iShare ETF - Diversification

Chevalier

Registered User
Messages
14
I am in the process of deciding what iShare ETFs to buy and have got it down to three to increase my portfolios dirversification:-
iShares FTSE/Xinhua China 25
iShares DJ Euro STOXX MidCap
iShares DJ Euro STOXX Select Dividend

I assumed that buying two of these would give me a good spread, meaning if one goes down the other shouldn't. But looking at the graphs this isn't the case:-
http://www.iol.ie/~foundation/photos/China.JPG
http://www.iol.ie/~foundation/photos/Euro_mid.JPG
http://www.iol.ie/~foundation//photos/Euro_div.JPG

The growth percentage is different, but the overall trends are almost identicle.
Is there something I am missing?
The china ETF claims that the shares are bought on the Hong Kong exchange, so it shouldn't be following the FTSE trend...

Any help would be great!

Thanks
Robert
 
A lot of evidence over the last few years to show equity returns by region are becoming more similar. Real diversification from equities returns more achievable by investing in bonds or other asset classes. Most equity markets seem to take their lead from what's happening in the US equity markets.
 
Chevalier,


Who are you buying the iShares ETFs from ???


Am looking to buy EUROSTOXX Small cap , and am looking for broker ...

Are you using Irish Broker , if so , what are inactivity , maintenance fees, buy / sell , any other fees quoted .....
 
I assumed that buying two of these would give me a good spread, meaning if one goes down the other shouldn't.

Sounds to me that you're thinking of what's called negative correlation. Diversification is usually about spreading your risk over multiple companies, so that an adverse incident in one company does not significantly affect your overall returns. Index funds/ETFs/Mutual funds are one way to do this.

Negative correlation is where prices move in different directions on receipt of the same news e.g. in a simplistic example you could buy shares of an oil company where prices tend to go up if oil spikes, and also buy shares in a manufacturer which sees its costs go down as the oil price drops.

As for those ETFs you mention, globalisation has had a big impact to cause markets to increasingly correlate. US consumers not spending, Chinese companies lose export orders etc.
 
Intersting points - thanks.

hmmm - I'm not really looking for full neg. correlation as you described, but what I was hoping is that I have my money split between European and China ETF so if one takes a dive that the other won't follow the exact same trend. I guess I am just amazed that these ETFs are sold as a great way to diversify your portfolio when so many seem to follow almost identicle trends. I have even looked at a few others S&P 500 , FTSE and these also have very similar graphs - the ETF for Japan has a different one!
I'm starting to think I would be better off just buying one and then also purchasing 2 UK companies aswell.

SPC 100 - Out of interest what book are you reading?
I don't think volatility over the long term will concern me too much on Irish/European shares, but if I saw the China ETF taking a dive I would be worried!

Crumdub 12 -
I am using Campbell & O'Connor( www.camocon.ie ), it costs €50 a year to have a sponsor CREST account with them but there is no annual charge for an execution only account. On a side note, I have found them great to deal with - friendly and always helpful.

Before I setup my CREST account with C&O'C I looked into opening a Goodbody online account. This has an annual fee of €26, but they don't charge for having a CREST account. However the serious down side to their account is that they will only allow you to buy 5 iShare ETFs:
">MSCI Emerging Markets Index Fund
>ISHARES FTSE/ Xinchua China 25 Index Fund
>Ishares EAFE Index Fund
>Ishares FTSE 100
>ISEQ 20 ETF"
I found this out after 2 emails and 2 phone calls, I also was told that the reason for this is:
" It is not possible to set-up any more as they are not all CREST eligible and therefore cannot be held or traded through the online platform. "
After getting annoyed at the unhelpful(almost snotty!) replies I was getting I contacted CREST directly and was told they support all iShare ETFs and a full list can be seen here:
http://www.crestco.co.uk/home/home.html#/products/operational/isins_crest.html
If you do a search for iShare they all show up, they are not named, but the ISIN numbers are shown and you can check these against eh iShare website ( www.ishare.net ).
Hope that helps..

Any more ideas on those graphs would be great!

Robert
 
This is a good book although a bit heavy in parts.
Asset Allocation by Roger Gibson.
Consider "diversifying" into commodities, water etc?
 
Chevalier,


Rang up CAMOCON about funds, 2 London, 1 Frankfurt based, across three funds, got a quote of 2.2% of initial outlay ....

Will check KEYTRADE and get back to you, may have to put this in " Best Financial" section !!!
 
Back
Top