Hello, I am a Canadian investor who has most of my money in S&P 500 Etfs, Nasdaq ETFs, other various ETFs, Berkshire Hathaways, and a small amount of stocks. Not very diversified outside of America. I buy these on the TSX mostly in Canadian funds, but I also have some in American dollars bought form the NYSE.
I have a desire to diversify outside of America but have always been disappointed in the gains of international ETFs compared to US based ones. I have also been reading recently about how large market cap companies generally grow better than small ones. It does kind of make sense in a world of increasing hyper capitalism, where big money can grow better, innovate better, and buy up competition. Taking these factors in to account, I am going to explore simulating an ETF of large cap international stocks.
My method is going to be to take a set of the biggest market cap international companies and buy some. Their size of the pie will be based on percentage of market cap.
https://www.tradingview.com/markets/world-stocks/worlds-non-us-companies/
To do a simple example, if I only wanted to do the 5 top companies in the world outside of US, it would be Saudi Aramco at 1.777 trillion market cap, Taiwan Semiconductor at 820 billion, Novo Nordisk at 528, Tencent at 521, and Louis Vuitton at 392. Their total market cap is 4.038 trillion. As far as percentages of that total, Saudi Aramco is 44.0%, Taiwan Semiconductor is 20.3%, Novo Nordisk is 13.1%, Tencent is 12.9%, and Louie Vuitton is 9.7%.
Say you have 10k to invest, you would buy $4400 of Saudi Aramco, $2030 of Taiwan Semiconductors, $1310 of Novo Nordisk, $1290 of Tencent $1290, and $970 of Louie Vuitton. Let's say we re-balance these every quarter, so as some companies strengthen, we buy more, and as they weaken we sell, and if a company drops off the top 5, we ditch it and get the new arrival. And if the list of companies is 20 or more deep, it should be some nice diversification of countries and industries, but with one thing in common, they are all ultra successful companies.
Do people have opinions on this strategy? It's basically running a personal one-man-show international ETF (I tried looking for a product that would do this for me but none satisfied my desire of just the top of the top international companies). How difficult would this be to do and what would be potential tax ramifications? I believe as a Canadian I would use Interactive brokers for the multiple currencies, and buying fractional shares which I believe I can do on there, but I've never used it. Also can I access all stock markets these companies would be available on via Interactive brokers? I could potential do this in my Tax Free Savings Account to not have to deal with taxes, but if I did it in my taxable account what would the ramifications be? Also any advice on the ramifications or how to deal with the dividends?
Any thoughts or tips on this strategy would be greatly appreciated, also is there a way to backtest this strategy, perhaps I could simplify to re-balance once a year. Thanks in advance for any advice.
And if some big investment company wants to take this idea and make a top 20 ex-US ETF or a top 50 ex-US ETF via market cap, go right ahead and I'll be the first to buy. And maybe give me a little kickback if it's popular 😉
EDIT: Looks like one issure is many of these companies are listed on the Shanghai Stock Exchange, which I can't buy as a Canadian. Therefore some of these large companies will be left off unless there is a workaround
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