Investment Moats

IWDA vs VWRA – Are There Significant Performance Differences Between the Two Low-Cost ETFs?

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There are two exchange-traded funds that passive investors are considering for their long term wealth accumulation.

  1. The iShares Core MSCI World UCITS ETF – Ticker IWDA – Listed on the London Stock Exchange
    • Benchmark Index: MSCI World Index (1,613 equity holdings)
    • Accumulating
    • USD
    • Total Expense Ratio: 0.20%
  2. The Vanguard FTSE All-World UCITS ETF – Ticker VWRA – Listed on the London Stock Exchange
    • Benchmark Index: FTSE All-World Index (3,416 equity holdings)
    • Accumulating
    • USD
    • Total Expense Ratio: 0.22%

Both are UCITS funds, domiciled in Ireland so they are more tax-efficient in terms of dividend withholding taxes and for retail investors, you have less estate duty/inheritance tax issues.

VWRA is the new kid on the block. It debuted last year (I wrote about the two ETF here). As VWRA is newer, the bid to offer spread is not as tight as IWDA, which is a well traded and rather liquid ETF.

Nevertheless, the bid-offer spread for VWRA can be within 20 basis points (0.20%) but sometimes I do see that it can widen. Sometimes it can be at 7.5 basis points.

The biggest difference is the benchmark indices that both ETF tries to replicate. You may be deciding which ETF to invest in based on your philosophy towards MSCI World and FTSE All-World Index.

I do question whether we are fussing over something that makes significant impact or whether the significance is pretty low.

Which is what this article sought to explore.

FTSE All World vs MSCI World

Each index have their own methodology. Each index provider (FTSE, MSCI) have their own methodology as well.

MSCI World Index captures the large and mid cap representation across 23 Developed Markets (DM) countries. DM countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Isreal, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US.

FTSE All-World Index is a market-capitalisation weighted index trying to capture the performance of large and mid-cap stocks from the FTSE Global Equity Index series. The index covers developed and emerging markets.

Countries include Australia, Austria, Belgium, Brazil, Canada, Chile, China, Columbia, Czech Rep, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Isreal, Italy, Japan, Korea, Kuwait, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, UAE, UK, USA.

The difference is mainly whether you wish a single fund to give you exposure to both developed and emerging markets.

If so, the choice is VWRA. If not it is IWDA.

Here is the geographical composition of IWDA:

IWDA Country Exposure: IShares

Here is the geographical composition of VWRA:

VWRA Country Exposure: Vanguard

The main difference is the composition of United States and China. IWDA do not have China exposure while VWRA currently have higher China exposure (as well as emerging markets countries) and lower United States.

Does Emerging Market Exposure Give Outperformance?

We compare performance next.

The good thing about ETFs is that we can review the history of returns of the benchmark index the ETF is trying to replicate to find out how they do.

I have access to MSCI World index data but not FTSE All-World Index.

However, I think the MSCI All Country World Index (ACWI) should match up very well to the FTSE All-World Index. The MSCI All Country World Index seeks to capture the representation of 23 developed markets and 26 emerging markets.

I wanted to use the MSCI World and MSCI ACWI net of dividends. MSCI provides both index where withholding taxes are deducted from the dividends re-invested (net) and withholding taxes not deducted (gross).

The net index would probably be more conservative. Lower return as well.

However, the earliest data that I have for the net index is in 1999 but for the gross index, I will have the data from 1988 onwards.

This means I have 22.5 years worth of returns data from Jan 1988 to May 2020.

My first thought is that in some years MSCI World will do better and in some years MSCI ACWI will do better.

Here is the month-by-month returns of MSCI ACWI minus MSCI World:

Click to see larger illustration

There are a lot of small bars. If the bars are above zero, ACWI has higher return for that month. If lower, than MSCI World did better. There are more months where MSCI ACWI have higher returns.

However, the largest difference is less than 1% for a month. On average, the difference is very small (but they do compound over time.)

You will also notice that there isn’t a prolong period where ACWI did better than World.

Reviewing the Long Term Returns of MSCI World and MSCI All Country World.

You are probably less interested in the month by month returns if you are investing for the long term.

So it is only natural we pit the long term returns of the MSCI World vs the MSCI All Country World.

Your experience will differ depend on which period you invest in. You could have started investing in a period where the returns are very good or you could have started investing in a period where returns are a bit gone case.

So let us look at the 5-year rolling returns and 10-year rolling returns of these 2 indexes. For those who are new to rolling returns, you can read this article I wrote at Providend on what are rolling returns, and how reviewing rolling returns of a portfolio may give you greater conviction to invest.

We have 389 months between 1988 to May 2020.

5-Year Rolling Returns

There were 330 5-year periods between 1988 to May 2020 if you roll month-by-month.

1 rolling period will be from 1 Jan 1988 to 31 Dec 1992. The next rolling period will be from 1 Feb 1988 to 31 Jan 1993 and so on and so forth.

If I were to plot out the rolling returns of MSCI World and ACWI in two lines, we get something like this:

Click to see larger chart

On a 5 year basis, there are some periods where you annualized returns is 7.81%. There are also periods where the 5-year returns are -4.24%.

You can observe how the grey line (MSCI World) hugs close to the blue line (MSCI ACWI). At some part, the difference is greater.

There are 330 5-year period. Of these:

  1. 159 5-year periods MSCI ACWI did better
  2. 171 5-year periods MSCI World did better

Magnitude of difference:

MSCI ACWI vs MSCI WorldAnnualized Return DifferenceCumulative Return Difference
Largest1.36%6.98%
75th Percentile0.51%2.58%
Median-0.05%0.25%
25th Percentile-0.71%-3.50%
Lowest-1.56%-7.56%
Just how signficant are the differences over a 5-year period?

The difference feels small. Even in the most extreme, the 5-year difference is about 7%.

To give you context, if you earn an annualized return of 6% a year for 5 years, the cumulative return is 33.8. A 7% difference is about 21% performance difference. This is the extreme case.

On an average, the difference is small.

10-Year Rolling Returns

There were 270 10-year periods between 1988 to May 2020 if you roll month-by-month.

1 rolling period will be from 1 Jan 1988 to 31 Dec 1997. The next rolling period will be from 1 Feb 1988 to 31 Jan 1998 and so on and so forth.

If I were to plot out the rolling returns of MSCI World and ACWI in two lines, we get something like this:

Click to view larger illustration

On a 10 year basis, there are some periods where you annualized returns is 13.46%. There are also periods where the 10-year returns are -1.30%.

You can observe how the grey line (MSCI World) hugs close to the blue line (MSCI ACWI). At some part, the difference is greater.

There are 270 10-year period. Of these:

  1. 106 10-year periods MSCI ACWI did better
  2. 164 10-year periods MSCI World did better

Magnitude of difference:

MSCI ACWI vs MSCI WorldAnnualized Return DifferenceCumulative Return Difference
Largest0.88%9.16%
75th Percentile0.37%3.76%
Median-0.20%-1.98%
25th Percentile-0.35%-3.44%
Lowest-0.84%-8.09%
Just how signficant are the differences over a 10-year period?

On average, the MSCI World did better than the MSCI ACWI over different rolling returns.

To give you context, suppose you earn an annualized return of 6% a year over 10 years, the cumulative return is 79%. While an 8-9% return difference is about 10% of the difference, I do not think it is a particular deal-breaker.

Conclusion

Which should you choose?

Based on my data

  1. There are 5-year, 10-year periods the VWRA may do better and there are periods where IWDA will do better
  2. Difference can vary but I felt it is livable and not such a big difference

Given this, if you are holding IWDA and wanted to get exposure to the emerging markets, your mileage may depend on how much exposure you add. If you choose to switch over to VWRA, there is no guarantee you will notice differences.

If you are holding VWRA, you are more diversified.

The purpose of diversification is not only to diversify away from the risk. It is to capture the returns.

To give an example, suppose the top 25 firms in China, and top firm in South Africa in the next 20 years became a titan, if you invest in IWDA, you would not be able to capture the return.

If you invest in VWRA, you will be exposed to capture it.

That said, emerging markets do come with greater risks and volatility as well.

As a side note, for the past 22.5 years, the standard deviation of MSCI ACWI versus World is 15.03% versus 14.83%.

From the past 22.5 years, emerging markets such as China have grown massively, so VWRA should do well, yet the dent on performance is still not very clear.

This may be because the firms in developed markets have done relatively well as well.

What is more important is to :

  1. Get started
  2. Create an allocation
  3. Start funding and do regular contribution
  4. Capture the returns

VWRA or IWDA can be purchase through a brokerage that allows you to trade shares on the London Stock Exchange.

Some brokers are Standard Chartered Online Trading, DBS Vickers and Interactive Brokers.

Personally, I use Interactive Brokers to purchase VWRA.

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Infinity Global Stock Index Fund – the Wrapper Fund for Vanguard Global Stock Index Fund in Singapore

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I first introduce the Infinity Global Stock Index to readers in 2014. 5 years later, I think it makes sense to do an update since the landscape for passive investing have changed. 

One way to build wealth, but don’t want to actively manage it, treating investing as a form of accumulation is to passively invest in a diversified portfolio.

And one of the best way is to invest in a diversified portfolio across the world as if you are purchasing a group of the stalwarts around the world.

If we know that it is hard to pick the right active manager, the best way is to invest in a low cost fund that tracks a World Global Index.

Most investors did not know that there are 3 feeder index funds that enables you to invest in Vanguard in Singapore. They were brought over in early 2000 by then OCBC Asset management, now Lion Global Investors.

These funds are:

  • Infinity Global Stock Index Fund: A feeder fund into Vanguard Global Stock Index Fund, which tracks the MSCI World Free Index, a basket of 1600 global stocks
  • Infinity US 500 Stock Index Fund: A feeder fund into Vanguard US 500 Stock Index Fund, which tracks the S&P 500 index
  • Infinity European Stock Index Fund: A feeder fund into Vanguard European Stock Index Fund,  which tracks the MSCI European index

They are distributed by many platforms like your normal unit trust and one distributor is Fundsupermart.com

If you want to keep things simple, and own majority of the corporates in the world passively, Infinity Global Stock Index Fund fits the needs.

How you can build wealth with the Infinity Global Stock Index fund – The Strategy

My Wealthy Formula - How Average People Achieve Wealth

The Infinity Global Stock Index fund has an advantage because a lot of Singaporeans are familiar and know how to purchase it.

  1. Sign up with a distributor like Fundsupermart so that you can start purchasing the Infinity Global Stock Index Fund
  2. Decide X amount or Y% of your disposable income per month to funnel into Wealth Building
  3. Start a regular savings plan (RSP) to monthly funnel X amount to Fundsupermart to purchase Infinity Global Stock Index Fund using GIRO (minimum amount is $100, which is low)
  4. Regularly contribute to the Infinity Global fund. You try to earn more, then optimize your expenses, so that you have greater personal free cash flow to channel to your wealth building

Benefits of Investing Passively in a basket of Global Stocks

There are some benefits of investing in a single fund this way:

  1. It enables you to participate in the global growth of the corporates in the world. If your time horizon is 20 years or more, and a firm believer of optimism that the world will be a better place 20 years from now, this is a passive way to do that
  2. The basket of stocks is diversified. There are 1600 stocks, sampling based on the composition of the largest companies in the world. If a few company blows up, it will cause a minor dent in your portfolio
  3. It removes a single country risk. You can always invest passively in a Singapore STI Index ETF, but what if Singapore languish for 20++ years the way Japan did? A global index portfolio minimizes that risk
  4. You can worry less about underperformance. Because you are essentially buying the benchmark where all global unit trusts, or active managers measures against, there is no worry that choosing the wrong fund, 20 years down the road, results in abysmal performance versus the benchmark
  5. You are removed from the execution. Note the process above. You set it and forget it. Human’s tend to make irrational decisions due to our genetic behavioral makeup. We become our worst enemy by buying high or selling low. Fixing a GIRO plan is a form of pre-commitment and protection against yourself, compare to if you need to monthly manually purchase a fixed amount yourself (You might decide then and there when the MSCI Index is down 4% in 2 days to ‘wait until the coast is clear’ before investing)
  6. It lets you get on with what you value most: Life

Some negatives about this plan

  1. If you have an ‘edge’ to perform better, you may be missing out on an opportunity. There are folks that do have a certain edge that when they actively managed, they do better than the average performance of the market. And they have the time to actively manage. This might not be for them. The question is whether they have the ‘edge’ (Or most of the time its their ego that thinks they have the edge)
  2. In the short term, the value of your holdings can be very volatile. Your value at the worse case in the depths of 2008 can go down by 50%. Can you bear with that?
  3. Global growth of corporates in the world can stagnate or deflate in 20 years. There are always pessimists in the world. If you firmly believe we are in such a scenario, this is not for you.
  4. The Infinity Global Index Fund is not as low cost as the original US Index Fund. Ultimately cost matters and the Achilles heel of the Infinity Global is that the expense ratio is 0.95%. The original index fund’s expense ratio is close to 0.25%. That means you lose out 0.7% return just to fund management and by virtue of it being in Singapore. (See below why this cost matters)

Summary of Costs Associated with Investing in Infinity Global Stock Fund

The Infinity Global Stock Fund is a unit trust. And with it there is a bunch of costs associated with owning the fund. 

Later in the article we will talk about why costs matter in investing.

As Singaporeans, you have various ways now, compared to in the past to invest in a low cost global equity product. You do not always need to invest through the Lion Global Infinity Series. 

You could:

  1. Purchase as part of a portfolio through the Robo platforms Stashaway, AutoWealth and Smartly
  2. Purchase viable passive index exchange traded funds (ETF) through a good platforms such as Standard Chartered Online Trading, Interactive Brokers

There are however, different costs, some visible some hidden. 

Infinity Global have certain advantages over #1 and #2. In other areas #1 and #2 have advantages over Infinity Global.

The table below summarizes the “Cost Stack” that passive investors could use to evaluate:

Some of the costs are recurring. Those are the costs you should take note of more, than the one time one because they are going to compound over time. 

One cost that you should take note of is I Estate Duty/Death Taxes. Certain funds/ETF domiciled in certain countries such as USA, UK levy a 30%-50% tax on the amount of money you have within the country after a certain minimum amount. This gets very murky because non of the platforms want to help you on this. They will ask you to consult your tax advisers. 

Some options available to Singaporeans thankfully, do not have this problem. The Infinity Series of Funds is one of them. 

So while you may not feel this cost now, your descendants might feel it. 

In the table below, I compared the total cost of investing in Infinity Global Stock Fund versus some of its peers such as 

  1. iShares Core MSCI World UCITS ETF (IWDA) listed on the London Stock Exchange through their broker
  2. The Vanguard Total World Stock ETF (VT) listed on the New York Stock Exchange through their broker

Infinity Global Stock Index Versus IWDA and VT in terms of costs

Some of these costs are based on discussions that I have with people investing with Interactive Brokers, IWDA and VT. By no means are they always accurate. 

Some hidden fees such as foreign exchange spread, bid/ask spread and tracking error change over time. 

The total recurring fees at the end does not consider foreign exchange spread, bid/ask spread and estate duty among the cost. They are one time cost, but cost like foreign exchange spread do matter. Then again currency do fluctuates over the next 20 years (Specifically your home currency, versus the foreign denominated currency, how different it is from the most efficient rate)

Stacked together, the Infinity Global does not look too expensive versus the most cost efficient solution, which is purchasing IWDA through Interactive broker (perhaps it is an article for another day).

Then again my assumptions is that your portfolio size is $20,000 currently. You will add $1000/mth to IWDA/VT or Infinity Global, and you would accumulate every half year then invest once. 

With the Infinity Global, the platform is much easier. There is a long topic in Hardwarezone that act as a support group how to invest with Interactive Brokers. They discuss how to fund the account, whether there are any hidden cost to get the money from the platform back into your account, and how to change to a different currency, how to read the performance report. 

With the Infinity Global, you can have an automated regular savings plan, where the money from your bank account funds the passive fund automatically without you doing anything. The minimum amount is SGD $100. 

The complexity of the DIY manner and the ability for you to invest in small amounts with less human intervention help people to start more easily and prevent your behavioral issues from destroying your portfolio.

Some recent returns

A recent factsheet of Infinity Global Fund can be seen here. Here is Fundsupermart’s sheet.

The SGD Class fund was incepted in May 2000 which is almost 19 years ago. The USD Class fund was incepted in Oct 2003 which is around 16 years ago.

You will observe that there are 2 column of NAV: NAV and NAV^. NAV stands for the returns in % of Net Asset Value of the basket of stocks, while NAV^ is the returns after preliminary charge.

Observe that the charge (difference between NAV and NAV^) can result in a difference as high as 2%. This indicates the effect of higher cost to your investing results.

The results since inception is rather poor. The Infinity Globals 18 plus years result is almost 60% of the benchmark before the preliminary charge. 

Year 2000 is not a year to start a fund but honestly I would have expected the fund to be doing better than 1.3% to 1.5% per year. 

On a 10 year basis the result is less than the benchmark but it is closer to the expected return of 6%-9% that people are using in their projection. 

Cost Matters in Investing

You have seen me mentioned about cost a few times in this post. Something about the expense ratio, the sales charge, withholding taxes. 

Why is cost important? Because we think that it has a large impact on your returns. 

If we revisit the Infinity Global’s factsheet, a fund that tries to mimic the index, should achieve close to the performance of the index.

However, over the long term, the performance of Infinity Global is about 60% of what the benchmark index achieved. 

The likely reason for the loss is if we account for costs.

 

The illustration above shows how much $10,000 will grow to in 10 years, 20 years and 30 years, if the compounded average rate of return is 7%. 

If you add a little cost of 0.25% to it, we start losing some returns. If we add 0.75% cost to it, we start losing more returns. 

The longer the horizon, the greater the cost compounds.

You would not know whether you will get 4% to 10% over the long run, but you know your costs will always be there, and the cost is compounding.

The Infinity Global’s NAV versus the benchmark returns has a 1-1.5% difference.

The overall expense ratio of the fund have came down from 0.95% 5 years ago to 0.81% now. This is a very good thing if cost is that important. 

However, let us see how the other funds are doing. 

Singaporeans can purchase:

  1. The Vanguard FTSE All World ETF (VWRL) listed on the London Stock Exchange through their broker
  2. iShares Core MSCI World UCITS ETF (IWDA) listed on the London Stock Exchange through their broker
  3. The Vanguard Total World Stock ETF (VT) listed on the New York Stock Exchange through their broker

infinity global's returns

Infinity Global’s Performance over various time frame

The table above shows the returns for Infinity Global. Notice the deviation of the NAV  from the Benchmark.

VWRL’s Performance over different time frame

The performance table above shows the performance of VWRL. The NAV at times are better than the benchmark. This is likely due to the great execution of Vanguard to get out certain advantages through a combination of lending out their shares, sequencing their buying and selling.

VT’s performance

Similarly, VT’s performance is rather close to the benchmark as well. They do not get the kind of outperformance over certain duration as VWRL, but the NAV is pretty close to the benchmark.

IWDA’s performance

The last ETF, which is IWDA has performances that is pretty close to its benchmark as well. 

While the performance of the Infinity Global Stock index is pretty good versus active managed funds (we will go into this next), it does lag behind its peers in terms of tracking the index. We can see the appeal of purchasing VT, VWRL and IWDA, which are all accessible to the Singapore investors (all things behind equal)

Infinity Global Fund’s Ranking among the Active Funds

I have tabulated the rankings of Infinity Global versus the active funds, with the smallest position being the highest return for the time period:

YTD: 17th out of 58 funds (71% position)
1 Week: 20/58 (65%)
1 Month: 15/58 (72%)
3 Month: 28/58 (51%)
6 Month: 37/54 (31%)
1 Year: 15/52 (71%)
2 Year: 9/49 (81%)
3 Year: 7/42 (83%)
5 Year: 3/30 (90%)
10 Year: 1/16 (100%)

In truth, instead of 58 funds there were 95 funds in total, but I decided to narrow down to only SGD funds.

Doing this would allow us to compare its performance as a mechanical passive benchmark index against those with active managers. 

Its results to me are pretty stellar. The Infinity Global ranks top among the 16 funds that have a 10 year history. On a 5 year basis, it ranks third among 30 funds and 7th & 9th on a 3-year, 2-year basis. 

In the short run, the market is a voting machine. In the long run, it is a weighing machine. 

The longer term results especially 10 years is important because that is usually how long  you should be looking at holding a fund like this. Short term-wise they can gyrate up and down, but longer term you should expect the Infinity Global to be above 50%.

Why did the Infinity Global did well in the long term?

My guess is due to:

  1. It is difficult for active managers to consistently stock pick and outperform the benchmark
  2. The higher cost of active funds starts to impede the fund’s returns.

Since I updated this in April 2019, Let us contrast this to the data in Jan 2014 or 5.4 years ago.

YTD: 10th out of 35 funds (71% position)
1 Week: 20/35 (42%)
1 Month: 15/35 (57%)
3 Month: 11/35 (68%)
6 Month: 9/35 (74%)
1 Year: 6/32 (81%)
2 Year: 3/28 (89%)
3 Year: 3/27 (88%)
5 Year: 6/25 (76%)
10 Year: 3/6 (50%)

You will realize the following:

  • There were less funds in 2014. 6 versus 16 for 10 year, 25 versus 30 for 5 year. The 2014 result includes SGD and USD funds
  • The funds were mostly above 50%, which shows that they seldom underperform
  • More so, it shows that not every active managers can outperform a “dumb” index fund
  • The rankings are rather similar. Between 1 Week to 6 months, the results pale against the longer term

Did the Top funds 5.4 Years ago Remained as Top Funds?

Since I am updating this post in 2019, I thought let us look at how the top funds did 5 years ago now.

Why is this important?

You think you can pick the top fund, managed by the top manager, or the best fund recommended by Fundsupermart, or your financial adviser.

The ranking of the 6 funds in 2014 (there are not many of them):

  1. Aberdeen Global Opportunities
  2. Nikko AM Shenton Glb Opportunities
  3. Infinity Global Stock Index
  4. Fidelity FPS Global Growth USD
  5. United International Growth Fund
  6. First State Global Opportunities Fund

The top 16 Funds in Ranking in 2019:

  1. Infinity Global Stock Index
  2. Nikko AM Shenton Glb Opportunities
  3. AB SICAV I Sustainable Global Thematic A SGD
  4. Stewart Investors Worldwide Leaders Sustainability A Acc SGD
  5. HGIF-Economic Scale Global Equity AD SGD
  6. United International Growth Fund
  7. DWS Global Themes Equity A SGD
  8. Nikko AM Global Dividend Equity Acc SGD-H
  9. FTIF- Templeton Global A Acc SGD
  10. AB FCP I Global Equity Blend A SGD
  11. Schroder ISF Global Dividend Maximiser A Acc SGD
  12. Aberdeen Global Opportunities
  13. Schroder ISF Global Dividend Maximiser A Dis SGD
  14. United Global Dividend Equity Fund A SGD Dist
  15. Eastspring Investments Unit Trusts – Global Themes SGD
  16. FTIF – Templeton Global Equity Income A MDIS SGD

Somehow out of the 6 funds, I cannot find 2 of them:

  • Fidelity FPS Global Growth USD
  • First State Global Opportunities Fund

Since I only included those funds with SGD, I tried searching for Fidelity FPS Global Growth USD but cannot find it. I also failed to find the First State fund. 

The top performing fund, is now at the other end of the spectrum. The second position fund, remains in second position (kudos to Shenton Glb Opportunities, it has been around for a long long long time)

UOB’s United International Growth, did better 5 years later. 

How would the 16 funds do in the future? Take your pick. Aberdeen is a strong manager, but even then, picking it as your choice 5 years ago would have been great, but if you are always expecting top class performance, then I think it is not so easy to discern ( it should be noted that the 10 year annualized return of 7.23%/yr for Aberdeen Global Opp isn’t too shabby and not bad for you the investor)

If you know what happened to the Fidelity and First State fund, do let me know. 

I wonder if its a case of poor performance or strategic review, resulting in them closing down the funds. I would not be surprise some of the 16 funds with 10 year track record close down 5 years later. This is the reality of the fund management business.

Picking the Best Fund on a Forward Looking Basis

One thing you will notice is that at different time periods, there are no best performing fund throughout the different time periods. At different time frames, its difficult to pick the best fund.

In 2014 I wrote this:

3 Active funds stands out

  • Templeton Global
  • Fidelity FPS Global Growth
  • Aberdeen Global Opp

To pick the best fund going forward, you have to look at their past track records.

Given this data, you would probably pick Fidelity FPS, but 10 years in, it turns out that Aberdeen Global performed best.

Yet Aberdeen Global hasn’t been performing the best for these 5 years.

So how do you resolve that?

In 2019, We know that Aberdeen Global didn’t turned out the best. I cannot find Fidelity FPS Global Growth . In hindsight we should all choose Nikko Shenton Glb Opportunities. 

And there in lies the difficulty to pick good managers that last for 20-30 years. 

Investors have Limited Choices if their Distributors/Advisers/ Investment Linked Policy have Limited Choices

If you are advised by your investment advisor or insurance agent to purchase an investment linked policies, you will realize the choices are limited.

What if the best funds available is not within the choices? You may have to endure mediocre results.

Summary

For those who understands passive, low cost investing, the Infinity Global Stock Index fund is a unit trust that allows you to start small and save up your money. 

It allows you to de-accumulate in retirement as well. 

The landscape have changed a fair bit since 2014. We have many robo platforms that offer competing solutions. So they might make the Infinity Global Index fund less unique.

It is pretty nice to see how well the fund performance did against its actively managed peers. However, the difference between the fund’s NAV and its benchmark might make the ETF solutions through your brokers more appealing.

Still, my friend Gregory from Endowus will say that at this cost, it is still too expensive for the retail investors. We will see if we can see products that are either better in performance with lower volatility, or that it is cheaper.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often.

Here are My Topical Resources on:

  1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
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A Real Passive Allocation involves Bonds as well. How Japan’s Bonds balances up their Poor 20 year Equity Returns

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I enjoy financial blogger Cullen Roche’s work at Pragmatic Capitalism a lot. What I enjoyed the most is of him trying his best to take a common narrative that is popular in the media and provide a fresh perspective.

Put it another way, he often offers an alternative thought to the common narrative, without being seen as a bear or fear monger.

It is when you hear his explanation of some deeper economic topics such as the world printing money, gold and such that you appreciate a fresh perspective that is not too slanted.

The passive investors will not be happy when he describes their approach to be not reflective of the total market for one important reason: bonds and debts make up a large part of the world’s net worth on top of equity.

In his recent article, he decides to put the microscope on Japan.

As most of us are aware, since 1989, Japan’s equity have endured what is a 25 year old bear market, where prices are still below that high. The common narrative is to use the Japan case study to answer: What if you invest in one country and that country exhibits the same issues as Japan. How would your retirement look like then?

Cullen’s argument is that, like many of the indexing speak, much of the narrative is on the volatile equity markets in the home country, while we tend to ignore that of the debt markets.

Bonds are traditionally less correlated with equities, but have a positive expected return in the long run. Therefore, they make good diversifier in our portfolio.

Problem is that for individual stock pickers or even indexing folks, they tend to be ignored.

In the case of Japan, the performance of the JGB over this 25 years have been 4.9%/yr. This gives a 60% equity and 40% bond portfolio a 2%/yr return over the period.

The result improves further if we introduce a MSCI World Index fund into the equity mix. So the allocation is 30% Topix,  30% MSCI All World Ex-Japan and 40% 10 Yr JGBs.

That will generate a 5.2%/yr annual growth rate.

The key takeaway for myself was that, I have also buy into the idea that some countries will end up with a profile similar to Japan, and that would not be good for the investors who have an extremely strong home country bias.

My solution to that scenario would be to have a world stock index equity allocation added to the home equity index. What I omit is the role of the bond in that allocation.

It is probably why the Bogleheads advocate the simplest portfolio is one where it includes a home equity index, an international index and a home bond index.

You can read Cullen’s article here: The Importance of Global Asset Allocation – Japan Edition

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A plug for Turtle Investor and his 3 ETF Portfolio for Singaporeans

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We talk a fair bit about a rather passive approach to  index investing in a USA context and Singapore context with the Infinity Global, STI ETF and the POSB Invest saver.

Writing a rather comprehensive guide that brings you through how to get started and a blueprint portfolio allocation is difficult. You have to think with much parameters and there is seldom a one size fits all solution.

The Turtle Trader have written a useful article that shows you how to form a 3 ETF portfolio with the Standard Chartered Online trading platform. You can read it here> Establishing Bogleheads 3 Fund Portfolio in Singapore

Don’t worry. It won’t cost you an arm and leg. This guy looks genuinely wants to help provide the resources to help the average folks built wealth in a sensible way. Its provided free on his site.

A note of the difficulty is that, his recommendation for the global ETF is to use VWRD the US dollar version of Vanguard’s FTSE All World ETF listed on the London Stock Exchange. There is an inheritance tax in UK where currently if the investor held assets greater than 300k pounds,  and the investor passed away, the assets may be subjected to 40% inheritance tax.

This is the difficulty when it comes to selecting an ideal ETF to simplify wealth building. The alternative is to take on more cost with the Infinity Global Fund or to form a global allocation with Vanguard ETF based in Canada, where there currently do not have these death taxes.

If you would like to forgo an allocation that captures the world, there are Vanguard ETFs in Hong Kong that tackles the Asia Ex Japan region, where there are no death taxes and dividend withholding taxes.