Part 3 - Stocks

Selecting ETFs

This post is part of an 8-post series on the construction of my portfolio.

In part 1 I set my target allocation: 75% stocks (tilted toward Global Dividend/Value), 10% bonds, 10% cash, 5% gold. To turn my asset allocation into a working income stream, I need to select (part 2) and buy financial products. We start with stocks.

Please do not forget. Choosing between distributing or accumulating versions of ETFs or different funds can have taxation implications depending on your situation. A wonderful world of dry tax liabilities, dividend leakage, historical cost valuation and other fascinating concepts awaits you. Not in scope here.

Let’s take a look at some products.

I use three funds per category, six in total. That leaves four of my ten product slots for bonds, cash and gold.

Market - 35%

Taking into account my extra conditions, I use one fund per region: the US, Europe and Asia + Emerging Markets. That way I can steer the regional allocation directly, and all three are distributing.

For the US, I first looked at two versions of the S&P 500, hedged and unhedged:

Table: Hedged and unhedged S&P 500

I used justETF’s comparison tool for this. Remarkable results. The hedged version does protect in years where the dollar appreciates in value, like 2025. But if you look at the Returns overview, hedging is downright expensive. You leave a lot of money on the table. So I decided not to hedge and to use the distributing version. This post gives some more info about hedging.

To tilt towards Europe and Asia + Emerging Markets and get closer to my target regional allocation, I use these two funds:

Table: ETF building blocks for market stocks

So, here we are for our setup:

Table: Selected ETFs (weights as % of the total portfolio)

• Look at the TER of the State Street® SPDR® S&P® 500 EUR Hdg UCITS. Extremely low for an ETF that includes hedging. As mentioned, unfortunately the real cost of hedging is in the returns.
• This category is US-heavy on purpose: 61% of it is the S&P 500. Dividend & Value leans the other way, and together they land on my regional target.
• STOXX Europe 600 covers Europe, not the Eurozone - including the UK and Switzerland (36% combined, non-EUR). EURO STOXX 50 sticks to the Eurozone only, but I prefer this broader one. It brings in European growth companies like ASML, SAP and Siemens, which the dividend funds largely leave out. But again, it means giving up some direct EUR exposure.
• Why no MSCI World ex USA? It’s accumulating, so it adds nothing to my 2% payout. With separate funds for Europe and Emerging Markets I don’t need it.
• Average TER ~0.07%. Good. The payout of this category is low (~1.3%), mostly because the S&P 500 yields under 1%. The income has to come from the next category.

Dividend & Value - 40%

This one I approached a bit differently. The basis is the two largest world equity dividend funds in the UCITS space, each close to €10 billion. To bring the regional weighting closer to the target, I add a third, European fund. These three funds are in the table below.

Table: ETF building blocks for dividend & value stocks

To nudge the regional weighting even closer, I could add funds like the ones below. My 10-product limit leaves no room for them - but feel free to use these as satellites.

Table: Alternative ETF building blocks for dividend & value stocks

My chosen setup for this category:

Table: Selected ETFs (weights as % of the total portfolio)

• Vanguard FTSE All-World High Dividend Yield UCITS and VanEck Morningstar Developed Markets Dividend Leaders UCITS overlap a lot: 97% of VanEck’s weight is also in the Vanguard fund. The difference is in the weights. Vanguard is much broader; VanEck puts almost two-thirds in Europe. I use it to shift this category towards Europe.
• Why no value fund? Xtrackers MSCI World Value was on my list, but it’s accumulating, and 89% of its weight overlaps with the Vanguard fund. High-dividend stocks lean strongly towards value anyway.
• The TER of dividend paying equity ETFs is a lot higher than for the previous category. Some younger funds have a lower TER, but their small fund sizes make them unattractive. But this is something to keep an eye on.
• Average TER is ~0.31%. A bit on the high side and something to guard. Together with the Market category, all stocks average ~0.20%.
• This category does the heavy lifting for income, with an average yield of ~2.9%.
• Xtrackers Euro Stoxx Quality Dividend is €734m: above my €500m minimum, below €1 billion. Fine for a 5% position.
• VanEck Morningstar Developed Markets Dividend Leaders and Xtrackers Euro Stoxx Quality Dividend are together about 40% banks and insurers. Something to watch; the STOXX Europe 600 softens it a bit.
• iShares Emerging Markets Dividend UCITS has a much higher TER than Invesco FTSE EM High Dividend Low Volatility UCITS, though both perform about the same and pay a quarterly dividend. Pity the Invesco fund is small (€250m, July 2026) because I prefer its broader index.

Together, my stocks come to roughly US 44%, Europe 30%, Other 26%, close to the 45/30/25 target.

What is next?

These two categories are quite complex compared to the rest. So this was the hardest part! Next is part 4 which is about bonds.