Advantages of dollar portfolios
Posted: Wed Dec 11, 2024 10:19 am
We have already discussed on other occasions aspects related to the currency exposure of our portfolios and the impact of currency risk on the use of ETFs , therefore we will leave these aspects aside and focus on the current advantages of building highly diversified portfolios in dollars.
Table of Contents
Advantages of dollar portfolios: the best ETFs, with lower costs and greater volume
Advantages of dollar portfolios: there is more value in fixed income
Advantages of dollar portfolios: higher profitability
Appendix: tables with metrics of our Strategic indexed portfolios in Euros and dollars
Advantages of dollar portfolios: the best ETFs, with lower costs and greater volume
Passive management was invented more than 40 years ago by John C. Bogle in the USA. That is why the ETF and index fund industry in the USA is much more developed than in the rest of the world.
Recently in the US, index funds have surpassed managed funds and are already being called the new kings of Wall Street .
The advantage of our dollar portfolios is that they are built with ETFs listed on American stock exchanges. These are by far the cheapest ETFs, with the highest volume and therefore the most efficient .
For example, the average TER of dollar portfolios is 7 to 10 basis points lower. Volumes are 10 times higher and therefore the spreads (difference between short and long positions) are smaller.
The supply is also much greater in the US than in Europe. This translates into competition between asset managers, which pushes costs down.
It is true that the supply and volumes of index funds and ETFs gambling data singapore phone number are also improving exponentially in Europe, but it will take a few years for this situation to equalise.
Advantages of dollar portfolios: there is more value in fixed income
Another advantage (in this case perhaps temporary) is that as the economic cycle is more advanced we can find more value in fixed income in dollars.
This is because dollar rates are already positive ( in Europe they are still negative ), and because the ETF offer also allows access to more asset classes and therefore, find more value specifically in fixed income.
This can be seen in more detail in the outperformance in the lower profiles of our portfolios.
Advantages of dollar portfolios: higher profitability
All this ultimately translates into higher returns for our dollar portfolios (we attach below the comparative tables of different metrics for our portfolios in Euros, in dollars and finally in dollars translated into Euros).
The following chart summarises the average returns of our indexed portfolios, both in Euros and in dollars.
In the current year, all our portfolios are having very good returns, as can be seen in the returns of our portfolios at the end of 2019 .
We also see that portfolios in Euros are on average 13.4% (ETFs) or 14.6% (FI). However, portfolios in dollars stand out in terms of profitability with 16.1%.
If this profitability is also translated into Euros, it would increase to 20.5% due to the appreciation of the Dollar against the Euro during this period.
This trend has been observed since we started monitoring our model portfolios (1/1/2015). In the chart above we see the average annualized returns on the left.
For Euro portfolios, they are in line with the average expected returns, 4.7%/4.8%. It is in dollars where these average returns are above expectations with 5.4%, and translated into Euros they reach 7.6% .
On the right of the graph we see how in accumulated terms the differences become 4 percentage points more (or 7 percentage points if we convert them to Euros).
As we discussed in the previous section, we see how (see graph above) in the lowest profiles (0, 1 and 2) it can be seen how fixed income in dollar portfolios is providing more value.
Dollar portfolios are more than 1 percentage point higher than Euro portfolios for these low profiles. Translated into Euros, this difference is amplified by more than 3 percentage points.
Although some of the trends expressed here may be temporary and may reverse in the future.
Remember that it only makes sense to choose dollar-denominated portfolios if you agree to see the profitability of your portfolio in that currency.
Also, let us remember that in inbestMe, in general, our portfolios have a certain protection against currency risk . Let us bear in mind that the illustrative exercise we have done here of translating the profitability of our dollar portfolios into Euros can be in the opposite direction if the Euro appreciates in value against the Dollar.
For all these reasons, let us remember that it makes sense to choose a portfolio in dollars:
Your life is partially or fully exposed to the dollar (directly or indirectly).
You are in a country with a weak currency and you want to protect all or part of your wealth against the dollar (also against the Euro, if possible).
For various reasons you want to have partial or total explicit exposure to the greenback.
Table of Contents
Advantages of dollar portfolios: the best ETFs, with lower costs and greater volume
Advantages of dollar portfolios: there is more value in fixed income
Advantages of dollar portfolios: higher profitability
Appendix: tables with metrics of our Strategic indexed portfolios in Euros and dollars
Advantages of dollar portfolios: the best ETFs, with lower costs and greater volume
Passive management was invented more than 40 years ago by John C. Bogle in the USA. That is why the ETF and index fund industry in the USA is much more developed than in the rest of the world.
Recently in the US, index funds have surpassed managed funds and are already being called the new kings of Wall Street .
The advantage of our dollar portfolios is that they are built with ETFs listed on American stock exchanges. These are by far the cheapest ETFs, with the highest volume and therefore the most efficient .
For example, the average TER of dollar portfolios is 7 to 10 basis points lower. Volumes are 10 times higher and therefore the spreads (difference between short and long positions) are smaller.
The supply is also much greater in the US than in Europe. This translates into competition between asset managers, which pushes costs down.
It is true that the supply and volumes of index funds and ETFs gambling data singapore phone number are also improving exponentially in Europe, but it will take a few years for this situation to equalise.
Advantages of dollar portfolios: there is more value in fixed income
Another advantage (in this case perhaps temporary) is that as the economic cycle is more advanced we can find more value in fixed income in dollars.
This is because dollar rates are already positive ( in Europe they are still negative ), and because the ETF offer also allows access to more asset classes and therefore, find more value specifically in fixed income.
This can be seen in more detail in the outperformance in the lower profiles of our portfolios.
Advantages of dollar portfolios: higher profitability
All this ultimately translates into higher returns for our dollar portfolios (we attach below the comparative tables of different metrics for our portfolios in Euros, in dollars and finally in dollars translated into Euros).
The following chart summarises the average returns of our indexed portfolios, both in Euros and in dollars.
In the current year, all our portfolios are having very good returns, as can be seen in the returns of our portfolios at the end of 2019 .
We also see that portfolios in Euros are on average 13.4% (ETFs) or 14.6% (FI). However, portfolios in dollars stand out in terms of profitability with 16.1%.
If this profitability is also translated into Euros, it would increase to 20.5% due to the appreciation of the Dollar against the Euro during this period.
This trend has been observed since we started monitoring our model portfolios (1/1/2015). In the chart above we see the average annualized returns on the left.
For Euro portfolios, they are in line with the average expected returns, 4.7%/4.8%. It is in dollars where these average returns are above expectations with 5.4%, and translated into Euros they reach 7.6% .
On the right of the graph we see how in accumulated terms the differences become 4 percentage points more (or 7 percentage points if we convert them to Euros).
As we discussed in the previous section, we see how (see graph above) in the lowest profiles (0, 1 and 2) it can be seen how fixed income in dollar portfolios is providing more value.
Dollar portfolios are more than 1 percentage point higher than Euro portfolios for these low profiles. Translated into Euros, this difference is amplified by more than 3 percentage points.
Although some of the trends expressed here may be temporary and may reverse in the future.
Remember that it only makes sense to choose dollar-denominated portfolios if you agree to see the profitability of your portfolio in that currency.
Also, let us remember that in inbestMe, in general, our portfolios have a certain protection against currency risk . Let us bear in mind that the illustrative exercise we have done here of translating the profitability of our dollar portfolios into Euros can be in the opposite direction if the Euro appreciates in value against the Dollar.
For all these reasons, let us remember that it makes sense to choose a portfolio in dollars:
Your life is partially or fully exposed to the dollar (directly or indirectly).
You are in a country with a weak currency and you want to protect all or part of your wealth against the dollar (also against the Euro, if possible).
For various reasons you want to have partial or total explicit exposure to the greenback.