International ETF vs. LIC

[Tjnewie]

Hi All,

I have been plugging away building a portfolio, that is largely going to be passive and a long term project. I am currently holding about 5K in ARGO, and about 1k each in RFG and AMP. I am now looking to equal that with an international holding. I have been contributing about $700 per fortnight, and buy shares when I hit the 2.5k mark in the CDIA.

I am looking for some thoughts re the distinction between using an LIC (which I have used for the remainder of the portfolio) compared with an ETF. I was edging towards using a combination of VTS/VEU – around 15% each, but then I started looking into the currency issues re hedging, and I think largely have got confused. I am now strongly leaning towards PMC/TGG (20%) and GFL (a smaller holding – 10% due to liquidity). These seem to be hedged to Aus currency, have good franking. PMC has a DRP which is a bonus, but would happily hold TGG as it seems like a better buy currently. I had toyed with the idea of buying Berkshire B shares direct, but it seemed to become much harder than I would like it to be, hence GFL.

Am I missing something that would make the ETF the better choice?

 

[sydboy007]

Issue I have with the small amounts your using is that the brokerage fees work out as a higher % of each transaction.

Something to compare is the MER (management expense ratio) of the ETFs and LICs you're looking at.

I've used IOO and WDIV in my SMSF and been happy with their performance so far.

You might find this article interesting - http://www.thebull.com.au/premium/a/46673-opportunities-in-international-equities-lics-.html

The Hunter Hall International LIC is interesting due to it's large - 10% - trading below NTA so you're in effect paying 90c for a $ worth of assets. They have underperformed the market recently which is partyly why they're "cheap" but if performance improves then the NTA discount should eventually be bid away.

Kudos to you for using LICs and ETFs. They're a great way to build up diversity with little cash. Low MER also helps to put more $$ into your pocket.

The below charts are from the pdf file. I know vanguard have a vested interest is making indexed funds look good, but it's hard to disregard the fact that that only around 20% of funds beat the index over 10 years.