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Vanguard VWRL - the one stop solution?

Index tracking funds and ETFs
Lootman
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Vanguard VWRL - the one stop solution?

#196937

Postby Lootman » January 27th, 2019, 9:48 pm

I've noticed a few people suggesting here recently the Vanguard All-World ETF, ticker VWRL, as a default choice for investment. It is probably the broadest equity investment available for UK investors, neutrally investing across the globe in large, medium and smaller issues. 3,000 or so holdings across 50 or so countries.

It's a decent idea. But what I wanted to focus upon here is the fund cost. Not that it is expensive. Like most Vanguard products it is keenly priced at 0.25% a year. But when you compare it to the costs of Vanguard's regional ETFs it seems oddly costly.

For example, only the Vanguard Emerging Markets ETF has an expense ratio that high, and that is only 10%-15% of the fund. Other regions can be had via Vanguard ETFs as follows:

UK 0.06%
US 0.07%
Europe ex-UK 0.12%
Japan 0.19%
Developed Asia ex-Japan 0.22%

So it is clear that a DIY All-World portfolio using Vanguard's regional ETFs can be had at a lower price. The snag is that you'd have to buy the component parts in proportion to the regional market cap to achieve the same goal. The good news is that they should self-adjust after initial purchase. That in turn requires a knowledge of the market cap percentages of different regions, which can be seen from the VWRL factsheet. Rounding a bit we have:

US 53%
Europe ex-UK 16%
Japan 8%
UK 6%
Emerging 6%
Asia ex-Japan 5%
and the rest are either frontier markets or markets that fall between the cracks e.g. Canada and Australia.

Whether it's worth the extra work to build it this way to save a few basis points of expenses is an individual decision. But some may deem it worthwhile, whilst others might want to "tweak" the weightings anyway.

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Re: Vanguard VWRL - the one stop solution?

#196992

Postby xxd09 » January 28th, 2019, 10:31 am

I have noticed this fact as I simplified my Portfolio.
I have a Portfolio of 3 funds only-all Vanguard -World ex UK,UK and Global Bond
As I get older,thinking of my wife handling the ISAs and SIPPS - your observations were became more obvious
I fancied VWRL plus a Bond Fund or a one fund solution-a Life Strategy Fund(too much UK bias)
They however are more expensive than my current setup
I might still go that route as I get older-now 72- it would make life a lot simpler for my heirs who have no interest in running Money
There currently is a price to pay for simplification!
Hopefully this may change
xxd09

GeoffF100
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Re: Vanguard VWRL - the one stop solution?

#197152

Postby GeoffF100 » January 28th, 2019, 7:16 pm

A compromise is to use just VEVE and (about 10%) VFEM. That saves some of the cost.

dspp
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Re: Vanguard VWRL - the one stop solution?

#197162

Postby dspp » January 28th, 2019, 8:52 pm

Well said.

I think that Hariseldon58 has previously identified the same thing, and structured his use of Vanguard funds to take advantage of this 'feature' for the reason you set out.

Borrowing slightly I do the same thing, but for simplicity I include VWRL in my four-fund mix (VWRL, VERX, VUKE, VAPX). I take the view that the fewer moving parts, the easier I can keep an eye on what does matter to me. The slight additional cost is worth it to me.

regards, dspp

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Re: Vanguard VWRL - the one stop solution?

#197216

Postby OLTB » January 29th, 2019, 8:23 am

As part of my passive strategy I hold VEVE (Developed World), VFEM (Emerging Markets) and VVAL (Global Value Factor).

Cheers, OLTB.

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Re: Vanguard VWRL - the one stop solution?

#197245

Postby richfool » January 29th, 2019, 10:24 am

I can see the merit in gaining low cost exposure to these various markets, via an ETF., but who decides what stocks the ETF includes and excludes? Particularly when it comes to funds that target Value or Higher Yielding stocks, there must be a degree of selection, which surely then brings us back to it being a case of active management.

I can see the point if a fund is tracking the FTSE100 or a specific index, but targetting value or high yield must surely involve some degree of selection.

colin
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Re: Vanguard VWRL - the one stop solution?

#197256

Postby colin » January 29th, 2019, 10:48 am

richfool wrote:
I can see the point if a fund is tracking the FTSE100 or a specific index, but targetting value or high yield must surely involve some degree of selection.


no because the FOOTSIE company or whoever will create any index they can sell and fund managers pay to use the appropriate index which they then track according to index rules. All that is required is an algorithm to follow which makes the selections according to pre set rules. Sometimes no doubt, as with the all share ,it may be un- economical to buy each company in which case no body is going to make any value judgement on which companies to exclude rather the algorithm will be tweaked to narrow the selection or maybe they just make a random selection from among the permitted companies .

richfool
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Re: Vanguard VWRL - the one stop solution?

#197269

Postby richfool » January 29th, 2019, 11:11 am

colin wrote:
richfool wrote:
I can see the point if a fund is tracking the FTSE100 or a specific index, but targetting value or high yield must surely involve some degree of selection.


no because the FOOTSIE company or whoever will create any index they can sell and fund managers pay to use the appropriate index which they then track according to index rules. All that is required is an algorithm to follow which makes the selections according to pre set rules. Sometimes no doubt, as with the all share ,it may be un- economical to buy each company in which case no body is going to make any value judgement on which companies to exclude rather the algorithm will be tweaked to narrow the selection or maybe they just make a random selection from among the permitted companies .

Thanks for that Colin.

So are you saying that the "selection" is tweaked/varied, presumably at (predetermined) intervals to ensure it is tracking the most appropriate stocks, or is it the index that is tweaked? Though I appreciate that the FTSE 100 index does add and remove stocks according to their size.

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Re: Vanguard VWRL - the one stop solution?

#197276

Postby dspp » January 29th, 2019, 11:35 am

Sometimes it is a purely mechanical algorithm, sometimes it is largely or partly human-driven within defined criteria.

An example of the latter would be VWEHX https://investor.vanguard.com/mutual-fu ... file/VWEHX which is actually outsourced for selection purposes (to Wellington), presumably as there is not a suitable existing index (or it is cheaper for Vanguard to use Wellington to create an index than to buy it in).

regards, dspp

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Re: Vanguard VWRL - the one stop solution?

#197277

Postby tjh290633 » January 29th, 2019, 11:37 am

richfool wrote:So are you saying that the "selection" is tweaked/varied, presumably at (predetermined) intervals to ensure it is tracking the most appropriate stocks, or is it the index that is tweaked? Though I appreciate that the FTSE 100 index does add and remove stocks according to their size.

If you look at the rules for the various manufactured indices, such as https://www.ftse.com/Analytics/Factshee ... 7d40cd.pdf for the FTSE Dividend+ Index, you will see that it is reviewed twice a year. The details are in the blue panel to the right.

TJH

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Re: Vanguard VWRL - the one stop solution?

#197296

Postby colin » January 29th, 2019, 12:25 pm

richfool wrote:
colin wrote:
richfool wrote:


So are you saying that the "selection" is tweaked/varied, presumably at (predetermined) intervals to ensure it is tracking the most appropriate stocks, or is it the index that is tweaked? Though I appreciate that the FTSE 100 index does add and remove stocks according to their size.

The FTSE all share index for example is an aggregation of the FTSE 100 FTSE 250 and FTSE small cap indices, the last one includes several hundred companies far more than the other two combined yet their total market cap is only about 6% of the entire index so it's not worth an index fund which follows the all share buying every company in the small cap index. Whether that selection is made randomly or a set of rules are employed to whittle the number down I have no idea, i suppose it varies from fund to fund, whereas ishares uk dividend + fund, IUKD follows an index with only 50 companies so it can fully replicate the index. If you look at the details published by index fund providers it will tell you somewhere whether the fund employs full replication of the index or not and if not which method is used.

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Re: Vanguard VWRL - the one stop solution?

#197586

Postby Hariseldon58 » January 30th, 2019, 1:18 pm

Regarding full replication or not, Vanguard has a Global Smaller Co's Index as a fund and it has pretty much full replication with 4,000+ holdings, State Street has an ETF tracking the same index with partial replication. I have watched the State Street ETF for some time and the number of holdings has crept up over the years from around 1,000 to 3,000+, when compared on a like for like basis, total return and the same currency, the performance is pretty much identical which suggests that the partial replication is pretty effective.

If I might comment, the Vanguard Global Value ETF is run by an algorithm, which Vanguard can tweak as they wish, thus it is a very low cost active ETF, whilst the Vanguard Global Hi Yield ETF is a yield based index, as I recollect is based on the top 50% of yield of the Global index and then weighted by market cap.

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Re: Vanguard VWRL - the one stop solution?

#197684

Postby Lootman » January 30th, 2019, 7:35 pm

GeoffF100 wrote:A compromise is to use just VEVE and (about 10%) VFEM. That saves some of the cost.

Yeah, but even so VEVE is about 70% invested in the US and the UK, and those regions can be had for 0.06%/0.07% via VUSA and VUKE. It would irk me paying 0.18% via VEVE for that exposure.

Maybe VWRL should have been structured as a "shell" ETF that invests in the regional sub-funds. That way its cost would be the weighted average of the underlying sub-funds, which would be something like half of the 0.25% that VWRL costs.

In that context it is interesting to look at Vanguard's US-traded equivalent, ticker VT. Identical for all practical purposes to VWRL, it's annual cost is 0.1%.

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Re: Vanguard VWRL - the one stop solution?

#197744

Postby hiriskpaul » January 30th, 2019, 9:43 pm

VWRL is expensive compared to the sum of the parts, and I have never really understood the justification for this and other world funds having the fees they do. Holding individual regional ETFs is fine, but usually means missing out on Canadian shares, worth around 2.7% of the FTSE World index. For completeness I add Canadian shares in via an expensive iShares ETF. Over the last 5 years though that has barely been worth it and would have lost me money if it had not been for the depreciation of the pound. The FTSE 100 has actually performed even worse, but again this is masked by the drop in the pound.

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Re: Vanguard VWRL - the one stop solution?

#197752

Postby TedSwippet » January 30th, 2019, 10:05 pm

hiriskpaul wrote:VWRL is expensive compared to the sum of the parts, and I have never really understood the justification for this ...

Me neither. I built up my VWRL equivalent some years ago from HSBC's class C OEICs. These currently cost 0.06% for the UK and US, 0.07% for Europe and a whopping(!) 0.21% and 0.24% for Japan and Pacific ex-Japan respectively.

Admittedly I've left out niche items like Canada, and get my Emerging Markets fix elsewhere, but overall it's a pretty nicely globally diversified portfolio nevertheless. Its weighted cost is a truly skimpy 0.08%, and that even beats Vanguard US's VT. Held on iWeb, so no nasty percentage-based fees either.

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Re: Vanguard VWRL - the one stop solution?

#197763

Postby dspp » January 30th, 2019, 10:24 pm

Are the stray VWRL bits outside of mainstream indices overly costly for Vanguard to maintain ?

I'm asking because Vanguard usually have a valid reason for their charge structure, and there does (otherwise) seem to be an issue here.

regards, dspp

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Re: Vanguard VWRL - the one stop solution?

#197920

Postby richfool » January 31st, 2019, 12:40 pm

So would VEVE plus a small holding of VAPX give a reasonable combined exposure, at a reduced/minimal cost, to the Developed World, plus Asia Pacific?

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Re: Vanguard VWRL - the one stop solution?

#197925

Postby bluedonkey » January 31st, 2019, 12:45 pm

I was happy with 0.21% for VWRL until I saw the post above citing 0.06% for VUSA (actually 0.7% per the Vanguard website just now)!

It has made me re-evaluate my approach. I already have plenty of UK exposure through my HYP. Developed Far East ex-Japan is covered by an existing holding in VAPX. I also have some Asia / International ITs, so really just need the USA component of VUSA rather than VWRL. Not concerned about China, emerging markets or Europe.

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Re: Vanguard VWRL - the one stop solution?

#197943

Postby Lootman » January 31st, 2019, 1:42 pm

bluedonkey wrote:I was happy with 0.21% for VWRL until I saw the post above citing 0.06% for VUSA (actually 0.7% per the Vanguard website just now)!

The source I used showed the annual expense for VWRL as 0.25%, not 0.21%. Perhaps you are looking at the OEIC and not the ETF?

https://global.vanguard.com/portal/site ... docId=1011

I think you meant 0.07% for VUSA. VUKE is 0.06%. I might have mixed those two up earlier, not that it makes a lot of difference.

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Re: Vanguard VWRL - the one stop solution?

#197951

Postby Hariseldon58 » January 31st, 2019, 2:14 pm

There are good behavioural reasons for holding VWRL, it takes away the chance to tinker ! I have maintained holdings which are effectively VWRL "deconstructed" with a little personal bias, bit more VAPX, bit less VJPN, bit more VUKE and some VMID etc.

The saving is around 10 or 12 basis points (around £1,000) on a million pound holding. On the face of it a good saving but I lose Canada and perhaps my subtle weighting differences are a mistake ?

Perhaps we over think it and the cost saving is offset by our tinkering ?


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