Which core ETF should I pick?

Many people like to have a core+satellite approach with their portfolio.

A popular choice for a core ETF is either:

1. MSCI global index ETF (SWDA or HMWO)
2. MSCI global Quality index ETF (XDEQ)
3. S&P 500 index ETF (VUAA or VNRA or CSPX)

For the past 5 years, the S&P 500 has shown much better returns than the MSCI global index (SWDA) however.

If we look at the performance over the last 5 years, the S&P 500 ETF VUAA has consistently performed better than SWDA or XDEQ and CSPX is slightly better.

But a global core holding would have less dependency on the USA.

XDEQ is a quality world ETF with a similar USA weighting to SWDA, but the Vanguard FTSE All-World ETF (VWRA) has 10% less USA exposure than SWDA.

So perhaps a good core ETF would be SWDA and then you could buy satellite ETFs within the S&P 500 such as IITU, IUCM and IUFS.

SWDA has beaten the Vanguard FTSE All World over 1, 3 and 5 years.

Four possible different example portfolios (choose one):

1. 50% XDEQ + 50% VUAA (MSCI global + S&P500)
2. 50% XDEQ + 50% EQQQ (MSCI global + NASDAQ)
3. 50% VWRA + 50% VUAA (FTSE All World + S&P500)
4. 40% SWDA + 20% IITU + 20% IUCM + 20% IUFS (global + S&P500 tech, comms, finance)

I prefer no. 4 in this list because I can add funds into one or more ETFs each month depending on market trends and the price at the time.

A higher risk S&P500 portfolio might be VUAA+IITU+IUCM+IUFS. This would have shown amazing returns over the last 5 years (+130%), but would also be volatile and very risky.

VNRA is Vanguard's North America fund and has slightly outperformed VUAA - it is more diversified and has more holdings although the top ten holdings are the same as VUAA.

For an ultra-simple portfolio, just VUAA or VNRA alone would give you excellent returns (see below). It would be very dependent on the USA however.

A Simple 2 or 3 ETF portfolio with 20%/yr gains!

HMWO vs CSPX(blue)

An even better performing S&P500 ETF than VUAA or VNRA due to lower a TER is CSPX. Equally, a better world ETF than SWDA is HMWO.

Note that 9 companies in the first top 10 are the same in both HMWO and CSPX, but HMWO holds 1356 companies whereas CSPX holds only 500.

So a well performing but simple global portfolio with a heavy US weighting  could be these three ETFs (1yr, 5yr):

• HMWO Global ETF (23%, 80%)
• CSPX S&P500           (28%, 103%)
• IITU Tech                   (40%, 200%)

With IITU very much a satellite buy today as Tech may be overpriced if bought in 2025.

A 50/50 mix of HMWO and CSPX would have given us a return rate of approximately 20% over 5 years which is not too shabby but is heavily reliant on the magnificent 7 and USA companies!

Covid

The chart below shows how HMWO, IITU and CSPX responded to Covid in Jan 2020.

For a long-term, hands off portfolio, HMWO seems like a safe bet, but you can change the ratio of HMWO, CSPX and IITU as you wish. or maybe just have a portfolio such as 80% HMWO + 20% IITU and check twice a year on your progress and don't forget to dollar cost average and double-buy on the dips!

Timing is everything

Of course, it is not only what ETFs you buy, but also when you buy (and sell) them that counts.

For instance, if you bought the global index tracker HMWO on Nov 4 2024, you would now be up 8%, however if you bought the ETF on Nov 22 2024, you would not have made any gains by now.

So if you regularly add to your investment pot, consider doubling or trebling your contributions when the ETF share price dips and reducing your purchase when the share price is peaking. Meanwhile, build up a small cash pot in a savings account or money market fund like CSH2.

• Invest regularly (say once a month) but build up a savings pot too
• Double up on weak market days
• Never invest just because you have built up a savings pot and have money available and feel like it. Wait for a market correction to double/treble up.

Buy when cheap, avoid buying when expensive - but also buy at least once every month or few months.

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You can use the detailed comparison feature in justetf.com to see what the top ten holdings in each of these ETFs are, and if you use Invest Engine, you can see a summary of all the company holdings that your whole portfolio contains - a very useful feature.

Fisher Investments

Ken Fisher of Fisher Investments will invest in 100% equity for you. It is an actively managed account and they have an approx. 1.5% management charge. They are one of the leading wealth management organisations and have an excellent reputation. They only take on accounts of £250k or larger. They also have an upfront on-boarding charge.

Their chief fund is Purisima Global Equity Fund B. We can compare the performance of this fund with a North American ETF such as Vanguard's VUAA or the S&P500 ETF CSPX or HMWO global...

VUAA/CSPX has performed very similarly to Fisher Investment in the last 10, 5, 3 and 1 years. Of course, as Fisher's Purisima is an actively managed fund, if/when USA performance dips or there is a USA recession, etc., Purisima should then perform better than VUAA/CSPX or HMWO and you would not have to worry. This may well be worth the slight difference in performance to you - either way you will have doubled your investment within a period of under 5 years!

If you don't feel confident in managing your own portfolio over a period of 20+ years, a managed fund such as with Fisher Investments may be a good investment for you. Your own Fisher advisor will phone you regularly throughout the year and there are also free web and live seminars, etc. as well as the occasional free lunch or dinner. They also remove the temptation from you of 'fiddling' with your portfolio or selling on a market correction!

Note: This article is not sponsored by Fisher Investments in any way, but if you are not confident in managing your own portfolio they will provide you S&P500-like gains for you. Other similar wealth management companies are available.

What are your main core ETFs and main satellite ETFs?

Note: This is not financial advice. Please do your own research.