#64: Diversification by weighting

Risk factors are a big consideration when I make investment decisions. Generally, I consider sectors, regions, currency and asset allocation when deciding between ETFs. I'm by no means claiming these are the only risk factors, but these are the ones I understand. Considering I only invest once a year, it's kind of nuts how much time I spend thinking about this.

Last week I wrote an ETF blog about how weightings can affect the performance of ETFs that track more or less the same companies. In the local market, the Satrix 40, the CoreShares Equal Weighted 40 and the CoreShares Top 50 all track the performance of the same group of companies, with a bonus 10 in the case of the Top 50. (I'm just saying that to be thorough. Hopefully you arrived at that conclusion by yourself.)

While these ETFs track the same companies in the same market, they don't perform in the same way because of how they're weighted. What would happen if I had to invest in all three of them? My exposure to different risk factors wouldn't change. I'd still be investing in the same sectors, regions, currency and asset classes. The only variable is how these indices are put together.

In this podcast, Simon and I discuss what this would mean for my portfolio. As always, cost is a huge consideration. Aside from the brokerage, I would have to pay TER on all three products. Would this make a huge difference to my performance? If I hold all three, would I end up exactly average, or is there a chance that I could slightly outperform?

Links and resources

Our friend Stealthy Wealth made a spreadsheet! This time it's to work out how much capital gains tax you would have to pay on an offshore investment. Play around with that here. Stealthy Wealth-CGT-Local vs Offshore

If you're interested in joining an investment club without doing any of the work, Chris de Jager shared this link to the Platinum Wealth investment club.

Since this is a show about questions, remember to send yours to [email protected].

Kris

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