Fund of Exchange Traded Funds

Good day,

I've been thinking about starting a fund of exchange traded funds. Hear me out.

Think of every country in the world from largest to smallest in terms of market cap. Now each country has it's index. Assign each country a percentage based on the global market cap and invest accordingly.

Essentially the S&P 500 with countries instead of companies.

You're going to say "Oh that already exists, it's the MSCI World or FTSE Global"

Not every stock on earth from largest to smallest, every country. It makes a little more sense to group each country together, since there are cultural and legal differences. About +50 basis points a year difference.



That's just the equity side. The fixed income side consists of every country, but we use GDP instead of market cap.

Okay, so now that we've got all of the ETFs in order and $1B AUM we can circumvent the expense ratios associated with ETFs and go straight to market.

The issue is, I have no idea where to even start. How do I form the corporate structure? How to I get funding? I thought of going to the courthouses and getting lists of all the LPs in the city and just cold calling them for a meeting. I started an LLC when I was like 23, but it just sits there doing nothing. I really have no idea. Does anyone have any guidance?

Thanks,
Murphy

 

"Good investment thesis"? Can be... depending upon the asset allocation and market timing skills of those in charge.

 

Well the market timing should be in the re-balancing. I was thinking generally a 60-40 allocation stock to bonds. When equities are up we reballance and sell some equities to buy some debt. When equities are down we sell some debt to buy some bonds, maintaining the 60-40 allocation. Maybe do this like once a month.

 

What would this fund bring to the table next to the thousands of ETF’s that already exist and anyone can mix and match and make their own portfolio...

You’d have some very stiff competition in the world of ETF’s or managed funds.

 

Alright man, listen, your argument and challenge is not very helpful.

Okay first of all you're basically saying "what does any portfolio management bring to the table?"

Replace the word ETF with any stock and your argument is like "what does a managed portfolio bring to the table that an individual stock doesn't?"

My portfolio is not available in a single ETF. Okay, the closest thing is like the MSCI world or FTSE global.

The difference is I beat those benchmarks by 50 basis points a year, proving that my method is more efficient.

I don't have time or the patience to teach you an entire course on efficiency, but the purpose is to create a portfolio of global allocation, creating a lower standard deviation, and a similar return, which in turn, will give us a greater return in the long run.

Historically you could argue either way that international exposure lowers standard deviation. However I think that in the future our global economy is going to evolve in such a way that we will make a trend towards international investing. Especially since the rise of ETFs.

 

Relax. Was a simple question any future investor would ask. Best of luck.

 

Thank you Metamega. Best to luck to you as well.

 

If you're going to hold "for the long term", an approach that makes sense to me....

Divide your capital into 4 tranches. Do relative strength analysis on your "world" of available ETFs and allocate each tranche to one of the choices which is in the top 10 of your relative strength work. Rebalance as often as you see fit (monthly?).

Sell tranches that drop out of the "top 10", and know what's in the "bottom quartile" so that you don't have money there.

 

Why wouldn't I just buy all of them? There's like 40 countries. Just hold them forever and pass them to my family or shave off some during retirement.

The tranche would make sense for like monthly investing, just setting aside a section of my income. This isn't a "get rich" investing approach, it's a power of compounding approach. The goal would be basically to never sell. In the end it should produce substantial results. Just reinvest the dividends. I think that's really important.

 

Countries like Russia and at times China aren't going to produce great returns. But they don't have to. First of all Russia is such a small fraction of the entire portfolio. They have very little wealth comparatively in their market. China, however is the second largest. The difference is you need to think of china as an negative correlation asset. Hopefully when the US has a bad year China will have a good year. That's the idea of the entire portfolio and the foundation of diversification.