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ETF-INVESTMENT

Portfolio construction and ETF selection - how we proceed

This article summarizes the portfolio construction and ETF selection process at getquin. Overview:

  • Basics
  • Risk
  • Investment Universe
  • Product Selection

Basics

getquin assumes that capital markets will develop positively in the long term, but that the prices of individual securities cannot be forecast in advance. The investment philosophy of getquin is therefore geared towards optimizing the costs and tax burdens of the investment and participating in global market growth with the broadest possible diversification. Where it makes sense, quantitative methods are used to weight individual positions, whereby care is taken to ensure that this does not have a negative effect on diversification.

Risk

The risk you take is, next to the costs, the factor with the greatest influence on the expected return of your investment. getquin therefore considers it particularly important that you understand this relationship. This article summarizes the most important information. getquin distinguishes four different risk categories:

  • Low Risk -> 25% Equity Component
  • Medium Risk -> 50% Equity Component
  • High Risk -> 75% Equity Component
  • Very High Risk -> 100% Equity Component

In the free version, the desired risk is to be determined by the user. getquin does not check whether the selected risk is suitable for the user.

Investment Universe

An investment universe is determined depending on the selected risk. In addition to equity ETFs, only government and corporate bonds in the eurozone are used in getquin portfolios. All getquin plans offer the option of including only sustainable investments in the investment universe.
In the equity portion, the focus is always on a large global spread (also: diversification). This allows individual risks of specific regions or sectors to be minimized. With ETFs, global diversification can be achieved with just a few ETFs. The advantage of using several ETFs is to achieve an even better diversification and to weight certain regions and industries closer to their actual global economic strength. In addition, quantitative optimization methods can potentially generate additional returns and foreign currency risks can be minimized for certain regions by using securities denominated in euros.
The number of ETFs used is determined at getquin depending on the investment amount and savings rate. Since most custodian banks have a minimum rate per savings plan of either 25 or 50 euros, we recommend portfolios consisting of only a few ETFs for small savings plans. For low volume initial investments, too many ETFs can lead to high initial purchase costs and additional effort in rebalancing. Therefore, we recommend ETF portfolios with only a few positions even for small investment amounts. If several ETFs are used in the portfolios, quantitative methods are used for weighting, if this appears to be reasonable. getquin, however, uses both upper and lower limits for the individual regions and sectors in order to avoid weightings that deviate strongly from the real economic strength.

Product Selection

The selection algorithm of getquin differs depending on the subscription you choose. With getquin Free, those ETFs are selected for the individual indices that are available and eligible for savings plans at most custodian banks, taking into account the entire portfolio. You can edit the selection of individual products at any time in the portfolio overview and find alternative products very easily with our search tool. Please note that it still happens that portfolios are not available at all custodian banks. We generally try to make our portfolios as accessible as possible, but we have no direct influence on the availability at the individual custodian banks.
In the getquin Pro algorithm we select the ETFs with the lowest total cost, taking into account all cost and tax effects. You can imagine it like this: Depending on your bank, we know what it costs to buy the ETF, what the ongoing costs are, and what the ETF's tax position is. We add up these costs and each ETF gets a concrete price, for example for 3 available ETFs 150 €, 120€ and 115 €. We then select the cheapest one.