Domestic Index Funds vs. Foreign (U.S.) ETFs

[Haystack]

https://shintaro-money.com/kaigai-etf-relay-2/

I will still go with Emaxis Slim All Country (Nisa/Taxable) and Vanguard Global (iDeco) as I do not want to deal with currency exchange and other associated fees. (Or Changing ideco providers).

However, how long until Domestic ETFs become a better deal than MF? Perhaps a decade? I would switchover my taxable purchases to MAXIS ALL Country if that happens, and the inflows remain stable.

[adamu]

TLDR https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

Good to see they mention VT and eMaxis slim all country are basically equivalent (but only if you do the foreign tax deduction for VT).

[Haystack]

TLDR https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

Great stuff. We need a like/thumbs up button. Admin?

https://www.phpbb.com/customise/db/exte ... r_posts_2/

[adamu]

Edited the post to add the 2nd paragraph before I saw your reply!

[RetireJapan]

TLDR https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

Great stuff. We need a like/thumbs up button. Admin?

https://www.phpbb.com/customise/db/exte ... r_posts_2/

Last time I had to mess with the forum software almost gave me a heart attack, so...

[TBS]

https://shintaro-money.com/kaigai-etf-relay-2/
However, how long until Domestic ETFs become a better deal than MF? Perhaps a decade?

For the most part I don't see it happening, especially for people wanting to reinvest dividends & hold long-term.

Domestic ETF advantages
- Slightly lower "headline" fund management costs
- Can use foreign dividend tax credit in taxable accounts (no benefit in NISA)
- Immediate purchases vs few day delay for MF
- Can benefit from broker lending programs (although these programs carry risk)

MF advantages
- Internally reinvest dividends before tax
- No 40 day delay before broker pays out dividend
- No issues reinvesting small dividend amounts due to high unit price
- Don't lose out on purchase and sale price spread
- Points programs for holding (with SBI this means the effective management costs of eMAXIS Slim are actually lower than the MAXIS ETF equivalents)
- Credit card cashback available for purchases
- Can buy in Tsuimate NISA & iDeco
- Internally reinvesting MFs "grow" NISA allowances

When you value all these things up and look at past performance, MFs are coming out on top vs the domestic ETFs.

Is there anything I'm missing?

[Haystack]

https://shintaro-money.com/kaigai-etf-relay-2/
However, how long until Domestic ETFs become a better deal than MF? Perhaps a decade?

For the most part I don't see it happening, especially for people wanting to reinvest dividends & hold long-term.

Domestic ETF advantages
- Slightly lower "headline" fund management costs
- Can use foreign dividend tax credit in taxable accounts (no benefit in NISA)
- Immediate purchases vs few day delay for MF
- Can benefit from broker lending programs (although these programs carry risk)

MF advantages
- Internally reinvest dividends before tax
- No 40 day delay before broker pays out dividend
- No issues reinvesting small dividend amounts due to high unit price
- Don't lose out on purchase and sale price spread
- Points programs for holding (with SBI this means the effective management costs of eMAXIS Slim are actually lower than the MAXIS ETF equivalents)
- Credit card cashback available for purchases
- Can buy in Tsuimate NISA & iDeco
- Internally reinvesting MFs "grow" NISA allowances

When you value all these things up and look at past performance, MFs are coming out on top vs the domestic ETFs.

Is there anything I'm missing?

No I agree with everything you said, but I was mainly thinking about a taxable account. The ETF fees will definitely continue to get lower and lower iMO. There may well be a point at which a near 0 fee could outweigh the benefits or reinvested dividends/points over X period of time. Fees really do create drag.

I would guess this could be mapped out by someone with more talent in Excel than I possess. Just food for thought.

Curious that there are no accumulating ETFs in Japan ala the European UTICS ETFs (Example - iShares Core S&P 500 UCITS ETF USD (Acc))

[TBS]

...

Yes, I see your thinking and considered the same. I may be wrong, but I just don't envisage domestic ETF fees heading that low. Currently the cheapest domestic ETFs are 0.066%, and although competition is strong here in Japan, it is not ferocious like the USA where zero fee ETFs have come about. Moreover if ETF fees do come down, it is likely MF fees will also come down given the importance of iDeco and Tsumitate NISA in the marketplace.

near 0 fee could outweigh the benefits or reinvested dividends/points over X period of time

Generally speaking, the longer you hold the greater the benefit of internally reinvested dividends vs claiming the foreign tax credit with an ETF, because of the increasing opportunity benefit of delaying the tax payment. So the limited scenarios I can see domestic ETFs winning are short term hold cases.

Curious that there are no accumulating ETFs in Japan ala the European UTICS ETFs (Example - iShares Core S&P 500 UCITS ETF USD (Acc))

I recall reading in a blog somewhere that the financial regulations only extend the accumulating benefit for MFs. ETFs must pay out distributions if the investments they hold pay out dividends. I tried to find the original regulation/law for this once, but didn't succeed. But yes, if accumulating domestic ETFs existed, they could become the market leader.

[Haystack]

...

Yes, I see your thinking and considered the same. I may be wrong, but I just don't envisage domestic ETF fees heading that low. Currently the cheapest domestic ETFs are 0.066%, and although competition is strong here in Japan, it is not ferocious like the USA where zero fee ETFs have come about. Moreover if ETF fees do come down, it is likely MF fees will also come down given the importance of iDeco and Tsumitate NISA in the marketplace.

near 0 fee could outweigh the benefits or reinvested dividends/points over X period of time

Generally speaking, the longer you hold the greater the benefit of internally reinvested dividends vs claiming the foreign tax credit with an ETF, because of the increasing opportunity benefit of delaying the tax payment. So the limited scenarios I can see domestic ETFs winning are short term hold cases.

Curious that there are no accumulating ETFs in Japan ala the European UTICS ETFs (Example - iShares Core S&P 500 UCITS ETF USD (Acc))

I recall reading in a blog somewhere that the financial regulations only extend the accumulating benefit for MFs. ETFs must pay out distributions if the investments they hold pay out dividends. I tried to find the original regulation/law for this once, but didn't succeed. But yes, if accumulating domestic ETFs existed, they could become the market leader.

All excellent points.

The fact that MF create healthier passive investing habits also is a huge plus.

Bogle did hate ETFs, so he would be happy to see Japanese MF rolling along.

Personally I would love an Emaxis Slim All Country FTSE All cap, but ACWI will do.