Is there an ETF alternative for Vanguard Global Small Cap?

JohnRo

I've decided to switch my fund based index tracking portfolio into a more compact collection of ETF index trackers as much as possible.

The motivation is that coupled with actively rebalanced IT income holdings it will reduce platform fees, longer term and any potential exit charges.

Rather than several individual region funds, which I hold now, I'll consolidate into VWRL to cover global large cap, a suitable REIT index ETF for property and something suitable for a corporate bond index element. There seems to be plenty choice.

The sticking point is finding a suitable global small cap index ETF. I can use several regional ETF compositions but that defeats the object of the consolidation and cost saving exercise.

I did look at Henderson's global small cap IT as a compromise and it has a lot going for it but the overweight UK exposure isn't ideally what I'm looking for.

Just thought I'd ask if anyone is aware of a single index tracking ETF equivalent or approximation for Vanguard's global small cap fund?

grey_gym_sock

SPDR MSCI world small cap ETF (WOSC) - tracks the same index, a bit more expensive (0.45%, vs 0.38%), accumulating ETF.

JohnRo

That's great, thank you very much.

hoc

IWFS is cheaper at 0.30%. Similar sector weighting to WOSC but IWFS is Japan heavy US light and has about half the individual holdings.

JohnRo

This is the problem I have with IWFS, one year is a very short time frame to deduce anything meaningful but you have to admit it doesn't look very impressive.



* Just for clarity I'm not referring to the post brexit referendum divergence.

JohnRo

I may as well ask while I'm at it. Is there anything else better than HPRO I ought to be looking at for global property exposure given the OP?

..while I'm at it any corporate bond index ETF suggestions other than CORP?

grey_gym_sock

hoc wrote: »

IWFS is cheaper at 0.30%. Similar sector weighting to WOSC but IWFS is Japan heavy US light and has about half the individual holdings.

cheaper in OCF, but the internal trading costs will be higher, since it's equal-weighted, which involves more trading than cap-weighted.

also less "small": an average market cap of $6873m, compared to $2385m for WOSC.

JohnRo wrote: »

I may as well ask while I'm at it. Is there anything else better than HPRO I ought to be looking at for global property exposure given the OP?

i had issues with this a couple of years ago, when the bid-offer spread occasionally went up to something silly like 3% - at the time, i went for the bigger (but more expensive) IWDP instead.

however, HPRO now seems to be bigger - over $200m, which i imagine is big enough, and with a reasonable spread. so perhaps it's OK now. though IWDP is still much bigger.

..while I'm at it any corporate bond index ETF suggestions other than CORP?

seems good if you want global corporate bonds (investment grade), without currency hedging.

i'd probably only want sterling corporate bonds, perhaps using ISXF.

hoc

JohnRo wrote: »

This is the problem I have with IWFS, one year is a very short time frame to deduce anything meaningful but you have to admit it doesn't look very impressive.



* Just for clarity I'm not referring to the post brexit referendum divergence.

Not sure what is going on with your chart there...

JohnRo

I made a mistake, not for the first or last time.

I used HL's chart feature, they have two entries for each, listed on LSE. I assume it's got to be a currency related difference given the June divergence.

This is the chart with all shown FWIW.


While I'm here might as well say to GGS I'm going for SLXX, on the basis that I don't know enough about financials to have a good reason to exclude them. Interested why you're going XF if willing to share.

Index portfolio is looking likely to be something along these lines

40% VWRL
30% WOSC
20% SLXX
10% IWDP

WOSC allocation might raise a few eyebrows but its correlated fairly well with the main markets globally and a decent weighting might provide a good rebalance opportunity or two over the duration.
The weight also reflects my affinity to smaller companies, innovation, entrepreneurial endeavour and all that.
I've deferred to your property ETF choice, HPRO has the edge on charges but the distribution tilt of IWDP pulls it back. They're remarkably similar in performance given the index/region differences.
Having looked a bit closer I also prefer the IWDP weightings.

grey_gym_sock

JohnRo wrote: »

While I'm here might as well say to GGS I'm going for SLXX, on the basis that I don't know enough about financials to have a good reason to exclude them. Interested why you're going XF if willing to share.

it's not an obvious call ...

currently, the YTMs and durations of the 2 ETFs are very similar, so my main aims would be to maximize diversification, and to minimize risk.

SLXX is more diversified across sectors, in the sense that it includes all the sectors the ISXF does plus financials. but arguably, it has

(a) too much in financials - a total of c. 37% (going by ishares' site), of which at least 23% is banks (or more if the "Owned No Guarantee" sector includes banking exposure - i'm not sure what that means). compare that to ISXF's biggest sector exposure, 16% in communications. as well as considering those percentages, i am somewhat nervous about taking on the risks of banks - at least unless i'm being paid more to take on that (perceived) risk.

(b) too much in subordinated debt - according to this article from 2011 - http://www.fixedincomeinvestor.co.uk/x/analysis.html?type=bond-of-the-week&cat=analysis-comment&y=2011&aid=611 - it had 14%, though i don't know what the current figure is (unless that's what "Owned No Guarantee" means, in which case it's down to 6%).

what about exposure to individual issuers of debt? SLXX follows an index which is restricted to "Liquid Corporates Large Cap". as a result, ISXF actually includes more different bonds, despite excluding financials. looking at exposure to top issuers (on ishares' site), ISXF does have more exposure to the top issuer (5.8%, compared to 4.1%, to EDF ... i wonder if SLXX has a cap on exposure to each issuer but ISXF doesn't?), but its other exposures to top issuers are very similar (e.g. both have 3.8% in AT&T, 2.8% in GSK). so my interpretation is that ISXF is mostly replacing the financial bonds which it's leaving out with less liquid or smaller bonds which SLXX leaves out, rather than with just buying more of the bonds which both of them include.

however, ISXF has a bigger trading spread than SLXX, which may reflect the fact that it includes less liquid issues, as well as that it is itself a smaller ETF. though this is not very important for long-term holders.

JohnRo

The only reason I'd be able to give for picking XF would be to try and limit exposure to another financial sector meltdown. That said I'd hope at least some lessons were learned, that ratings agencies have cleaned up their act and that if we do ever revisit a GFC it won't be for the same reasons and that the consequences will be somewhat different. Who knows.

I'm still inclined towards SLXX simply for reasons of inclusion and a little less UK exposure. On the flip side as you mention ISXF does actually have more holdings. 402 vs 320 and excluding UK/US which both have similar aggregate exposure to, ISXF does seem to cast it's regional net a little wider.

The prospectus for SLXX mentions the index it replicates having a company exposure cap, it rebalances monthly.

The Markit iBoxx GBP Liquid Corporates Large Cap Index measures the performance of the most liquid, Sterling-denominated, fixed rate, investment grade corporate bonds. The Benchmark Index uses a market value weighted methodology with a cap on each issuer of 4%.

decisions..