[Europe / Denmark / UAE] Portfolio sanity check

For residents of the United Arab Emirates.
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Topic Author
LifeofMIC
Posts: 5
Joined: Wed Aug 22, 2018 6:39 am

[Europe / Denmark / UAE] Portfolio sanity check

Post by LifeofMIC »

Hi All

For the past few months I have spent a lot of time reading, blogs, articles, ETF reviews etc. are are now getting to the scary point of selling of my mutual funds with my expensive bank and taking the step to invest in ETF's....

I have come up with this model, that I "think" will be good for me, but this is where I am looking for some "sanity check" feedback., so thanks a lot in advance for looking and giving feedback. Much appreciated.

(Formatting from Excel did not come through nicely)

Distribution ETF ISIN Ticker Domicile Income TER Fund Base Currency Exchange / Curency Net Assets Focus

50% iShares Core MSCI World ETF USD Acc EUR
IE00B4L5Y983 - SWDA / EUNL
Ireland - Accumulating - 0.20% - USD - Xetra / EUR - 15795 M$
World
5% iShares Core MSCI EM IMI UCITS ETF
IE00BKM4GZ66 - EIMI LN / IS3N
Ireland - Accumulating - 0.18% - USD - Xetra / EUR - 9453 M$
Emerging
5% iShares MSCI World Small Cap UCITS ETF
IE00BF4RFH31 - WSML / IUSN
Ireland - Accumulating - 0.35% - USD - Xetra / EUR - 352 M$
Small Cap
5% iShares S&P 500 Information Tech Sector UCITS ETF
IE00B3WJKG14 - IUIT
Ireland - Accumulating - 0.15% - USD - LSE / USD - 1600 M$
Information Technology
15% iShares Global Aggregate Bond UCITS ETF
IE00BDBRDM35 - AGGH
Ireland - Accumulating - 0.10% - USD - Xetra / EUR - 1284 M$
Global Aggregate Bonds, EUR Hedged
15% iShares € Govt Bond 3-7yr UCITS ETF
IE00B3VTML14 - CBE7 / SXRP
Ireland - Accumulating - 0.20% - EUR - Xetra / EUR - 356 M€
Medium Term Euro Gov. Bonds
5% Cash

I am 50 years old, currently living in Dubai/UAE, so currently no taxation of the income - reason for selecting accumulating ETF's.
In a few years we will be moving back to Europe/Denmark, so at that time I will have to look at the tax implications and possibly convert to distributing ETF´s for more efficient tax handling.

My salary is linked to USD, but as I will retire in Europe, I think it makes sense to buy most of the ETF's in EUR ?

From a cost perspective these looks resonable, but I do not yet know if ex. Vanguard Ireland have similar or cheaper options (top be researched).

Anything I am missing or should look in to ?

Thanks in advance
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by DJN »

Hi,
I would look at your tax position, especially for your return. I would imagine you may have to sell everything just before you return to Europe and then reinvest in the most tax advantageous manner for your home country.
UCITS and Ireland domiciled are good.
Not sure why you are picking tech sector when you already have world equities. Seems like a double up.
Same comment for Eu bonds, these should be covered in the world aggregate?
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by Valuethinker »

LifeofMIC wrote: Thu Aug 23, 2018 1:56 pm Hi All

For the past few months I have spent a lot of time reading, blogs, articles, ETF reviews etc. are are now getting to the scary point of selling of my mutual funds with my expensive bank and taking the step to invest in ETF's....

I have come up with this model, that I "think" will be good for me, but this is where I am looking for some "sanity check" feedback., so thanks a lot in advance for looking and giving feedback. Much appreciated.

(Formatting from Excel did not come through nicely)

Distribution ETF ISIN Ticker Domicile Income TER Fund Base Currency Exchange / Curency Net Assets Focus

50% iShares Core MSCI World ETF USD Acc EUR
IE00B4L5Y983 - SWDA / EUNL
Ireland - Accumulating - 0.20% - USD - Xetra / EUR - 15795 M$
World
5% iShares Core MSCI EM IMI UCITS ETF
IE00BKM4GZ66 - EIMI LN / IS3N
Ireland - Accumulating - 0.18% - USD - Xetra / EUR - 9453 M$
Emerging
5% iShares MSCI World Small Cap UCITS ETF
IE00BF4RFH31 - WSML / IUSN
Ireland - Accumulating - 0.35% - USD - Xetra / EUR - 352 M$
Small Cap
5% iShares S&P 500 Information Tech Sector UCITS ETF
IE00B3WJKG14 - IUIT
Ireland - Accumulating - 0.15% - USD - LSE / USD - 1600 M$
Information Technology
The last I checked The US index was nearly 20% tech stocks (so roughly 10-12% of the global index is US tech stocks). In addition you own Samsung, TSMC (Taiwan), Infineon, and a group of Japanese chip makers.

This opens up the question - why double up? You are increasing concentration risk, and you are buying into a sector that has done phenomenally well the last few years. So you could simply be chasing past performance (a common cognitive error in investing - most of us have done it).
15% iShares Global Aggregate Bond UCITS ETF
IE00BDBRDM35 - AGGH
Ireland - Accumulating - 0.10% - USD - Xetra / EUR - 1284 M$
Global Aggregate Bonds, EUR Hedged
15% iShares € Govt Bond 3-7yr UCITS ETF
IE00B3VTML14 - CBE7 / SXRP
Ireland - Accumulating - 0.20% - EUR - Xetra / EUR - 356 M€
Medium Term Euro Gov. Bonds
If you are retiring to Europe (ie Eurozone - the Danish kronor seems to pretty much track the Euro? At least that is my sense) in the next few years, then your risk is that the EUR appreciates relative to your income and portfolio. You can hedge that risk (more) by holding Eurozone government bonds.

That would suggest 30% in the Eurozone govt bond fund. I do have one caveat, which is that not all Eurozone government bonds are risk free. Italy and Spain are not - the yields on those bonds tells you the market does not think they have zero risk of either default or leaving the Eurozone -- if they were risk free, they would pay the same yields as bunds (German government bonds) which are nearly zero. So... if there is a Global Government Bond fund hedged into Euros, you could use that.

If not, what you have is probably not going to make a huge difference. Sometimes the USD bonds will be ahead, sometimes the Eurozone ones will.
5% Cash
I question why you want to hold cash *except* for periodic rebalancing? But usually if you are making regular contributions, you don't need that- -cash dividends from the existing funds plus new cash invested allows rebalancing. In the long run, cash has an expected return of zero, and right now cash does not even give you inflation (say in Eurozone inflation 1.9%, cash yielding 0, that's -1.9% -- then compound that over 10 years).

The other reason to hold cash would be for emergencies. Certainly one should hold 6 months of expenses in cash or insured bank deposits (the Eurozone limit is EUR 100k per financial institution, I believe). Whether one holds more than that depends on how safe one feels one's job is.
I am 50 years old, currently living in Dubai/UAE, so currently no taxation of the income - reason for selecting accumulating ETF's.
In a few years we will be moving back to Europe/Denmark, so at that time I will have to look at the tax implications and possibly convert to distributing ETF´s for more efficient tax handling.

My salary is linked to USD, but as I will retire in Europe, I think it makes sense to buy most of the ETF's in EUR ?
For funds that denominate in Euros (currency of reporting) it is the location of the underlying assets (shares) that determines the currency exposure -- whether you hold the USD or EUR or GBP denominated version of the fund, the value will work out the same. Thus the only reason to buy the funds in Euros, rather than USD, is that you will pay the FX conversion (USD to EUR) up front. Given your future liabilities are in Euros, and the funds will pay dividends in Euros, it probably works out best to buy the funds denominated in Euros.

For funds which actually hedge their currency exposure into the currency of reporting/ denomination then it does make sense to buy the funds in Euros-- the fund itself will act to eliminate USD and other currency exposure as much as it can. Usually it is bond funds that hedge their currency exposure, and usually stock funds do not.
From a cost perspective these looks resonable, but I do not yet know if ex. Vanguard Ireland have similar or cheaper options (top be researched).

Anything I am missing or should look in to ?

Thanks in advance
Tax in the country you move back to. You may find yourself forced to liquidate your holdings and start again once you have decided upon your country of destination.

This may also affect whether you hold Accumulation units (dividends and capital gains are rolled back automatically into the fund and not paid out) or Distribution units (paid out to the unit holder in cash when dividends or capital gains distributions are made). It's tax that drives the choice. For example in the UK in tax protected accounts you tend to hold Accumulation units, because they just reinvest the dividends. Reduces the rebalancing.

By contrast in taxable accounts in the UK, you hold Distribution units. Because you have to pay the tax on the dividends and so you need cash to pay the taxes. And because when you do sell them, to calculate capital gains taxes, you have to show to the taxing authority (HMRC) exactly what your book cost (purchase price) was - and that can mean digging through 30 years of paper records (if you still have them).
Topic Author
LifeofMIC
Posts: 5
Joined: Wed Aug 22, 2018 6:39 am

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by LifeofMIC »

Thank you so much for your feedback DJN and ValueThinker
I will review this and take in to consideration when I put together my "plan"
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by DJN »

Hi LifeofMic<
for what its worth I have two of my suggested portfolios for EU investors put together as accumulating and distributing. The distinction being about your tax basis. Have a look and see whether its suitable for your circumstances. You can add small caps, emerging markets and value if you understand the benefits, if any!
good luck,
DJN

SUGGESTED PORTFOLIO 1 - accumulating
BONDS
TICKER: AGGH (iShares) - IE00BDBRDM35
DESCRIPTION: Global aggregate
TER: 0.10%
COMMENTS: Accumulating, hedged

EQUITY
TICKER: SWDA (iShares) - IE00B4L5Y983
DESCRIPTION: Global, developed countries
TER: 0.20%
COMMENT: Accumulating

TICKER: EIMI (iShares) - IE00BKM4GZ66
DESCRIPTION: Emerging mkts
TER: 0.18%
COMMENT: Accumulating

OPTIONAL
TICKER: WSML (iShares) - IE00BF4RFH31
DESCRIPTION: MSCI World Small Cap
TER: 0.35%
COMMENTS: Accumulating

SUGGESTION PORTFOLIO 2 - distributing
BONDS
TICKER: IGLO - (iShares) IE00B3F81K65
DESCRIPTION: World dev, govt
TER: 0.2%
COMMENT: Distributing

EQUITY
TICKER: VWRD - (Vanguard) IE00B3RBWM25
DESCRIPTION: World dev, em, large, mid
TER: 0.25%
COMMENTS: Distributing
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
ICH
Posts: 244
Joined: Wed Jun 13, 2018 3:08 am

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by ICH »

DJN wrote: Fri Aug 31, 2018 12:06 am
SUGGESTED PORTFOLIO 1 - accumulating
BONDS
TICKER: AGGH (iShares) - IE00BDBRDM35
DESCRIPTION: Global aggregate
TER: 0.10%
COMMENTS: Accumulating, hedged

SUGGESTION PORTFOLIO 2 - distributing
BONDS
TICKER: IGLO - (iShares) IE00B3F81K65
DESCRIPTION: World dev, govt
TER: 0.2%
COMMENT: Distributing
DJN, I admire the simplicity of the portfolios you are suggesting. I did a cut-and-paste of the fixed income only here. Why are you going for an aggregate bond in the accummulating case but a government only in the distributing case?
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by DJN »

Hi ICH,
thanks, I am not hard and fast on not having corporate debt as long as it is diversified and the aggregate is pretty broad and includes a good percentage of government debt. I am not that much into the detail other than a broad diversified ETF with the best professional management. So not too much science I am afraid and I already have quite a bit in IGLO!
My post is intended to get just your kind of question so thanks for that.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: [Europe / Denmark / UAE] Portfolio sanity check

Post by DJN »

By the way I forgot to mention that the consensus is to hedge your debt. Which my choice of bond funds are.
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
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