Unpacking My Updated ETF Portfolio

In November, I did some major changes to my ETF portfolio.

On the path to financial independence, I strongly believe Index Investing is a simple and practical approach to build wealth over time.

If you are new to investing, you may read what is an ETF here. Today, most brokers offer a wide range of ETFs and some do not charge any transactions fees.

It is so easy to build a globally diversified portfolio that there is literally no excuse to not be well diversified.

The Old ETF Portfolio

Most of my ETF portfolio was concentrated in VUSA. This is a Vanguard ETF that tracks the S&P 500 Index and carries a very low maintenance fee.

It does sound exactly what to look for in a ETF right? Well, yes and no.

As the name states, the ETF is replicating the S&P500 Index, which comprises of the largest 500 (not exactly 500 but 505) companies listed in the United States.

So the exposure to the US stock market is very high.

While most of the companies listed in such Index operate in different geographies and have a global revenue, I feel I may miss the future opportunities that other global markets offer.

Additionally, the current US cycle of debt and money printing is causing a weak dollar. The current US debt to GDP is at 135% and that comes with a cost.

As Ray Dalio, suggested in a recent interview, it’s important to be well diversified across markets, currencies and asset classes.

I have sold my entire position and all the money was allocated to 4 ETFs, with a focus on diversification.

Are you considering investing in ETFs? Consider using DEGIRO. They offer more than 200 commission-free ETFs (conditions here), and are regulated in The Netherlands by the AFM and placed under the prudential supervision of the DNB.

The Fresh Portfolio

My new ETF portfolio contains now 4 ETFs:

  • iShares Core MSCI World UCITS ETF USD (Ticker: IWDA)
  • iShares MSCI Brazil UCITS ETF USD (Ticker: IBZL)
  • iShares Core MSCI Europe UCITS ETF EUR (Ticker: IMEU)
  • WisdomTree Physical Gold (EUR) (Ticker: PHAU)

Below my current allocation to each one:

ETF Portfolio Holdings

With the iShares Core MSCI World ETF, I gain in exposure to other developed markets as Europe, Japan and United Kingdom. This ETF still maintains a reasonable exposure to the US market (65% of its holdings).

My personal bet on Brazil is mainly based on a weaker dollar and increased exposure to an emerging market that is still lagging the market recovery.

The country is still heavily impacted by the health crisis and I see this as a great opportunity to buy a market on sale.

There is also a valid correlation between a weaker dollar and emerging markets annual returns.

Ben Carlson, from the blog awealthofcommonsense, has an interesting post about which investments benefit from a weaker dollar. Read the full piece here.

Dollar Impact Stock Market
Source: https://awealthofcommonsense.com/

The same correlation is valid for Gold. With iShares Europe, I still maintain a direct exposure to European equities and the Euro.

Due to the recent rally in the Brazilian market, up 24% in the last month or so, I will re-balance the portfolio by buying more of IWDA and IMEU.

While most of these ETFs carry higher maintenance fees, these changes can be somehow temporary. The market will tell if this allocation continues. Another point is that there was no capital gain tax on these movements.