Enhanced Index Fund vs Index Fund

bowlhead99

newbinvestor wrote: »

Thanks bowlhead, I am aware of World Size Factor and will probably buy. With the rebalancing, bi-annually, is this when they will readjust every percentage of the holding to (number of stocks/100)% or do you know if this is done more regularly?

Yes, they rebalance biannually. So with ~900 stocks, at the rebalance point they would have ~0.11% of the portfolio in each. Now about four months later there will be 10-20 of the stocks that have each grown to 0.15-0.18% of the portfolio and a similar number performing badly whose relative weight has halved to 0.05-0.06%, with the rest of the stocks still being somewhere in between. In a rising market, the ones which are under 0.11% now have not necessarily lost value, just not put on as much relative value.

Then in November they would trim the high performers back to the 0.11% while beefing up the smaller components and the cycle begins again.

It means that although the biggest component (say 0.2% of the portfolio) might be 4x the smallest component (say 0.05% of the portfolio) before it gets rebalanced, the concentration is nowhere near the extremes of what you see in cap-weighted indexes such as Shell being 200x Pets at Home, or Apple or Microsoft being 100-200x Macy's or Under Armour.

[Deleted User]

That's what I thought, what are you thoughts on:
https://www.vaneck.com/ucits/etf/equity/tget/overview

I like this because it avoids the heavy weightings on Apple, Microsoft etc.

bowlhead99

newbinvestor wrote: »

That's what I thought, what are you thoughts on:
https://www.vaneck.com/ucits/etf/equity/tget/overview

I like this because it avoids the heavy weightings on Apple, Microsoft etc.

Not really on my radar as there are thousands of funds offering allocations to largecaps (either with high weightings to the Apples and Microsofts via indexes, or without if actively managed and manager doesn't want a high allocation to them).

A Netherlands structure such as this is less efficient for a UK investor than if it were (e.g.) an Ireland domiciled ETF, as the Dutch 0.15% withholding tax on , say, 3% dividends will cost you 0.4% a year, impacting returns. If you were a high rate taxpayer investing unwrapped and getting dividends beyond your dividend allowance, you wouldn't mind, because you would simply knock the foreign withheld tax off your UK tax bill on the same dividends. However for other investors including people using ISAs, it could be annoying.

tin586

Re: iShares Edge MSCI World Size Factor UCITS ETF.

According to this paper from Solactive https://www.solactive.com/equal-weighting-vs-market-cap-weighting/ “most of the outperformance generated by weighting equally is explained by the higher exposure to small cap stocks, whereas the rebalancing factor only has a minor effect.”

So why is this ETF preferable to a large cap ETF + small cap ETF in proportion to one’s preference?

The Ongoing Charge for it seems reasonable, but does it not have (hidden) transaction costs, due to the rebalancing, that will detract from returns?