

[Asx17]

What do people think about Betashares Nasdeq ETF NDQ?

Whilst the FAANG'S expect slowing growth these companies especially Google and Apple will be leading the introduction of new technology like automated cars and AI.

I'm thinking soon would be a good time to pick this up as I've read both Facebook and Netflix will drop in price following predicitions of slowing growth. What would be a good price to pick up this index?

https://www.betashares.com.au/fund/nasdaq-100-etf/

 

[Darc Knight]

Bumping an old thread to keep Mein Fuhrer @CanOz happy.

Blackrock gives a guide to creating different diverisfied portfolios using ETFs. Choose your risk level, Conservative - Aggressive then you can use Blackrock products or the equivalent of other Funds eg Vanguard.

https://www.blackrock.com/tools/core-builder2/au#/select-funds

 

[sptrawler]

Bumping an old thread to keep Mein Fuhrer @CanOz happy.

Blackrock gives a guide to creating different diverisfied portfolios using ETFs. Choose your risk level, Conservative - Aggressive then you can use Blackrock products or the equivalent of other Funds eg Vanguard.

https://www.blackrock.com/tools/core-builder2/au#/select-funds

That's a good post Darc Knight, I am thinking of slowly moving from individual companies to ETF's and LIC's, as I move further into retirement and can be less bothered with the hassle.