VGS vs. IVV + VEU

[MeanMrMustard]

Hi,
Just new to the forum any hoping someone else could run their eyes over this query for me...

I'm plodding along on my way to hitting my retirement ETF balance and have stuck with a pretty simple target of 50% VAS and 50% VGS. The loose plan is to try and live off dividend income and rebalance every 6 months or so (presuming the global stocks will be growing at a faster rate the the Aussie ones).

I was just playing around with the MER costs of 0.10 for VAS and 0.18 for VGS based on a target portfolio value of 3 million.

The MER of IVV is 0.04 and VEU is 0.07. If I was to purchase these funds (in the right ratio as VGS - at present about 70% US and 30% global) and keep them balanced that way - would you think the performance would be pretty similar to VGS for about 1/3 of the MER (which on my target value would save about $2,000 per year)??

Would appreciate any opinion's to ensure I'm not missing something obvious before I start to restructure.....
Thanks!

 

[divs4ever]

Hi,
Just new to the forum any hoping someone else could run their eyes over this query for me...

I'm plodding along on my way to hitting my retirement ETF balance and have stuck with a pretty simple target of 50% VAS and 50% VGS. The loose plan is to try and live off dividend income and rebalance every 6 months or so (presuming the global stocks will be growing at a faster rate the the Aussie ones).

I was just playing around with the MER costs of 0.10 for VAS and 0.18 for VGS based on a target portfolio value of 3 million.

The MER of IVV is 0.04 and VEU is 0.07. If I was to purchase these funds (in the right ratio as VGS - at present about 70% US and 30% global) and keep them balanced that way - would you think the performance would be pretty similar to VGS for about 1/3 of the MER (which on my target value would save about $2,000 per year)??

Would appreciate any opinion's to ensure I'm not missing something obvious before I start to restructure.....
Thanks!

welcome to ASF ,

i hold VAS which i am looking to reduce ( by about 60% )

now IVV + VEU vs VGS MER is one consideration but what about returns ?

i hold some that charge higher MER but the returns justify that either by more frequent divs ( very important if you plan to grow via DRP participation ) and/or by higher div. percentage

IVV

Top 10 Holdings​

As of 30 Dec 2022, 11:00 am AEDT
Total Holdings
10
Category Average
--

Distinct Portfolio
Yes
Portfolio Turnover
0.49%
Top 10 Holdings

CODE	COMPANY	ASSET
IVV	iShares Core S&P 500 ETF	99.98%

got to love that transparency ( sarcasm )

i assume they mean the wholesale counterpart of the ETF


VEU

Top 10 Holdings​

As of 31 Dec 2022, 11:00 am AEDT
Total Holdings
3722
Category Average
--

Distinct Portfolio
Yes
Portfolio Turnover
3.00%
Top 10 Holdings

CODE	COMPANY	ASSET
NESN	Nestle SA	1.31%
00700	Tencent Holdings Ltd	1.07%
2330	Taiwan Semiconductor Manufacturing Co Ltd	0.93%
ASML	ASML Holding NV	0.92%
ROG	Roche Holding AG	0.92%

Top 10 Holdings

CODE	COMPANY	ASSET
NOVO B	Novo Nordisk A/S Class B	0.89%
SHEL	Shell PLC	0.84%
AZN	AstraZeneca PLC	0.84%
NOVN	Novartis AG	0.77%
MC	LVMH Moet Hennessy Louis Vuitton SE	0.76%

VGS

Top 10 Holdings​

As of 31 Dec 2022, 11:00 am AEDT
Total Holdings
1465
Category Average
--

Distinct Portfolio
Yes
Portfolio Turnover
0.67%
Top 10 Holdings

CODE	COMPANY	ASSET
AAPL	Apple Inc	4.30%
MSFT	Microsoft Corp	3.50%
AMZN	Amazon.com Inc	1.59%
GOOGL	Alphabet Inc Class A	1.09%
UNH	UnitedHealth Group Inc	1.02%

Top 10 Holdings

CODE	COMPANY	ASSET
GOOG	Alphabet Inc Class C	1.02%
JNJ	Johnson & Johnson	0.96%
XOM	Exxon Mobil Corp	0.94%
BRK.B	Berkshire Hathaway Inc Class B	0.83%
JPM	JPMorgan Chase & Co	0.81%

other things you need to do is look at any tax implications

you might also consider the implications if we formally move into WW3

cheers

 

[Belli]

Hi,
Just new to the forum any hoping someone else could run their eyes over this query for me...

I'm plodding along on my way to hitting my retirement ETF balance and have stuck with a pretty simple target of 50% VAS and 50% VGS. The loose plan is to try and live off dividend income and rebalance every 6 months or so (presuming the global stocks will be growing at a faster rate the the Aussie ones).

I was just playing around with the MER costs of 0.10 for VAS and 0.18 for VGS based on a target portfolio value of 3 million.

The MER of IVV is 0.04 and VEU is 0.07. If I was to purchase these funds (in the right ratio as VGS - at present about 70% US and 30% global) and keep them balanced that way - would you think the performance would be pretty similar to VGS for about 1/3 of the MER (which on my target value would save about $2,000 per year)??

Would appreciate any opinion's to ensure I'm not missing something obvious before I start to restructure.....
Thanks!

VEU holds shares via CHESS Depository Interests. Distributions are announced in $US and are subject to the exchange rate. Unlike the run-of-the-mill ETFs you presently hold, they are subject to tax in the year they are received.

IVV is Australian-domiciled and so the distributions are taxed in the year you become entitled to the distributions similar to VAS/VGS.

Whether either perform better or the same as VGS is anyone's guess. Maybe they will or maybe they wont.

 

[MeanMrMustard]

Thanks so much for having a look into it for me.. returns are definitely are a priority...

My main query was is a 70% IVV and 30% VEU split essentially the identical holdings and percentage of holdings as VGS.... If they are different and the returns are therefore different then I 100% want to go with the better option but if they are basically the same it could save a decent chunk of MER...

I originally started with VTS but dumped it due to the complications with it being US Domiciled.... Is VEU the same?

 

[Belli]

Thanks so much for having a look into it for me.. returns are definitely are a priority...

My main query was is a 70% IVV and 30% VEU split essentially the identical holdings and percentage of holdings as VGS.... If they are different and the returns are therefore different then I 100% want to go with the better option but if they are basically the same it could save a decent chunk of MER...

I originally started with VTS but dumped it due to the complications with it being US Domiciled.... Is VEU the same?

I haven't looked into the detail to that extent to be honest.

 

[InsvestoBoy]

Thanks so much for having a look into it for me.. returns are definitely are a priority...

My main query was is a 70% IVV and 30% VEU split essentially the identical holdings and percentage of holdings as VGS.... If they are different and the returns are therefore different then I 100% want to go with the better option but if they are basically the same it could save a decent chunk of MER...

I originally started with VTS but dumped it due to the complications with it being US Domiciled.... Is VEU the same?

70% US 30% ex-US is only the current split based on respective current market caps of those two geographic groupings. That split won't always hold true. Just a few years ago it was more like 60% US and 40% ex-US.

If you maintain those current weights perpetually (by rebalancing) but ex-US outperforms and grows market cap in the future, you will underperform VGS. On the other hand, if US continues to outperform then you will outperform VGS.

Rather if the goal is simply to have a global market cap weighted portfolio the right method to achieve that goal is to hold an ETF that tracks a global market cap weighted index like VGS (or IWLD, etc).

If you wanna try and match the weighting of such a portfolio yourself to save a few bps in management fees, you are gonna have to keep a close eye and rebalance (including tax implications) yourself.

We can't give financial advice here, but if it was me I'd keep it simple, as the old saying goes, don't be a dick for a tick.

I am surprised VGS is so expensive when the fee for IWLD is significantly lower, normally Vanguard can't be beat.

 

[Sharkman]

I was just playing around with the MER costs of 0.10 for VAS and 0.18 for VGS based on a target portfolio value of 3 million.

The MER of IVV is 0.04 and VEU is 0.07. If I was to purchase these funds (in the right ratio as VGS - at present about 70% US and 30% global) and keep them balanced that way - would you think the performance would be pretty similar to VGS for about 1/3 of the MER (which on my target value would save about $2,000 per year)??

that's the very reason why i went for a IVV + VEU combo rather than VGS. the MER difference might seem small but it adds up once compounding over a decade or more is taken into account, plug it into an excel spreadsheet and see for yourself. as for which will perform better, nobody knows, but they should roughly be in the same ballpark.

i went 50-50 myself, i just put an equal amount into both when it's time to DCA to keep things simple. although since IVV has performed significantly better than VEU since i started diversifying into international ETFs (around 2014), my IVV position is quite a bit larger than my VEU position at the moment, and that's fine. not terribly fussed about maintaining a specific ratio.

I originally started with VTS but dumped it due to the complications with it being US Domiciled.... Is VEU the same?

yes VEU is US domiciled but i haven't found it to be too much of an issue. the W-8 BEN (or W-8 BEN-E) form only takes a few mins to fill in every 2 or 3 years.

 

[Sharkman]

i hold some that charge higher MER but the returns justify that either by more frequent divs ( very important if you plan to grow via DRP participation ) and/or by higher div. percentage

i get that you're a big fan of divs, and there's nothing wrong with that at all, but i don't believe a higher MER needs to be "justified" by more frequent divs or higher divs. in my view it is total returns over the long term that should be looked at when assessing whether a higher MER is "justified". i'll take 10% capital growth and 0% divs over 1% capital growth and 6% divs every day of the week.

put it this way. if the constituent companies generally aren't paying much divs due to retaining their most of their earnings and pumping them back into growing their business, that's essentially automatic reinvestment - there's no need for DRP, if they grow their businesses well, that should result in capital appreciation over time.

for some people automatically receiving the cash in the form of divs is preferable to receiving the majority of your returns in the form of capital gains and having to sell units to raise cash as needed, and that's absolutely fine, the capital growth focused approach isn't for everyone. think there was a discussion on this a few months ago in another thread. i just don't think it's entirely correct to say that funds paying higher/more frequent divs can justifiably charge a higher MER without taking total returns into account.

IVV

Top 10 Holdings​

As of 30 Dec 2022, 11:00 am AEDT
Total Holdings
10
Category Average
--

Distinct Portfolio
Yes
Portfolio Turnover
0.49%
Top 10 Holdings

CODE	COMPANY	ASSET
IVV	iShares Core S&P 500 ETF	99.98%

got to love that transparency ( sarcasm )

i assume they mean the wholesale counterpart of the ETF

the ASX listed IVV is a managed investment trust that simply holds units in the US domiciled investment trust of the same name. it's the US domiciled investment trust that holds the underlying companies. there's an "underlying holdings" tab on the Blackrock website that will show those.

 

[Sharkman]

I am surprised VGS is so expensive when the fee for IWLD is significantly lower, normally Vanguard can't be beat.

i'm guessing part of that is a sort of "dummy tax" ie. an extra charge for people who want a simple all in one solution without having to do too much legwork. same thing with their stable of diversified "all in one" funds VDCO, VDBA, VDGR, VDHG, all of which charge 0.27%. possibly there's a little bit of extra work on their side for occasional rebalancing, but whether that justifies a 0.27% MER - which is very high for an index based fund - is another matter. i don't think there's a whole lot of discretionary decision making going on with those. but this is all just conjecture, i don't work there, so could be entirely wrong.

 

[divs4ever]

i'm guessing part of that is a sort of "dummy tax" ie. an extra charge for people who want a simple all in one solution without having to do too much legwork. same thing with their stable of diversified "all in one" funds VDCO, VDBA, VDGR, VDHG, all of which charge 0.27%. possibly there's a little bit of extra work on their side for occasional rebalancing, but whether that justifies a 0.27% MER - which is very high for an index based fund - is another matter. i don't think there's a whole lot of discretionary decision making going on with those. but this is all just conjecture, i don't work there, so could be entirely wrong.

i noticed that as well and wonder if some providers give a more detailed MER calculation ( compared to some rivals )

VDHG as an example

Top 10 Holdings​

As of 31 Dec 2022, 11:00 am AEDT
Total Holdings
7
Category Average
--


Distinct Portfolio
Yes
Portfolio Turnover
0.00%
Top 10 Holdings

CODE	COMPANY	ASSET
--	Vanguard Australian Shares Index	36.16%
--	Vanguard International Shares Index	26.38%
--	Vanguard International Shrs Idx Hdg AUD	16.05%
--	Vanguard Global Agg Bd Indx Fd (Hdg)	7.00%
--	Vanguard International Small Companies	6.39%

Top 10 Holdings

CODE	COMPANY	ASSET
--	Vanguard Emerging Markets Shares Index	5.01%
--	Vanguard Australian Fixed Interest Index	3.02%

one might suspect the MER is an averaged accumulation of the seven commercial funds held in the portfolio

and might still be attractive to the paperwork-averse customers

 

[InsvestoBoy]

i'm guessing part of that is a sort of "dummy tax" ie. an extra charge for people who want a simple all in one solution without having to do too much legwork. same thing with their stable of diversified "all in one" funds VDCO, VDBA, VDGR, VDHG, all of which charge 0.27%. possibly there's a little bit of extra work on their side for occasional rebalancing, but whether that justifies a 0.27% MER - which is very high for an index based fund - is another matter. i don't think there's a whole lot of discretionary decision making going on with those. but this is all just conjecture, i don't work there, so could be entirely wrong.

I think you're wrong, IWLD is basically the same portfolio as VGS. Vanguard not charging a dummy tax is their whole business model.

 

[divs4ever]

I think you're wrong, IWLD is basically the same portfolio as VGS. Vanguard not charging a dummy tax is their whole business model.

as i understood it under Jack Bogle .. yes

but after his passing have management tweaked things a little

some founders elsewhere must somersault in their graves at what their life's work have become , will Vanguard devolve into one of those in the coming decades ??

 

[InsvestoBoy]

as i understood it under Jack Bogle .. yes

but after his passing have management tweaked things a little

some founders elsewhere must somersault in their graves at what their life's work have become , will Vanguard devolve into one of those in the coming decades ??

Spend 5 minutes on the corporate structure of Vanguard and figure it out yourself.

 

[Ferret]

Thanks, Mean Mr Mustard, for opening my eyes to the possibility of holding VTS + VUE as a lower cost alternative to holding VGS.

I wanted some exposure to stocks outside the ASX, so I've given this a go today.