In this week’s episode of The Fat Wallet Show, Simon and I discuss the merits of a single ETF strategy based on this Lars Kroijer video. By the end of the episode I land on an ETF investment strategy that is simple and easy to implement. I want exposure to all the world’s markets, weighted by market capitalisation.
Kroijer proposes a single ETF with world-wide exposure, like the Ashburton Global 1200 ETF. This is a feeder fund that invests in:
- S&P500 for US exposure
- S&P Europe 350
- S&P TOPIX 150 for exposure to Japan
- Canadian S&P/TSX 60
- S&P/ASX All Australian 50 and
- S&P Asia 50 and S&P Latin America 40 for emerging market exposure
Based on Kroijer’s theory, this single ETF would be all any ordinary investor would ever need. At a TER of 0.45% this is a wonderfully cheap and effective way to gain access to an offshore, diversified, dollar-denominated ETF. Since the ETF is listed locally, it doesn’t count towards your offshore investment allowance either. It seems like a win in every direction.
In terms of diversification, the ETF is invested in 30 countries across seven regions. It covers 70% of the world. However, one of the few the regions not covered in the ETF’s global exposure happens to be the very region we inhabit. This ETF includes some exposure to emerging markets, but Africa isn’t in the mix.
Adding another ETF might be contrary to the letter of Kroijer’s theory, but certainly not the spirit. The easiest way for local investors to add African emerging markets to the ETF would be through the Satrix MSCI Emerging Markets (EM) product. However, exposure to Asia may become problematic with this blend. The S&P Asia 50, included in the Ashburton 1200, invests in companies in Hong Kong, Korea and Taiwan. South Korea and Taiwan make up 15.53% and 12.06% respectively of Satrix’s EM option, with China weighing in at a massive 28.35%. South Africa only comprises 6.9% of that ETF and is the only African country included.
For greater exposure to Africa, the Cloud Atlas AMI Big50 ex-SA ETF remains a solid option. As the name implies, however, South Africa is excluded from this ETF. Given the role the South African economy plays on the continent, a South African ETF weighted by market capitalisation would be prudent. Due to the challenges of trading on some African exchanges, this ETF is on the pricey side at 0.75% per annum. The ETF price has come down significantly since listing, which may indicate a more cost effective future.
Lastly, a good old Top 40 ETF might be just the thing. Since South Africa is officially an emerging market in Africa, it kills two birds with one ETF. However, the majority of Top 40 listed companies earn their keep outside of South Africa. While listed locally, as much as two-thirds of locally listed companies earn their income outside our borders.
If we accept Kroijer’s argument, we would try to own all the world. It turns out there are many creative ways to do just that.
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