Thursday, 24 March 2016

Global Bond ETFs

This is going to be a short update about actions I'm taking with our ETF Portfolio. The comment on my post about Choice of ETFs from Heidi Chua at Money Never Enough got me thinking about including a global bond ETF in our portfolio.
Although I considered her recommendation on the Vanguard Total Bond Market ETF (BND) trading on the NYSE, I decided to go with the following Vanguard Bond ETFs trading on the LSE instead:
For your information, VETY and VDTY were just listed for trading on the LSE a few weeks ago. I had to call Stan Chart Online Trading to inform them about these new ETFs as my orders for them were rejected. Once this issue is addressed and trading of VETY and VDTY are allowed for on Stan Chart Online Trading, I will start to purchase them as part of the global bond component of the ETF Portfolio. I have already started to include VGOV as this ETF was released a while back.

According to the 2016 estimated ETF distribution schedule, the distribution frequency is monthly and in GBP, EUR and USD. Having gone through the volatility in the equity markets the past year, I'm starting to have a new appreciation of diversified bond ETFs in the investment portfolio. Their returns may be lower than equity ETFs but they stabilise the portfolio and offer peace of mind in unstable times.  

5 comments:

  1. TFS,

    haha, i just wrote something about bond ETFs a few days ago too. coz my portfolio is highly skewed towards equities and like you, i wanted some stability. So, got vested into A35 (SGP centric bond).

    my next research was to go into non-SGP bond, and your post came in handy! saw your previous post too. good stuff. cut my work out for me.(http://thefinancesmith.blogspot.co.id/2016/02/choice-of-etfs.html)

    quick question:
    -what is your reasons for going with LSE instead of the NYSE?
    -if one intends to be vested in the UK sector ie #1, how do we limit the downside of the brexit (supposedly)?
    -i have a stash of USD sitting in a bank account. do you have any suggestions how to best utilise this, instead of just earning meagre interest ? (i also want to minimise moving the USD across banks, as they charge hellva hefty TT charges)

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    1. Hi Foolish Chameleon,

      I read your post about bond ETFs! As I have already invested in the A35, I went looking for international ones instead. No worries, glad the post is useful!

      Well, I go with the ETFs listed on the LSE instead mainly because of the withholding tax on the dividends for ETFs listed on the NYSE.

      There is certainly a downside of the brexit but I try to invest in both UK and Europe ETFs for diversification.

      Well, I have AUD sitting in bank accounts in Australia and they earn interest of about 2.5 percent per annum. I keep them as emergency funds so the interest earned is sufficient for me. Not sure how best to utilise foreign currency funds myself too!

      Cheers,
      TFS

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    2. TFS,

      well, 2.5% isnt too shabby.. USD deposits here are just as bad as our SGD deposits.

      i am not too well-informed on the withholding tax issues. does this mean, that any equities/ETF from the NYSE will have this withholding tax, but not the LSE?
      how much is this tax? applicable even for non-US tax resident?

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  2. Oh wow, I didn't realize there were new ETFs launched. Thanks for sharing. Interesting options to have, especially with the monthly payouts. iShares has a far bigger listing at half-yearly payouts. Ever considered those?

    "GBP, EUR and SGD" : you meant USD instead of SGD right?

    Kevin L.

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    1. Hi Kevin,

      I only realised it when I noticed these new bond ETFs in the estimated distribution schedule. I will have a look at the iShares offerings!

      Oh yeah, I just changed SGD to USD, thanks for letting me know!

      Cheers,
      TFS

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