Building your own ETF portfolio can optimize returns by combining the cheapest and best-performing ETFs. However, this approach requires more time and maintenance, as it should ideally be rebalanced quarterly.
Rebalancing can be done by allocating new monthly savings, avoiding the need to sell assets and trigger taxable gains. However, if your broker charges trading fees, this method may become more expensive.
For example, Trading 212 offers self-balancing pies, automating investments. However, you still need to monitor index allocations quarterly. For instance, in the MSCI ACWI index, the USA's weight increased from 63 % in early 2024 to 66.7 % in January 2025 due to changing company valuations. These weights fluctuate constantly.
This approach also suits investors who want to hedge against the USA by reducing their exposure to U.S. stocks.
Important: Different index providers classify countries differently. For example, Poland and South Korea may be labeled as developed or emerging depending on the index. Mixing ETFs that track different indices can lead to unintended exposures. More details here.
Rebuilding the MSCI ACWI index is straightforward using three ETFs with the following allocations (as of February 2025):
| Area | Allocation | ETF | TER |
|---|---|---|---|
| USA | 67% | SC0H / MXUS or WEBH | 0.05% / |
| 0.03% | |||
| Developed markets ex. USA | 24% | EXUS | 0.15% |
| Emerging Countries | 9% | IS3N or EUNM / IEMA | 0.18% |
By using this allocation, you can lower the total TER to 0.07%.
Additionally, if you factor in the performance boost from a swap-based USA ETF (as explained in the dictionary), the 0.05% TER effectively “becomes -0.15%” due to tax efficiency. This means the blended TER could be as low as -0.05%, compared to fully physically replicating ETF.
Risks to Consider This approach is not risk-free. If the USA underperforms compared to the rest of the world, you would need to increase allocations in EXUS and IS3N, which would also increase the total TER.
In this approach, you add small caps into the game. Small Caps has historically outperformed the large cap companies, since they have more room to grow, but since 2017 the large caps have outperformed due to the megatrends and uncertain world occurrences (pandemic etc.).
The neutral approach would be adding 15% weight into small caps, but you can flex it anywhere higher or lower per your vision.
If you select 15 % approach, multiply the weights from MSCI ACWI with 0.85 and add iShares MSCI World Small Cap (TER 0.35%) or Avantis Global Small Cap Value (TER 0.39%) to your portfolio.
Personally, I have selected this approach, and I have back tested it with SPYY and SPYI, where it is outperforming. Here is a link to my pie in Trading 212, where I rebalance it quarterly.
Pair Vanguard FTSE Developed World (TER 0.12%) with 90% allocation and Vanguard FTSE Emerging Markets (TER 0.22 %) with remaining 10% allocation. Weighted TER is 0.13%, which is much lower than one package. Also, the developed world ETF is constantly outperforming the index, contrary to VWCE.