XEM, MER .82%, you can do much better than that. Find something cheaper.
Global diversification - ETFs
After reading this:
http://www.efficientmarket.ca/article/Globally_Efficient_Equity_Portfolio
I’m considering (not very seriously yet) an ETF portfolio comprised of just the following three ETFs with the following weightings:
XWD (MER 0.45%) – 60% or 70%
XEM (MER 0.82%) – 20% or 10%
XBB (MER 0.30%) – 20%
The way I see it is that this portfolio would give me a broad coverage of the entire world market with a minimal portion allocated to bonds. I’m only 30 years old and have a public sector pension awaiting me upon retirement (I hope), so I'm not risk-averse.
With that portfolio, my exposure to the Canadian market would be very small. Is there any real benefit for a Canadian investor to invest strongly in Canada funds or, in the case of an ETF portfolio, something like XIC, XIU, or CRQ?
I’ve chosen XEM (or CWO) as an emerging markets ETF. I believe that I should hold a strong position in emerging markets now and suspect that doing so will provide strong gains in the future.
I’ve chosen XBB as my fixed-income ETF as I believe it provides a broad coverage of Canadian government and corporate bonds rather than focusing on one or the other.
Any comments? Is anyone else doing anything similar?
http://www.efficientmarket.ca/article/Globally_Efficient_Equity_Portfolio
I’m considering (not very seriously yet) an ETF portfolio comprised of just the following three ETFs with the following weightings:
XWD (MER 0.45%) – 60% or 70%
XEM (MER 0.82%) – 20% or 10%
XBB (MER 0.30%) – 20%
The way I see it is that this portfolio would give me a broad coverage of the entire world market with a minimal portion allocated to bonds. I’m only 30 years old and have a public sector pension awaiting me upon retirement (I hope), so I'm not risk-averse.
With that portfolio, my exposure to the Canadian market would be very small. Is there any real benefit for a Canadian investor to invest strongly in Canada funds or, in the case of an ETF portfolio, something like XIC, XIU, or CRQ?
I’ve chosen XEM (or CWO) as an emerging markets ETF. I believe that I should hold a strong position in emerging markets now and suspect that doing so will provide strong gains in the future.
I’ve chosen XBB as my fixed-income ETF as I believe it provides a broad coverage of Canadian government and corporate bonds rather than focusing on one or the other.
Any comments? Is anyone else doing anything similar?
1 - 5 of 5 Posts
Before considering which exact ETFs to buy, look at the issue from different POVs.
A lot of talking heads say "the Cdn economy is only (say)5% of the world economy therefore you should buy foreign companies to get exposure to those economies". But the economic results of a country are not always reflected in the price of public stocks for many reasons.
And it is quite possible that US based companies will continue their expansion in foreign economies instead of at home. I believe the S&P's revenues now come about 40% from elsewhere. So buying US stocks gives you the assurance of better financial infrastructure as well as the economic exposure.
And why do you want that exposure in the first place? If their returns are no better than Cdn returns, and we all know now that the returns will be highly correlated, then the only possible reason is the promise of HIGHER returns.
But are foreign returns higher? The Cdn market has been one of the most successful through history. Look at the historical market values in these graphs. They use a log scale so it is the slope of each line that indicates its success.
http://members.shaw.ca/retailinvestor/OtherCountryStock.html
Even a diversification between US and EAFE stocks has only yielded marginal benefits. See Sheet 6 of this spreadsheet.
That said, I currently own emerging market common equity.
A lot of talking heads say "the Cdn economy is only (say)5% of the world economy therefore you should buy foreign companies to get exposure to those economies". But the economic results of a country are not always reflected in the price of public stocks for many reasons.
And it is quite possible that US based companies will continue their expansion in foreign economies instead of at home. I believe the S&P's revenues now come about 40% from elsewhere. So buying US stocks gives you the assurance of better financial infrastructure as well as the economic exposure.
And why do you want that exposure in the first place? If their returns are no better than Cdn returns, and we all know now that the returns will be highly correlated, then the only possible reason is the promise of HIGHER returns.
But are foreign returns higher? The Cdn market has been one of the most successful through history. Look at the historical market values in these graphs. They use a log scale so it is the slope of each line that indicates its success.
http://members.shaw.ca/retailinvestor/OtherCountryStock.html
Even a diversification between US and EAFE stocks has only yielded marginal benefits. See Sheet 6 of this spreadsheet.
That said, I currently own emerging market common equity.
Do you have any suggestions? I'm also interested in this, and to find an emerging markets ETF with Canadian dollars is not that easy. Would it not make sense to have it in CDN$ rather than USD if we think the USD will be tanking in the medium-term?XEM, MER .82%, you can do much better than that. Find something cheaper.
This is a common misconception as I explained here:Do you have any suggestions? I'm also interested in this, and to find an emerging markets ETF with Canadian dollars is not that easy. Would it not make sense to have it in CDN$ rather than USD if we think the USD will be tanking in the medium-term?
Currency Effects of Buying Foreign Stocks or ETFs on US Exchanges
Check out the blog for cheaper emerging market alternatives. VWO is the cheapest around.
1 - 5 of 5 Posts
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