Hockey Monkey wrote: ↑Tue Jul 13, 2021 6:20 am
You won't find much love for Thematic or Sector tilts on this forum as they have high fees, reduce diversification and do not provide an expected higher return. 37.5% is a significant portion of you portfolio. A total allocation of 0-10% might be more appropriate and do less damage if your bet doesn't pay off.
NDQ is the top 100 companies listed on a particular exchange from a time when standards were lower there than the NYSE to get listed. It makes little sense to invest based on what exchange a stock is listed on. Historically since 1972, NDQ has returned about the same as the S&P 500 but with double the volatility.
For the other thematic/concentrated options with high fees. What information do you have that is not already priced into the market? Just because you work in an industry or feel you understand technology does not equal an expectation of higher returns. Expected returns are a directly related to the price you pay for them. Right now these thematic options are some of the highest priced available and are more likely to underperform as a result.
Some good viewing. Specifically mentions NDQ and I suspect was created in response to ARK
Chasing Top Fund Managers
https://www.youtube.com/watch?v=p6HrepdLSu4
Thank you, mate. Your post, including that video was extremely sobering. Ben's history lesson on past Fund Managers mimics my initial feelings on Cathy Wood and her ETFs, he just cemented and provided conviction to close off that thought. Thought it was interesting that the MSCI Small Cap Index beat the NASDAQ by an annualised 0.26% over 1999 - 2000.
"Expected stock returns come from how much you pay for future profits, not from investing in the most hyped-up, innovative companies".
This has caused me to entirely re-think my approach, more on that below.
fabada wrote: ↑Tue Jul 13, 2021 10:09 am
Echoing what Hockey Monkey said, with a couple of extra points...
Your four satellites are pretty expensive and likely to underperform vs a cheap index fund. Why not scratch that 'tinkering' itch by allocating, say, 2-5% of your portfolio for a bunch of bets on small companies? You say you're in the sector/are interested in these things, so it's a chance to put your knowledge to the test and have some skin on the game. Of course, as Hockey Monkey said, it's unlikely you know things the market doesn't, particularly at the scale of a composite fund/ETF. But it can be very satisfying to research a few companies more thoroughly be invested in their growth (particularly if they're in areas you believe in: genomics, biohacking etc).
Initially, before watching the video above by Ben Felix, my answer would have been that I'd like to choose those satellites because it is a representation of who I am and what I believe in, and I anticipate myself being busy with other things in life such as property investments and my own business ventures so as to not have enough time to individually pick growth stocks I am interested in. But that is essentially a great example of human behaviour; being lazy and wanting to realise a lot of gains for not much work, and also tendency to be biased (emotional).
I have actually researched and picked a couple growth stocks on the ASX, and while I don't have much money invested, I found it to be highly enjoyable. So perhaps you're right, those thematics ETFs were a way to make my stable more boring investments to be more 'exciting', when I can get that elsewhere, while also lowering risk and being overall more systematic.
The only important argument I can make is that I don't trust my ability to pick individual undervalued growth stocks in certain sectors (e.g. Genomics) better than an ETF that tracks the whole sector. I am essentially betting on a handful of companies versus 100+ in a sector within an ETF. Maybe it is that I need to work out and decided if my 'tinkering' itch will be scratched by smaller bets on these themed ETFs vs picking individual growth stocks. Not sure how to come to that conclusion but, perhaps thinking about how much time I am willing to put in will lie the answer somewhere?
fabada wrote: ↑Tue Jul 13, 2021 10:09 am
Also, I would be careful about manual rebalancing and giving yourself lots of control. It seems like you're already umming and ahhing, and you may find yourself stressing more than necessary about really minor issues. Often, meddling with your portfolio does more harm than good. As for manual rebalancing, you might find that in five or ten years, or even over a really busy period at work, you lose interest in jumping in every few months and sloshing things around. It also gives you another chance to hesitate/overanalyse. This is as opposed to having just broad index funds that you rebalance using inflows.
Agreed, I am stressing over this. I can imagine if my thematic ETFs were to go through a long period of underperforming (say 10 years), I imagine it would be immensely difficult to go against human nature and want to pull myself out.
fabada wrote: ↑Tue Jul 13, 2021 10:09 am
Finally, I assume your job (and therefore super fund) is in Australia. Depending on your school of thought, this is already exposure to Australia. I'm also fairly young, but I decided against any specific investments in the ASX or even Australia. While it's performed excellently since inception, it's only 2-3% of the global economy and is made up of fairly uncomplicated things like rocks and banks. (I'm not just being mean: we score particularly low on
economic complexity). I would reduce your ASX200 allocation. I'm biased, but I would also replace VGE with VAE. It's both slightly outperformed VGE and is .08% cheaper. Most importantly, I would rather own developing Asian economies than the likes of South Africa, Brazil and Turkey. Over the next century, the weight of population is likely to tip the scales even further East.
Agree with your points on Australia, hence why I wasn't okay with with VDHG or DHHF (40% Aus, way too much for me). I may consider lowering it more, but probably not much. The school of thought for having some heavier weight in Aus is that dividends are heavily franked - what are your thoughts on that topic?
With all of the above, I have re-thought out my positions, and thinking perhaps the below would be more well-rounded and better thought out, contains less risk, and isn't jumping on the 'what's hot right now' train, especially when I agree tech stocks are already priced in.
Core
- A200 - BetaShares Australia 200 ETF (25%)
- VGS - Vanguard MSCI Index International Shares ETF (Global Developed Large and Mid caps)(40%)
- VAE - Vanguard FTSE Asia ex Japan (20%)
- VISM - Vanguard MSCI International Small Companies Index(15%)
That would be if I decide to scrap the satellite approach all together. If I do continue with the satellite approach, I would simply reduce VGS, VAE, VISM and keep a much smaller percentage of my portfolio allocated to the thematics ETFs, (15-20%, as opposed to 37.5% originally. Though at that point, my ETF portfolio is overly complex (around 9 different ETFs) and will increase the chances of me messing with it. This is the part I don't know how to overcome, if anyone has some good advice, please let me know
Thanks again!