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New Vanguard stock fund worth a look for expats

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“The best course on investing for expats. I sincerely recommend it to everyone.” – Elena, expat
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On 25 March, Vanguard launched a new set of all-world exchange-traded funds (ETFs) that are highly relevant for any expats or people living in developing countries. One of them could become the only stock fund you need in your portfolio.

Here’s the lowdown:

V3A: Vanguard ESG Global All Cap UCITS ETF (USD/GBP/EUR)

Any members of my Expat Investing Academy will know what all these acronyms mean, but for those of you left out in the cold, I’ll break down what they mean and why I think they make an exciting combo.

Vanguard

Vanguard is one of the top 3 largest fund managers in the world. As the pioneer of passive index investing, it’s highly respected. It also recycles your fees into improving its systems to reduce fees further, rather than trying to make a profit. So along with iShares from BlackRock, it’s pretty much all you need to look at when choosing a fund.

Global All Cap

The ETF invests in the FTSE Global All Cap index, which has 8,937 stocks across 49 countries – both developed countries and emerging markets. It’s slightly different to the FTSE All World Index used by the popular VWRA ETF, in that it has small companies (small caps) as well as large and medium-sized companies. Hence the name All Cap: companies with all sizes of capital.

It’s nice to have some small cap exposure. Smaller companies tend to grow faster than anyone else, though they can also have a tough time during recessions.

This index allocates money across countries in the same way the world’s stock market does. If you add up the total value of each country’s stock market, you will get more or less the same distribution across countries.

As we don’t want to be taking bets on the performance of individual countries, this is a great way to get exposure to the world and then get on with your life.

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ESG

ESG stands for Environmental, Social, Governance. ESG has gone BIG in 2021, with more and more investors, fund managers and companies committing to ESG policies.

V3A becomes ESG-friendly by investing in the FTSE Global All Cap Choice Index. It’s a variant of the Global All Cap Index that screens out 1,433 companies (about 16%) with poor ESG records:

– Non-renewable energy sector
– ‘Vice’ sectors including tobacco
– Weapons manufacturers
– Companies with poor diversity or a history of controversial activities

The screening of haram sectors makes it fairly suitable for Islamic investors, except it doesn’t screen out companies with high debt levels.

I’d say negative screening is the first level of ESGness, with 1433 stocks being removed. The index isn’t rebalancing strongly in favour of high ESG scores, but the screening process does tilt the Choice index slightly across sectors and countries:

– A higher weighting for tech, retail, healthcare and banks
– A lower weighting for oil & gas and industrials
– A higher weighting for US & China, a lower weighting for UK and France

So the fund is 58.6% US instead of 56.5%, 25% tech instead of 21%, and the top 10 holdings comprising 16% of the total value instead of 13%.

Over the past 5 years, the Choice index has outperformed the Global All Cap index by 10% and made 16.1% per year instead of 14.8%. While that’s a short timeframe for making judgements, it’s decent return and ESG-friendly companies are expected to carry on outperforming over the long term.

UCITS

For non-US citizens, UCITS ETFs are the only way to go, as they avoid the nasty 40% estate tax on death. UCITS is a European standard and V3A is domiciled in Ireland for tax and reporting purposes.

Currencies & Dividends

V3A is available now from the London Stock Exchange (LSE) in USD and GBP and from IBIS (Vienna) in EUR. All ETFs have a ticker code, usually 4 letters long:

V3AA LSE:    USD Accumulating (dividends reinvested automatically)
V3AA IBIS2:  EUR Accumulating
V3AB LSE:    GBP Accumulating
V3AL LSE:     USD Distributing (dividends paid as cash into your account)
V3AL IBIS2:   EUR Distributing
V3AM LSE:    GBP Distributing

Fees

Fees for V3A are 0.24% per year, compared to 0.22% for the Vanguard FTSE All-World UCITS ETFs (VWRD/A/P/L). The additional small cap companies is likely the main driver of this. I’m not too worried about the 0.02% difference – that’s pretty minor overall and a reasonable price to pay for greater diversification and for sticking it to Big Tobacco.

Negatives

As with any new fund, this one might not take off and if it doesn’t grow above at least $100 million in volume (amount invested), it may not be economical to run and Vanguard could close it. These seems unlikely, given the amount of interest in it so far and what a broad index it covers.

As the fund grows, it will cover more and more shares in the Choice index. The spread – being the difference between the buy price and sell price in the market, will narrow as well so you pay less of a premium as the ETF becomes more heavily traded. Currently the spread is slightly above that of VWRA, but not by much.

The factsheet for each V3A ETF variant will have more details in a few weeks’ time once they have been trading for a month. It’s worth googling V3AA factsheet (or whichever variation you are interested in), Given it’s so new as well, you can take a look at the components and history of the index it’s build around in the factsheet for the FTSE Global All Cap Choice Index here.

As for investing, you can dive in now or you can wait a bit till it’s more established. Either way, this is an exciting new set of ETFs heading straight for the top of my list.

Any questions or comments? Add them below.

Join DeadSimpleSaving’s Expat Investing Academy program – learn everything you need to know A-Z to take control of your finances and never rely on others again. Plan, save and invest with confidence.

 

“Every attendee that I’ve spoken to has loved Steve’s course.” – Andrew Hallam, author of Millionaire Expat
“This course literally saved my marriage.” – Nisha, expat      “One of the highlights of my 2020.” – John, expat
“The best course on investing for expats. I sincerely recommend it to everyone.” – Elena, expat
“Incredibly helpful, this is exactly what I needed.” – Julia, expat

 

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