An additional return factor, many new ETFs: together with the regular rebalancing, we fundamentally reworked our global ETF portfolio in April. What we have changed and how you benefit from it.
With the global ETF portfolio, we at quirion pursue an investment strategy of a steady hand, entirely free of knee-jerk activity. Even so, we do of course adjust the portfolio from time to time, usually once a year. In April, the time came again. This time, the adjustments turned out to be somewhat more extensive, particularly in our equity portfolio. We increased the number of stocks by more than 5,000 to now over 13,000. The average product costs remain stable in the process.
To put this into context, though, first a little background: the aim of our strategy is to bring the world's equity markets into the global portfolio as representatively as possible. Because including every single stock in the portfolio individually would be far too complicated and too expensive, we use a special combination of ETFs. To determine this combination, we draw on what are known as equity factors.
Why we use factors
Every single stock has a range of typical characteristics that influence both the return opportunities and the risks. "These include, for example, company size, valuation or the extent of price fluctuations," explains Philipp Dobbert, the head of our wealth management. "Using such characteristics, you can categorise the diversity of all stocks. In technical jargon, these categories are then called factors."
The factor combination aims to diversify the portfolio as optimally as possible. "In the current case, too, the changes are about increasing the degree of diversification once again — not about speculating on possible future developments in the markets," Dobbert emphasises. Only with a forecast-free investment strategy, he says, is it ensured that investors do not take unnecessary risks.
What the new factor is all about
Until now, quirion has taken five factors into account in the global ETF portfolio. Now a new one has been added: the "profitability" factor. This targets companies whose earnings level is above average.
But why the new factor now? "In our investment strategy, we are guided by the best-substantiated scientific findings possible," Dobbert explains. In academia, individual factors are debated continuously. quirion follows this debate closely. "Before changing the factor combination, we examine thoroughly whether it improves the portfolio's diversification over the long term. In extensive analyses, we have now satisfied ourselves that this is the case." In doing so, an even broader data basis was used for the analysis than before.
The factors and their weightings are the basis for product selection. However: while there are what are known as factor ETFs, regardless of the name of such specialist products, ETFs always reflect several factors at once. "That is why we pay close attention to whether the product combination really brings the intended overall factor weighting into the portfolio," Dobbert stresses.
Why the number of stocks in the portfolio is rising
In the course of the adjustments, five ETFs were newly integrated into the global portfolio, and one dropped out. An important change here is the addition of the Dimensional Global Core Equity ETF. It is above all through this product — whose launch quirion, together with Quirin Privatbank, played a key role in supporting — that the number of stocks represented in the portfolio grows considerably, from around 8,000 to over 13,000.
Yet even though the number of stocks rises by more than 60 percent, the average product costs do not increase. The "total expense ratio" (TER) of the overall portfolio remains, as before, at 0.20 percent. "This is also because we keep taking a close look at whether there are now cheaper products for our purposes," says Dobbert. For this reason, the SPDR MSCI World was swapped for the UBS Core MSCI World.
What we have changed in the bond modules
The bond portfolio was already restructured last year. And split into two modules: a risk-reducing one and a return-oriented one. "In both, we refined the composition once again in order to optimise the balance between return opportunities and risks further."
Newly added were government bonds from emerging markets and what are known as covered bonds. The latter are secured bonds such as Pfandbriefe. The aim of the expansion: more return opportunities without noticeably increasing the risk. To achieve this, the money market is now also taken into account in the bond building blocks. Although it offers comparatively few return opportunities, it cushions price fluctuations in other segments of the bond portfolio.
Why everything is now "back on track"
The changes were implemented together with the scheduled adjustment for value fluctuations, known as rebalancing. Because through constant price changes alone, the weightings of the individual positions shift over time. This, however, unintentionally alters the risk in the individual strategies. "We correct this regularly so that the weightings do not permanently drift off course," Dobbert notes. "And after all the adjustments, we now match the individual return-risk profiles with a portfolio that has been optimised once again."
You can find all the ETFs in the global portfolio here in the overview.
