Choice between two World ETFs

[k290]

I have the following two options:

Option A: ETF with 1600 stocks from the world developed market (Tracks MSCI World Index)
Option B: ETF with 1200 stocks from the world developed and emerging markets (about 10% is emerging markets). (Tracks S&P Global 1200 Index)

The fees of Option A and Option B are the same.

I do not have access to any other global ETFs. So please do not suggest Vanguard etc.

[Rob_bob]

It would be nice to have the ticker symbols to run a backtest.  Emerging markets would add some volatility but might improve returns, long term.

[k290]

Global ETFs have only become available in my country (South Africa) recently. So each ETF only has 1-2 years of history that looks pretty much identical. Is it worth backtesting on a couple years of data?

[flipboard]

<snip>
I do not have access to any other global ETFs. So please do not suggest Vanguard etc.

Are you sure? Interactive Brokers appear to offer their services to residents of South Africa, which should open you up to a lot of markets - or is there some kind of tax reason to avoid non-south-african ETFs/funds?

[k290]

<snip>
I do not have access to any other global ETFs. So please do not suggest Vanguard etc.

Are you sure? Interactive Brokers appear to offer their services to residents of South Africa, which should open you up to a lot of markets - or is there some kind of tax reason to avoid non-south-african ETFs/funds?

Interesting. I had just looked into all the countries where vanguard operates and allows you to invest directly. Mostly US, Europe etc. I'll look into this brokerage and see what their fees are like.

[Tyler]

Is it worth backtesting on a couple years of data?

Definitely not.

Without backtesting a thing, I can tell from the underlying indices that the two funds should have very similar performance.  They're both globally cap-weighted passive options, so most of the performance will be determined by the top few hundred companies that should be virtually identical in both funds. 

If your goal is maximum diversification, I might personally be inclined to go with Option B simply because the 10% emerging market exposure will likely have a greater diversification effect than a few more smaller companies in developed countries.  But IMO both are good options. 

[Boofinator]

Sounds like a good tax loss harvesting duo (if that is such an option in South Africa).

I have no pretense for which might do better, but if I had to pick only one it would be option A (emerging markets I feel add quite a bit of risk and aren't necessary in the early stages (or really any stage) of investing).

[Radagast]

With out any information at all its hard to say. How amount of investor assets are in each one; is one at risk of closure? Does one have giant bid ask spreads? Is there a per transaction fee?

Otherwise it seems like it won't matter much. I guess I too would lean towards emerging markets exposure as that is likely to me more independent. But splitting 50/50 is also fine unless there is a per transaction fee.

[patrickza]

Hey k290. Fellow South African here. I personally use option A, but only in my tax free savings account. For everything else I have an Interactive Brokers account and buy Vanguard through that. Interactive is particularly good when you have >$100 000 as then there's no monthly fee!

Both options don't have the same TER though, Satrix world (A) has a 0.35% TER and Ashburton (B) has a 0.45% TER.

The reason I only hold it in my tax free savings is because option A is because it's a total return fund and dividends are automatically reinvested. That leaves you with the job of working out what the dividends would have been, and also a monstrous calculation when you sell to work out what portion of the value is actually capital growth and what portion is dividends. You could avoid that with B, as it actually pays out dividends.

BUT the reason I don't hold either anywhere other than my TFSA is because you actually pay more in CGT and in dividends tax holding Rand based funds than you would in true offshore funds. Here's a few links which explain how:
https://investorchallenge.co.za/pay-less-dividend-tax-by-doing-this-one-thing/
https://investorchallenge.co.za/our-government-really-doesnt-want-us-to-invest-locally/

[k290]

Hey k290. Fellow South African here. I personally use option A, but only in my tax free savings account. For everything else I have an Interactive Brokers account and buy Vanguard through that. Interactive is particularly good when you have >$100 000 as then there's no monthly fee!

Both options don't have the same TER though, Satrix world (A) has a 0.35% TER and Ashburton (B) has a 0.45% TER.

The reason I only hold it in my tax free savings is because option A is because it's a total return fund and dividends are automatically reinvested. That leaves you with the job of working out what the dividends would have been, and also a monstrous calculation when you sell to work out what portion of the value is actually capital growth and what portion is dividends. You could avoid that with B, as it actually pays out dividends.

BUT the reason I don't hold either anywhere other than my TFSA is because you actually pay more in CGT and in dividends tax holding Rand based funds than you would in true offshore funds. Here's a few links which explain how:
https://investorchallenge.co.za/pay-less-dividend-tax-by-doing-this-one-thing/
https://investorchallenge.co.za/our-government-really-doesnt-want-us-to-invest-locally/

Yeah I just said they have the same TER because I wanted a opinions of a side by side comparison of the indices they track. Rather than getting into practicalities here.

I thought I had the SA environment figured out but I had no idea about the tax implications of true offshore funds. These links are immensely helpful. Also good to know you've managed to use Interactive successfully. That gives me some confidence

Edit: I think I had looked at Interactive before but I couldn't find their fees for South Africa on their fees page: https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks1

Also do you figure out your tax obligations yourself? It's kind of nice with a South African brokerage to just get your IT3(C) and use that.  I'm not sure if I'll be able to figure it out for something like Interactive

Also how do you fund the account? Do you do a SWIFT transfer? That would be expensive..

[k290]

Is it worth backtesting on a couple years of data?

Definitely not.

Without backtesting a thing, I can tell from the underlying indices that the two funds should have very similar performance.  They're both globally cap-weighted passive options, so most of the performance will be determined by the top few hundred companies that should be virtually identical in both funds. 

If your goal is maximum diversification, I might personally be inclined to go with Option B simply because the 10% emerging market exposure will likely have a greater diversification effect than a few more smaller companies in developed countries.  But IMO both are good options.

Thanks. This was the kind of info I was looking for someones re-assurance on. Very helpful