ETF Portfolio — IC Top 50 ETFs
The Top 50 ETFs
- identify the best indices to track
- find an ETF with minimal tracking difference, low costs and good liquidity for each index
This year’s update
The update process for 2015 was different:
- create a panel of six experts
- ask them whether anything on the 2014 list shouldn’t be there
- ask them whether anything useful / cheaper should be added
The expert panel was:
- Christopher Aldous, Charles Stanley Pan Asset
- Shaun Port, Nutmeg
- Adam Laird, Hargreaves Lansdown
- Alan Miller, SCM Direct
- Ben Seager-Scott, TilneyBestinvest
- Paul Taylor, McCarthy Taylor
There were 29 changes from the 2014 list due to a combination of increased price competition and continuing product innovation.
The new list is made up of 33 equity funds, 9 bond funds, 5 commodities funds, 2 property funds and 1 private equity fund. Today we’re going to start by looking at the equity funds to see how many should be added to our ETF portfolio.
The 7 Circles ETF portfolio
Here’s a quick recap of how we approach ETFs:
- We run a passive portfolio, re-balanced annually
- We prefer cheaper un-hedged funds to more expensive hedged funds, since we have a long time horizon (20 years plus) over which currency impacts should average out
- We use ETFs as part of a multi-portfolio, multi-product approach
- we prefer ETFs in foreign but reasonably efficient markets, and in asset classes like bonds and commodities, and will be overweight ETFs here
- we prefer investment trusts in emerging and inefficient equity markets, and for certain themes and alternative assets; we will be underweight ETFs here
- we prefer individual stocks in the UK and will be underweight ETFs here
There are five UK funds on the IC list. We already hold the two dividend funds (IUKD and UKDV) but the other three funds (ISF, FTAL and VMID) are all useful (they track the FTSE 100, the FTSE 250 and the FTSE All Share indices) and so can be added to the portfolio.
We are underweight in the UK (see the section above), holding only 5% of the portfolio there. We now have five UK funds so they will each have a 1% weighting.
There are also five US funds on the IC list:
- VUSA is already in the portfolio
- XRU2 tracks the small cap Russell 2000 index.
- We currently have no exposure to this, so XRU2 will be added.
- EQQQ tracks theNasdaq, and so is a competitor to ourCNDX.
- CNDX costs 0.33% and scores 7 out of 10
- EQQQ c0sts 0.30% and scores 7 out of 10, so it will replace CNDX
- USDV is a large cap dividend fund, which can be added
- DESE is a small cap dividend fund which we will hold only a small position in, as it is a new and small fund
Our US weighting is 15%, so the new weights are:
- VUSA = 6%
- XRU2 = 2%
- PSFR = 2%
- EQQQ = 2%
- USDV = 2%
- DESE = 1%
There are five global funds in the IC list:
- SWDA is already in our portfolio
- VWRL is a competitor forHMWO
- HWMO costs 0.35% and scores 7 out of 10
- VWRL costs 0.25% and scores 6 out of 10 – we will replace HWMO with VWRL
- PSRW is a value slant on global equities, and can be added
- VHYL is a dividend slant on global equities, and can be added
- SMRP is a smart beta approach to global equities, and can be added
We have a weighting of 10% to global equities in our portfolio, so the new fund weightings are:
- SWDA = 4%
- VWRL = 2%
- VHYL = 2%
- PSRW = 1%
- SMRP = 1%
There are five European funds in the IC list:
- UC60 is already in our portfolio, but it is hedged and relatively expensive (0.33% pa) so we will be looking to replace it
- DFE is also in the portfolio; we will look to reduce its weighting
- XESC is a low cost (0.09%) large cap tracker which scores 6 out of 10; we can add this
- VERX is similar to XESC but slightly more expensive (0.12% pa) and ex-UK; we will add this
- IEFV is a smart beta (value) approach to investing in Europe; we will add a small position of this
Our weighting to Europe is 15% and the new individual fund weightings are:
- XESC = 6%
- VERX = 5%
- IEFV = 2%
- DFE = 2%
Emerging markets funds
There are seven emerging markets funds in the IC list, of which four are single country funds. China is the only country where a separate allocation might be required, so the Brazil, Russia and India funds will not be added to the portfolio.
The seven funds are:
- EMIM, which is already in the portfolio
- EMSM, which is already in the portfolio
- EMV, a low-volatility fund which will be added
- IASH, a China fund which will be added (we have two China funds already but there is just about room for a third)
- HBRL, a Brazil fund which will not be added
- HRUB, a Russia fund which will not be added
- XCX5, an India fund which will not be added
Our weighting to Emerging Markets is 15% (including 5% to China) and the new individual fund weightings are:
- EMIM = 5%
- EMSM = 3%
- EMV = 2%
- HMCD = 2%
- FXC = 2%
- IASH = 1%
The updated portfolio
We have now looked at 27 of the 50 funds in the IC list. We’ll pause here and review the effects on our portfolio. Next time we’ll look at the remaining 23 funds.
The portfolio now contains 37 funds, up from 24 last time. The ongoing costs have come down from 0.35% pa to 0.33% pa, and the weighted average score of the funds is also down slightly, from 6.1 to 6.0.
The number of ETF providers in the portfolio has increased from 7 to 10, but we are still heavily reliant on iShares (down from 56% of the portfolio to 53%.
There have been no changes to the sector allocations within the portfolio. There will be changes next time, as commodities and private equity are added to the portfolio.
Until next time.