Tweaking International Allocation

[WilliamG]

Have been settled in my retirement asset allocation for a while without changing it!  It is nice to realize you only need to make re-balancing and funding decisions once a year.

I have been thinking some about our current international allocation however.  Currently have 10% of total portfolio in international stocks, equally distributed between Vanguard's European, Pacific and Emerging Markets indices.   Thoughts are that 1) Pacific index is mostly Japan and that is a lot of single country exposure,  2) these indices are mostly growth oriented and 3) having at least some actively managed international could be a plus.  Could address all of these issues by swapping Europe and Pacific for Developed Markets Index (a cap weighted combination of Europe and Pacific) and Vanguard's International Value.  Any thoughts on this as an international allocation or other approaches?
Thanks, Bill

 

[ats5g]

Hi William:

1) Pacific index is mostly Japan and that is a lot of single country exposure

Well, you've got 90% of your other stocks in one country [The USA]. Seriously though, currently, Japan only represents 2.43% [10% * 1/3 * 73%] of your equities. In addition its not like VPACX isn't diversified by company and sector, or at least as much as many US stock funds.

2) these indices are mostly growth oriented

True, as are they "large" oriented like TSM.

3) having at least some actively managed international could be a plus.

that is one way to look at it I suppose. You could also look at #2 and #3 and say, "I want more int'l value and int'l small exposure, so I'd need to use actively managed funds to do so." As long as those funds are fairly passive [low turnover], and low cost, and run for the shareholders, not the managers and owners, probably nothing wrong with that.

Given this, however, I think I'd rather get my small exposure in the US where I only have to pay around 0.20%, rather than paying north of 1.00% for int'l small. Also, Vanguard's Int'l value isn't really all that much more valuey than Vanguard's developed market index, if we're using p/b to measure valuey-ness. By comparison, DFA's Int'l value has a p/b around 1.1, compared to 1.7 for VTRIX and 1.9 for VDMIX.

btw - I haven't seen anything to support the idea that active management works any better or worse for int'l stocks than it does for US stocks.

- Alec