2 New ETFs helping Singaporeans Gain Diversified Global Equity Exposures

One of my ex-co-worker let me know that there are 2 exchange traded funds (ETF) listed on the London Stock Exchange this year.

I thought these are pretty good to let you guys and gals be aware of.

This is more suitable for the buy-and-hold investors who understand the benefits and shortcomings of investing in a low-cost portfolio by doing it yourself.

This is in contrast to purchasing through easier to access robo-advisers platform.

Both ETFs are UCITS ETF that are domiciled in Ireland and they are listed on the London Stock Exchange (LSE).

We prefer the ETF and unit trusts domiciled in Ireland because they are more optimized in terms of minimizing withholding taxes on the dividends received, and reducing estate duty/inheritance tax/death taxes complications should the investor passed away.

You can read my definitive guide to withholding tax when it comes to stock and passive investing to understand why you need to take note of this aspect when you are investing.

You can purchase these ETFs through the brokerage platforms that give you assess to the London Stock Exchange. Interactive Brokers is the cheapest, but not the most straightforward to use. Standard Chartered Online Trading, DBS Vickers are some of the other brokers that you can consider.

The SPDR MSCI World UCITS ETF (SWRD)

This new ETF by State Street was incepted on 28th Feb 2019. It tracks the MSCI World Total Return Index.

When you purchase the SWRD you gain exposure to 1643 developed market stocks around the world. You would own the largest companies and less of the smaller companies because the index is market capitalization-weighted.

The appeal of this ETF is that the annual expense ratio is very low at 0.12%.

After adding in the trading commissions, the cost of owning a basket of 1643 developed market stocks will probably be among the lowest.

State Street does have an existing world equity ETF listed on the London Stock Exchange in SPDR MSCI ACWI UCITS ETF (ACWD). ACWD tracks MSCI ACWI (all country world index) Index, which comprises more of developed and emerging markets.

SWRD is more focus on only the developed markets. Typically, when you add smaller stocks and emerging market stocks, the execution cost is higher. Thus, your annual expense ratio also goes up. You will see this later in the comparison.

This ETF is also accumulating, which means that when the underlying stocks pay out a dividend to the ETF, the ETF does not distribute to you. The ETF reinvest the dividends back into the fund.

The FTSE All-World UCITS ETF (USD) Accumulating (VWRA)

Vanguard listed this ETF on 23rd July 2019. This ETF tracks the FTSE All World Index, which measures the market performance of large and medium stocks of companies in the world.

VWRA includes emerging market stocks. Thus, it is more similar to the SPDR MSCI ACWI ETF than SWRD.

By owning VWRA over SWRD, you have exposure to more emerging market stocks. You would also take on more volatility due to the emerging market exposure.

The expense ratio of VWRA is 0.25%. For a mixture of developed markets and emerging markets, VWRA’s expense ratio is rather low. By comparison, SPDR MSCI ACWI ETF has an expense ratio of 0.40%.

This ETF is also accumulating, which means that when the underlying stocks pay out a dividend to the ETF, the ETF does not distribute to you. The ETF reinvest the dividends back into the fund.

Let Us Compare the ETF/Funds that Gives You World Exposure

The table above shows how VWRA and SWRD stack up against some of the existing ETFs and funds.

They are all listed on the London Stock Exchange (LSE)

I have included 2 Dimensional funds that give investors exposure to a global equity allocation for work purposes (just so I do not have to do it again, and that our advisers may read this post as well)

SWRD is in direct competition with BlackRock’s very popular IWDA. Like SWRD, IWDA tracks the MSCI World Index. Both IWDA and SWRD have the same amount of stocks.

They are both narrower than the rest on the table with 1650 stocks plus-minus. However, this is vastly more diversified if have only invested domestically.

SWRD’s 0.12% expense ratio is much lower than IWDA’s 0.20% expense ratio. However, we have to see how the tracking error is like.

What happens when you add Emerging Markets and Small Cap

As we add more emerging markets stocks and smaller capitalization stocks, what you will notice is that

1. the number of holdings increases
2. the expense ratio goes up
3. the performance goes down

VWRA, Dimensional’s Global Core Equity Fund, World Equity Fund, and ACWD falls into this category of large-cap stocks + emerging markets or smaller capitalization stocks.

The 2 Dimensional funds expense ratio goes up to 0.35% and 0.43%. ACWD has almost the same expense ratio of 0.40%.

I have added one global small-cap ETF in SPDR MSCI World Small Cap UCITS ETF (WDSC) and one global emerging market ETF in iShares Core MSCI EM IMI UCITS ETF (EIMI).

When I saw that EIMI’s annual expense ratio is only 0.18%, I can’t help but feel impressed.

VWRA, the 2 Dimensional funds, EIMI, ACWD gives you exposure to more companies. These are likely to be smaller capitalization companies.

The Smaller Cap and Emerging Market Hurt Recent Performance

I have listed the year to date performance available at the last column. DFA World Equity is rather new for its USD class so I took the GBP performance and convert it to USD.

If you are invested in IWDA, you would have gained 17.37% this year to date (from 1 Jan to 30th Aug or 8 months).

DFA Global Core Equity clocks in at 13.41% and World Equity fund clocks in at 10.47%.

The MSCI World Small Cap ETF (WDSC) did rather well at 12.83% but the Emerging Market ETF returned only 3.30%.

DFA Global Core Equity did better than the World Equity fund by virtue of having no emerging markets (World Equity Fund has 12% in emerging markets)

Global Core Equity did worse than IWDA by virtue that is more weighted towards small-cap. That is why its performance is closer to the pure small-cap ETF (Global Core’s performance sits between IWDA and WDSC).

<< I removed an image that I may not be able to show >>

The matrix box above compares Global Core Equity fund’s allocation to small/medium/large companies and growth/neutral/value. Observe the larger weight to small and value.

Value and Small-cap has been relatively poor in performance for the past 7 to 8 years. If your bet is that the trend will continue, then you know which horse to pick. If your bet is otherwise, you will also know the horse to pick.

Conclusion

Personally I am really glad my ex-co-worker bring up this question with me. I am very happy that not just for Singaporeans, international investors have more great options to build wealth in a passive way.

I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.

My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.

To find out more visit Interactive Brokers today.

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