Like the big ones: State funds: How investors get the return stars into their custody accounts | message
Shares in this article
ETFs in this article
Indices in this article
by Christoph Platt and Andreas Hohenadl, Euro am Sonntag
Specifically, investors have the opportunity to put together a portfolio based on the model of the Norwegian Government Pension Fund. Or they follow the Abu Dhabi sovereign wealth fund in terms of investment.
In the table, the editors suggest ETFs with which the large investment areas can be broadly diversified. The last two columns indicate what proportion an ETF should have in a portfolio in Norway or Abu Dhabi. The quotas are based on the publicly available information on the statement of assets of the respective sovereign wealth fund and are intended as a guide to how the weighting in one’s own portfolio could look like.
Those who, like the Norwegian sovereign wealth fund, pay more attention to the issue of sustainability in their investments, suitable investment products are listed under the categories “stocks” and “bonds”. They see themselves as alternatives to the ETFs listed above, their corresponding portfolio portion is therefore in brackets.
Regarding the positions in detail: Shares and bonds should be thoroughly diversified. This is best done globally and across many economic sectors. An ETF on the MSCI World share index is the method of choice for shares. It shows the performance of around 1,600 companies from 23 industrialized countries. The United States has the greatest weight.
This index fund is complemented by an ETF that invests in stocks from emerging countries. The shares of almost 1,400 companies from 27 nations are represented there. China is the heavyweight. A global small-cap ETF is recommended as a further addition. This gives investors access to the performance of almost 4,300 shares in smaller companies from 23 industrialized countries – here too, US companies dominate. Because of the higher risk of fluctuations in emerging market stocks and small capitalized companies, the shares of these ETFs are each weighted lower than the MSCI World vehicle.
A UBS product can be considered as an alternative to the global ETFs mentioned. It relies on an index that gathers companies that have a high rating in the areas of environmental protection, social responsibility and corporate governance compared to the competition in their sector. The price development of a good 500 large and medium-sized companies from 23 industrialized and 27 emerging countries is shown.
Global diversification is also advisable for fixed-income securities. The wealth in this area is split between global government and corporate bonds. For government bonds, the editors have opted for an ETF on inflation-protected paper. This against the background that the massive government spending programs to cope with the Corona crisis make rising inflation rates and rising interest rates more likely in the future. The ETF is also protected against currency fluctuations (euro hedged).
Since there are interest-bearing securities not only from states, but also from many companies worldwide, investors should also consider this area with an ETF in their custody account. For those who want to be sustainable when it comes to bonds, there is the Lyxor Green Bond ETF as an alternative. It includes investment grade bonds issued by governments, corporations or development banks. Green bonds are fixed-income paper, the proceeds of which flow exclusively into environmentally friendly projects that slow down climate change, for example.
It is somewhat more difficult to use ETFs to map the real estate and alternative investments segments, which play a role in many sovereign wealth funds. Instead of investing in real buildings, an index fund is used to participate in the price development of real estate investment trusts listed on the stock exchange, or REITs for short. These are corporations that own and manage real estate. You also participate with ETFs in the infrastructure sector – namely in listed operators of toll roads, energy networks and so on.
In contrast to sovereign wealth funds, you do not participate directly in start-ups and other companies without a stock exchange listing. Rather, private investors cover the private equity segment with an ETF that invests in large investment companies such as Blackstone or KKR. Their performance over the past few years is impressive.
If you find it too difficult to construct a portfolio using different ETFs, you can opt for a convenient all-in-one solution. The portfolio ETF from Xtrackers is well suited. Similar to Norway’s sovereign wealth fund, around two-thirds of the assets are allocated to stocks (indices) and one-third to bonds (indices).
Image sources: Thomas Northcut / Getty Images, Christian Zachariasen / Getty Images, Finanz Verlag