Transcription
You may have a world ETF in your portfolio, whether in a PEA, a securities account, or even life insurance. And it's true that on social networks, it's by far the most recommended stock market investment. And it's ultimately normal because with this ETF, you have a single fund, but in this fund, you have access to 1300 companies in 23 developed countries. So it's really the height of simplicity to invest in the stock market. Plus, you are super diversified. So there you go, you just have to invest every month the amount you want in a world ETF type ETF, and then we don't talk about it anymore. But if you have this famous world ETF, I'm sure you've already asked yourself the question, is it really the best solution? Because when we look at its composition, we quickly realize that ultimately this world ETF is mostly the United States. We have 73% American stocks, we have about 15% Europe, a little over 5% Japan, and then it spreads out a bit with a bit of Canada, a bit of Australia, etc., and then no emerging markets. So, of course, we're tempted to say, hey, couldn't I make my own little recipe, my own little homemade mix, still using ETFs, for example, very simply with an S&P 500 ETF for the United States and a Europe ETF for Europe. It could be Stock, MSCI Europe, it doesn't matter. And then, optionally, I can also include a small emerging market ETF. It's true that on paper, it's quite clever, it's already more flexible, it's potentially a bit cheaper in terms of fees, and above all, we feel like we're taking back control. But you'll see that when we do the math, it's not just "Oh, hey, I've rebuilt pretty much the same thing, even with lower fees, because sometimes we think we're optimizing our portfolio, but in reality, we're completely changing its composition."
Now, to make this a little concrete, I'm going to tell myself, here's how to do it if I have €1000 to invest in a PEA to invest worldwide. The first option, we've talked about it, is this famous world ETF. For the example, I took the Amundi PEA World ETF. The ticker is DCAM, and at the time I'm preparing this video, a share is worth €6. So with €1000, I can buy 166 shares. 166 shares at €6 is €996 invested. So I have about €4 cash left. But since the price of this ETF is quite low, it's practical. Almost everything is invested. And concretely, today, with the current weights of this MSCI World index, my €996 will look something like this: €724 in American stocks, €154 in Europe in the broad sense, €56 in Japan, €34 in Canada, €16 in Australia, and then it's really sprinkled on Hong Kong, Singapore, Israel, New Zealand, and then other developed but much smaller countries. So already, when you buy a World ETF, I've already said it, you're mostly buying the United States. I don't think that's a surprise to you, we hear about it regularly, it causes discussion, it causes fear, etc. But what might surprise you a little more is that this American dominance hasn't always been this strong. And even by far, if I go back to 2000, we had about 53% American stocks in the MSCI World. And if I go back to 1988, it was more around 32%. You see the evolution, it's quite significant, isn't it? 32%, 53%, 73%, it really makes you wonder where it will stop. So buying developed markets today means accepting a large weighting in the United States. We've already talked about it, it's not necessarily a problem, but you need to know it, you need to be aware of it. And since there are no emerging markets in a world ETF, we tend to quickly summarize, well, ultimately the simplest composition to summarize is United States plus Europe. But that's a bit too simplistic because ultimately you're also buying lots of tiny little pieces that we often forget. So, there's Japan, there's Canada, there's Australia, uh, there's Switzerland and the United Kingdom, I want to get out of the euro zone a bit. And these little pieces are ultimately not anecdotal. Yes, the amount isn't huge, it's not what completely changes your portfolio, but ultimately it does diversify you well.
Now, if I look at the companies instead of the countries, my €996 is invested in about €57 of Nvidia, €51 of Apple, €41 of Alphabet, €34 of Microsoft, €27 of Amazon. So no surprise, we're mostly buying American champions. But we mustn't forget that we also have this long international chain of over 1000 companies.
Now, second option, we can say, well, instead of buying a world ETF, I'll rebuild it myself. So I'll take an S&P 500 ETF for the example in the video. I'll take the ticker PSP5, and for Europe, I'll take an MSCI Europe ETF, and the ticker for the example is PCEU. With current prices, I can buy 12 shares of S&P 500, which makes it about €686. I can buy 8 shares of the MSCI Europe ETF, which makes it €307 invested in total. So in total, I've invested €993. So, I end up with about 69% American stocks, 31% European stocks. So, on paper, it's quite clean. But do I really have the same thing as my world ETF? Well, I think you've guessed it, not at all, because in my homemade portfolio, I have about the same share of the United States, and I aimed for that, but I have much more Europe. Why do I have much more Europe? Because I have zero on Japan, I have zero on Canada, zero on Australia, zero on Hong Kong, etc., and €0 on emerging markets. But that's already the case for the world ETF. So we see that having an S&P 500 ETF plus a Europe ETF is not at all having a world ETF. It's really an approximation. And this approximation is not neutral because what it says is "I'm keeping the United States but I'm ultimately replacing Japan, Canada, Australia, and then the rest of the developed world with more Europe." So it might be a good choice, but in any case, it's a choice.
Now, if I look at the biggest companies, in reality, it doesn't change the portfolio much, well, the top of the portfolio, since I end up with about €57 of Nvidia, €49 of Apple, etc. So on the biggest American stocks, I'm ultimately very close to the world ETF. The real difference isn't there. The real difference, as I said, is that I have much more Europe. So if I go down a bit in the ranking, I find myself, for example, with €15 of ASML compared to €7 in the world ETF. I find myself with €7 of HSBC compared to €4 in the world ETF, etc. So I can go down, but basically I'm doubling all my European positions, and above all, this is my important point, is that I tend to forget certain regions of the MSCI World, notably, as I said, Japan, Canada, Australia. Obviously, one can be very comfortable with this approximation, thinking that large American and European companies sell all over the world. Yes, Apple sells in Japan, yes, LVMH sells in China, Microsoft sells everywhere, etc. But despite that, I have more Toyota, I have more Sony, I have more Shopify, I have more Royal Bank of Canada. So individually, these are tiny lines, but collectively, they represent about 10% in our world ETF, and above all, these 10% help to diversify well, because Canada is not the United States, even if it's very close, and Japan remains a truly separate economy.
So, a quick parenthesis, since this video is sponsored by my partner Saxo Bank. You know that at Saxo, you can open or transfer a PEA, but also a securities account or even a company account. You have access to more than 50 markets, meaning 23,000 stocks, 7,000 ETFs, more than 5,000 bonds. So whether you wanted to keep it very simple with a world ETF or build a more personalized portfolio, you have access to a very wide universe. Another point I like, Saxo offers two platforms. You have Saxo Investor, a very intuitive, very simple platform, and then you have Saxo Trader Go, which is much more complete if you want to go further. And right now, with my link in the description, Saxo is offering €500 in brokerage fees for free for 3 months for an account opening or transfer.
So let's get back to our ETF portfolio. An interesting point is that neither of the two current portfolios has emerging markets. And we are still in a world where South Korea, Taiwan, and obviously China are still classified as emerging markets. What does that mean? It means we don't have Samsung, we don't have TSMC. So the foundry that makes most of the semiconductors in the world, we don't have Tencent, Alibaba, and no major Indian companies. And this is probably the biggest advantage of the homemade ETF. That is to say, from the moment we say, well, I'm going to make my own portfolio and I don't want to stick to a world ETF, I can choose to have more or less of the United States, more or less of Europe, and obviously this famous emerging market allocation. But before we get to that, we're going to try to replicate the world ETF better, because we've seen that the S&P 500 and Europe version is simple, but it omits quite a few countries, including the third country or rather third geographical area, which is Japan. And Japan is good diversification. It's really very different from the previous economies. What we can do is keep an S&P 500 ETF, keep an MSCI World ETF, and then add a Japan ETF. So for today's example, I took an Amundi PEA Japan Top ETF. The ticker is PTPE. And looking at the number of shares I can buy, I end up with €971 invested, which makes it about 76% United States, 16% Europe, and 8% Japan. Now, we're already a little closer to the world ETF, but we see that it's not perfect. We've recovered Japan, but we still don't have Canada, Australia, Hong Kong, etc. And we also see that, of course, depending on the ETF prices, we can't replicate exactly, for example, 72% of the United States.
Now, we can expand further, let's do a version 3. This time, we'll add an Amundi PEA Asia Pacific ex Japan ETF. The ticker is PEJ. We end up with €988 invested. We are at 69% United States, 16% Europe, 4% Japan, and 11% Asia-Pacific excluding Japan. Now, we're starting to see that we're diversifying quite a bit. Now, we're no longer really replicating the MSCI World. Why? Because the brick we just added, Asia-Pacific excluding Japan, also includes emerging countries. So we have Taiwan, Korea, China, India, etc. We see that the choice quickly becomes endless. We start to think, "Well, S&P 500 plus Europe, yes, but Japan is missing. Yes, but part of Asia is missing. Ah, I've added emerging countries. And then I've added only Asian emerging countries, but ultimately why not emerging countries in a broader sense." And so when we try to rebuild like this as a world ETF, very quickly, the more layers we add, the more complexity we add, and ultimately we lose the main initial interest of the world ETF, which was the fact that it's simple, we have a single line, and that's it, we don't have to bother.
So for me, when you start asking yourself the question, well, should I stay simple with a world ETF or should I create my own ETF portfolio? For me, there are three things to consider. The first question is really this question of simplicity. Do I just want to invest automatically every month, a single line? Well, the world ETF, it's true, has a huge advantage. We make our regular order, there's no rebalancing, etc. It's really the solution. Well, it's absolute simplicity. We also don't have to wonder if the United States is too expensive. Is Europe going to catch up? Should I put that famous 5% of Japan in my portfolio or should I stay at 0%?
It's true that the world ETF is less intellectually satisfying, especially if you are interested in the stock market. And since you're watching my videos, I know you're interested in the stock market. So there's always this slightly frustrating aspect of having a world ETF. But you have to keep one thing in mind: having a simple strategy in the stock market that you stick to for 20 years without asking questions is much better than a strategy that is better optimized on paper, which you will change every 6 months and then perhaps abandon because it's too complicated. Perhaps you will lose confidence in what you are doing. You will doubt at some point, you have, for example, added Japan, you say, "Did I do the right thing or not? Did I miss the emerging countries or not?" So there you go, the first question is simplicity.
The second question is, do I have a problem with the weightings? Am I comfortable with 73, 72, 73% of the United States, 73% of dollars too? Because ultimately, the best question to not settle for in our world ETF is this one. It's if we think there's too much or not enough United States, too much or not enough Europe, Japan, Asia, etc. And of course, if you have a problem with the weightings of the world ETF today, that can be a good reason to have your own ETF portfolio. But let's be clear, you are deliberately choosing to deviate from the market. It's not a neutral optimization, it's really a geographical choice, a strategic choice. You shouldn't regret it. You shouldn't lower the United States to 50% and then turn around 2 years later and say, well, I missed out, etc.
And then the third question, an obvious question, is do I want emerging countries? And here you have to be careful because this notion of emerging countries has changed a lot in the minds of investors. When I started investing, you know, I'm an old-timer, I started in the late 90s, early 2000s, emerging markets were really a collection of small developing economies. It was risky, it was unstable, it was a bit separate, but China was small, everything was small in fact, it was Vietnam, Brazil, etc. Whereas today, it's much more complicated because not having emerging countries is a real choice. It's not just that I'm depriving myself of a few small exotic markets, it's also that we're depriving ourselves of some of the biggest economies on the planet. We're depriving ourselves of China, we're depriving ourselves of India, and what I find even worse, so to speak, is Taiwan and South Korea. We're depriving ourselves of huge companies. I was talking about TSMC, which is the main foundry in the world of semiconductors, a sector that is booming right now. We're depriving ourselves of companies like Samsung. So it's really a choice.
And what you need to understand is that this developed or emerging classification is solely a choice of an index issuer, or rather not an issuer, but an index creator like the company MSCI. They don't look at whether it's a rich country or not. What they look at is the size of the stock market, its liquidity, the currency, how accessible the market is. And very technical things like settlement, delivery of securities, etc. If you want a truly broader index that will include emerging countries, that exists. It exists. We're no longer talking about world ETFs, we're often talking about ACWI ETFs for All Countries World Index. That is to say, these are indices that will combine developed countries and emerging countries. You can find them from all issuers, all the biggest ones. So you'll find them at Vanguard, at Amundi. And that changes things quite a bit. For example, if I look at the top positions of this famous ACWI index, we'll find TSMC, the famous semiconductor foundry, in the 7th position of the portfolio. And globally, the United States drops to 63%. So we realize that there is indeed a real advantage to this famous true world ETF. The problem is that, to my knowledge at least, it's non-existent in PEA and it's even quite rare to find it in life insurance. So that's why we're a bit forced to either accept the flaws of a world ETF or to create our own by adding, for example, a separate brick. You can take, for example, an emerging PEA ETF.
But you see, with all the questions we've been asking ourselves since the beginning, we realize that every time we delve a little into passive management, it's relativized. In fact, we always make choices. Even a world ETF in itself is a choice. It's a choice of capitalization-weighted allocation. It's the choice to have a lot of the United States, and as I said, it's mainly the choice not to have emerging countries.
By the way, I don't know if you've seen it, but a few days ago, Amundi launched a GDP-weighted ETF, and that completely changes the weights. That is to say, the United States drops to 31%, China rises to 17%. Germany and Japan, for example, are next around 4%, and then it would be distributed much more broadly among other economies, and we even have a total of 4200 companies. But be careful, it's not a solution to everything. And besides, I'm very wary of this notion of GDP weighting because the philosophy is completely different. But that's not really the purpose of this video. Perhaps I'll make a dedicated video on this GDP-weighted ETF.
When investing in ETFs, you need to be aware that absolute passive management doesn't really exist. There's always an initial decision. A world ETF is an initial decision with biases on emerging markets, with whether I take currency hedging or not, etc. But we must admit that if what you're looking for is simplicity, if you want to make your small monthly deposit on a single asset, then the world ETF is extremely difficult to beat, not to beat in terms of performance, even if yes, it's difficult to beat in terms of performance, but especially in terms of simplicity. And it's not that it's perfect, but it especially prevents you from asking yourself a lot of questions every month. It prevents you from asking yourself every month or every two months or every day, "Don't I have too much Europe? Don't I have too much United States? Is it a problem not to be in emerging markets? Do I have too much or not enough Japan, etc."
And ultimately, all of this depends on your philosophy. Either you say, "I'll take the market as it is, with its flaws, with its American dominance, with its absence of emerging markets, etc., and I'll prioritize simplicity." Or you say, "I want to adapt this market to my vision. I want to reduce certain weights, I want to increase others. I want to add missing regions, etc., sometimes even direct stocks, saying, well, what interests me is not emerging markets, and especially TSMC, for example." But there are really two different philosophies. A truly follower philosophy, and another where you start to inject some conviction, because ultimately the real question is really, do you want to buy the market or do you want to choose your market?
So now tell me in the comments which team you are on. Are you more of a world ETF person or do you make your own recipe? I admit that I have both approaches. That is to say, in certain life insurance policies that I don't want to touch, I will have world ETFs and that's it. And in other portfolios, I will have a mix of S&P 500, Europe, emerging market ETFs, etc., plus direct stocks, of course, but that's another story.
That's all for today. Don't forget that if you're listening to me on a podcast, I'm always very receptive to reviews on Apple Podcasts, on Spotify, etc. On YouTube, you know, it's my historical platform, so you know I really like likes, comments too, and don't hesitate to subscribe, it won't cost you anything to receive all the videos. To do that, you have to activate the little bell, but you know the story of seeing all these feedbacks from my audience, that's what motivates me to try to keep up the pace, which isn't always easy, I won't hide it from you, knowing that I do everything myself, I'm really alone from writing the script to the thumbnail, to the editing, and everything. So it's quite a lot of work, but it continues to fascinate me. So, having your feedback, especially in the comments, is always super nice for me. See you soon.