Euro HB PP with mutual funds

[wenomeno]

Hello everybody,

I´ve read the thread about euro PP with ETFs and it shows very good ideas.

I´d like to collect your ideas about the same euro PP with mutual funds. I´ve found a few quite good, but all of them are equity funds.

http://www.amundi-funds.com

- Amundi Funds Index Equity Euro, tracks MSCI EMU
- Amundi Funds Index Equity Europe, tracks MSCI Europe Index
- Amundi Funds Index Equity North America, tracks MSCI North America Index

all of them have low ER, Pictet has good and cheap index mutual funds too

Some ideas about fixed income mutual funds are wellcome.

Cheers

[Sandoor]

Hi Wenomo,

What I use are the following EFTs;

Stock, DXET (TER, 0,00%)
Bonds, EXX6 (TER 0,16%)
Cash, EXHB (TER 0,16%)
Gold, PHAU (TER 0,40%)

Easy, simple, cheap.
Please bear in mind that ETFs are a bit more expensive here in Europe than in the US.

I haven't run into Amundi ETFs here a lot in Europe, but Lyxor, db-x trackers and Ishares have a big chunk of the market as well as good availability and a good choice of funds.

[CA PP]

Hi,

Beware db x-trackers Euro Stoxx 50 is a synthetic fund.  Lots of counterparty risk in there.

[Sandoor]

Beware db x-trackers Euro Stoxx 50 is a synthetic fund.  Lots of counterparty risk in there.

It is a good point, in general EFT risk is hard to judge, at least for me. Not sure if it is a lot of counterparty risk for example. I have made the judgement that the risk is worth the lower cost. 

Here's an interesting article on the risk of EFTs;
http://www.indexuniverse.eu/europe/news ... Itemid=129

[CA PP]

In synthetic replication, where the ETF manager enters a swap contract with an investment bank that agrees to pay the index return in exchange for a small fee and any returns on collateral held in the ETF portfolio, only the investment bank counterparty's creditworthiness guarantees the return on these ETFs, and investors need to be comfortable with this exposure. Swap-based ETFs attempt to minimise credit risk by holding collateral to pay investors if the investment bank goes under, and also by using multiple counterparties.

IMO it does nt worth it, and would steer away from that.  You re not buying a product that hold the stocks, you re buying a promise from someone that will pay you the return of the index. A big difference.

[wenomeno]

Hi Wenomo,

What I use are the following EFTs;

Stock, DXET (TER, 0,00%)
Bonds, EXX6 (TER 0,16%)
Cash, EXHB (TER 0,16%)
Gold, PHAU (TER 0,40%)

Easy, simple, cheap.
Please bear in mind that ETFs are a bit more expensive here in Europe than in the US.

I haven't run into Amundi ETFs here a lot in Europe, but Lyxor, db-x trackers and Ishares have a big chunk of the market as well as good availability and a good choice of funds.

Thanks Sandoor, I have my ETFs PP, but I´d like to have one made with mutual funds, because in Spain, where I´m living, they are tax-favoured.

[Sandoor]

Thanks Sandoor, I have my ETFs PP, but I´d like to have one made with mutual funds, because in Spain, where I´m living, they are tax-favoured.

Hi,

How big is the tax advantage? On average the TER of a mutual fund is about 2-3% (yes, this is way more than what they need to publish) and then there is a manager risk and a risk of style drift. Not sure if this outweighs the tax benefits.

Should you be able to need to choose a mutual fund,. please look at funds (for equity) that have a high 'active share'. Studies in the recent years show that these funds provide good relative returns.

Funds that i personally like that perhaps you could look at, not sure about your local availability;

Worldwide equity offensive (provide most volatility, suitable for PP in my opinion):
Skagen Global (bottom-up approach please not this is about 30% emerging)
Carmignac Investissiment (top-down approach)
DWS Vermögensbildungsfonds I is a bit more conservative, but still good (top down approach)

European equity (if you want to stay closer to home):
BGF European Focus Fund

Bonds:
I believe this asset class makes no sense to go with a mutual fund and it is very, very hard to find a fund that has good quality bonds with long duration. What you could look at is to stay away from the barbell approach in the PP with long bonds and cash and go for 50% intermediate bonds, probably easier to achieve with mutual funds.

Examples (just from M*)
Templeton Global Bond
Petercam Bonds EUR

Cash:
Probably your best bet is to find a bank with a nice interest. Spread your risk over more than 1 bank so you stay under the government assured amount, if applicable.

Gold:
I do not believe there are mutual funds that hold physical gold for 100% - would just be a more expensive EFT. Blackrock World Gold has been very successful but is in Gold Companies, not the metal and thus the diversification effect is probably very hard to achieve when equity tanks.


Conslusive: Perhaps you want to review an EFT approach anyway because of the cost and because it is very hard, if not impossible to simulate PP benifits with mutual funds.

Just my two cents.

[wenomeno]

Sandoor, as you say building a good and cheap mutual fund PP is very hard and at the moment I prefer an ETF PP.

The tax advantage is that transfer funds between mutual funds is tax-free, so you can rebalance at no cost. Not a big deal, but if I can find good and cheap mutual funds I´ll study the options.

Thanks for your answer, you´ve been helpful.

[Sandoor]

The tax advantage is that transfer funds between mutual funds is tax-free, so you can rebalance at no cost. Not a big deal, but if I can find good and cheap mutual funds I´ll study the options.

If transfer of funds is your main concern, I would say it is not worth it. Apart from the availability of the various asset classes I described earlier, a mutual fund would cost you at least 1,5% in fees per year if compare to an EFT.

Personally, I use Interactive Brokers via a local supplier here and my transaction fees are 0,14% with a minimum of 6 EUR. I would not see how a mutual fund could compete against that if the charges alone are at least 1,5% higher.

And then....rebalancing happens fewer than one might think. Especially if you contribute money to your portfolio, you can get a long way by contributing to your laggards. I have not balanced over the last 2 years, not even when stocks went down the tank last year but I have to admit, it was hard buying them at the low end of the market at the time.

FWIW, I would leave the mutual funds and go with EFT but in the end, it is your call to make.

Please find a Spanish version of IB here; http://www.interactivebrokers.com/es/main.php

[frugal]

- Amundi Funds Index Equity Europe, tracks MSCI Europe Index

this is cheaper and as safety as the ETF, no?

Why not use it?


Have a nice weekend.