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Email this8:00 am
May 9, 2020
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Curious what recommendations/thoughts would be from here!
It's a tiny amount (probably dividends from two IEF products), but I don't want to invest in any more fixed income. I may add USD once the Tangerine Savings account promo is over end of August.
I'm ignorant, but generally would assume holding USD diversifies my portfolio. I'm actually more confident in the U.S. market than Canada's, and on a sidenote, although I must have been fine with the home bias of XEQT when I first decided on it several ago, I'm less sure of the benefits now.
With that context (or without), what is advisable if you were me? I've seen VI recommended.
A big thanks in advance, and Cheers!
10:02 am
April 27, 2017
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I would recommend reading a couple of books on portfolio design and then investing in accordance with your investment policy.
11:38 am
October 27, 2013
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There is a ton of good Investment Management material at https://www.finiki.org/wiki/Category:Investment_management that includes material on Portfolio Design and Construction.
The latter section in particular talks about diversification, home country bias (how much), and asset allocation ETFs like XEQT.
One should always want some unhedged exposure to USD for diversification purposes and to protect against a potential double whammy of Canadian market non-performance and a decline of the loonie which destroys purchasing power.
Imagine if the loonie fell to 50 cents USD. 60-80% of what you buy would suddenly become far more expensive since most of what we consume are price related to the USD.
5:14 pm
April 6, 2013
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finance trance said
…I'm ignorant, but generally would assume holding USD diversifies my portfolio. I'm actually more confident in the U.S. market than Canada's, and on a sidenote, although I must have been fine with the home bias of XEQT when I first decided on it several ago, I'm less sure of the benefits now.
…
I don't think you need to do anything different.
There's actually little Canadian bias in iShares Core Equity ETF Portfolio (XEQT). Only about 25% of its value is in Canadian stocks via its holdings of XIC. About 45% is in US$ stocks through its holdings of iShares Core S&P Total U.S. Stock Market ETF (ITOT).
You're already heavily weighted in US$ through US$ priced stocks.
10:46 am
October 27, 2013
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FWIW, there is no real consensus on the amount of Canadian bias for Canadians to hold in their equity portion of their portfolio. Based on market cap, it would be less than 3% and some Canadians do follow this thesis.
Vanguard Canada has published papers on home bias and their conclusion is 30% is about right and that is what they do in VEQT. Blackrock and BMO have viewed it differently and aim for about 24-25% in their XEQT and ZEQT respectively.
My ex has about 24% Canadian in her portfolio and I have about 33% with a goal to reduce it below 30% as I crystallize holdings for cash flow purposes.
The MSCI World Index of developed countries https://www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb
11:14 am
May 9, 2020
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AltaRed said
There is a ton of good Investment Management material at https://www.finiki.org/wiki/Category:Investment_management that includes material on Portfolio Design and Construction.The latter section in particular talks about diversification, home country bias (how much), and asset allocation ETFs like XEQT.
One should always want some unhedged exposure to USD for diversification purposes and to protect against a potential double whammy of Canadian market non-performance and a decline of the loonie which destroys purchasing power.
Imagine if the loonie fell to 50 cents USD. 60-80% of what you buy would suddenly become far more expensive since most of what we consume are price related to the USD.
thanks Altared, always helpful and informed. I've found finiki.org extremely helpful in the past.
11:17 am
May 9, 2020
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Norman1 said
finance trance said
…I'm ignorant, but generally would assume holding USD diversifies my portfolio. I'm actually more confident in the U.S. market than Canada's, and on a sidenote, although I must have been fine with the home bias of XEQT when I first decided on it several ago, I'm less sure of the benefits now.
…I don't think you need to do anything different.
There's actually little Canadian bias in iShares Core Equity ETF Portfolio (XEQT). Only about 25% of its value is in Canadian stocks via its holdings of XIC. About 45% is in US$ stocks through its holdings of iShares Core S&P Total U.S. Stock Market ETF (ITOT).
You're already heavily weighted in US$ through US$ priced stocks.
for sure, you're right indeed. I'm just comparing that 25% in comparison to Canada's 3% or so of global market. Perhaps not an apt comparison, but just given my change in assessment of Canada's market, it came to mind.
7:53 pm
April 6, 2013
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A country's weight in the MSCI World Index is not set by how MSCI constructs the index. The country weights are just a consequence of the share that included companies from a country have of the total market capitalization of all included companies.
Those weights are not recommended country allocations.
8:17 pm
April 27, 2017
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Finiki has an article on home bias explaining different strategies and Vanguard has White Papers on the subject but your comment has bigger issues. Like an apparent attempt to time the market, recency bias, misunderstanding of the impact of currency, etc.
You would really benefit from reading a comprehensive book or two on portfolio design and investment risks. Once you pick a coherent strategy, you should stick with it. Jumping around hurts returns.
8:38 pm
October 27, 2013
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Norman1 said
A country's weight in the MSCI World Index is not set by how MSCI constructs the index. The country weights are just a consequence of the share that included companies from a country have of the total market capitalization of all included companies.Those weights are not recommended country allocations.
I didn't say the weights on that index are recommended country allocations. I doubt few really want to own 100% of global* market capitalization. However, if one believes that market cap weighting for "large and mid-cap companies in 23 OECD developed countries" is a global proxy for global investing, then the MSCI World Index fits the bill. It represents 85% of the market cap in those countries which in turn is the bulk of entire global market capitalization.
One of my largest holdings in my portfolio is a legacy XWD ETF which is the MSCI World Index and has provided me with a 365% price gain (not including distributions) so far. I also hold VEQT (based on FTSE indices) in more recent years since it was introduced in 2018. An entire portfolio can be built using just 1-3 ETFs.
* For comparison, https://www.visualcapitalist.com/the-109-trillion-global-stock-market-in-one-chart/ provides a chart of global market capitalization.
9:42 am
April 6, 2013
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AltaRed said
I didn't say the weights on that index are recommended country allocations. I doubt few really want to own 100% of global* market capitalization. However, if one believes that market cap weighting for "large and mid-cap companies in 23 OECD developed countries" is a global proxy for global investing, then the MSCI World Index fits the bill. …
MSCI World Index is a decent proxy for that. But, there isn't anything wrong if one's portfolio ends up with different country weights or even individual stock weights than that index.
The country weights in the index are accidental. MSCI lets the country weights end up where they end up after the individual stocks are selected.
finance trance seems to feel that his holdings are off because the 25% Canada weight is higher than the 3% Canada weight of the MSCI World Index. That's only true if one was trying to track the index.
The MSCI country category of the stocks is also not very meaningful. I think someone asked Warren Buffet why Berkshire Hathaway was so overweight in US stocks and could use more international diversification. He explained that wasn't the case. Large multinationals, like Coca-Cola, are headquartered in the US. But, their sales and earnings are not just in the US and not just in US$.
10:02 am
April 27, 2017
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Lots of arguments and counterarguments on home bias.
Buffett isn’t in Canada. Canada is heavy in energy, mining and financials and misses out on technology and consumables, so excessive Canadian bias hurts sector diversification far more than excessive US bias. Also, Buffett is known as a uniquely successful active investor and he himself does invest internationally. And location of headquarters is not exactly meaningless; jurisdictions matter more and more in today’s world.
All that said, I suspect OP’s real issue isn’t with home bias. He is likely chasing S&P returns and needs to educate himself.
Please write your comments in the forum.