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ETF protection / ring fencing / etc

Index tracking funds and ETFs
NotSure
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Re: ETF protection / ring fencing / etc

#442829

Postby NotSure » September 16th, 2021, 9:04 pm

tjh290633 wrote:...The easiest way to demonstrate that is to take my income unit data and compare it with that for the FTSE100 over the whole period....


The FTSE 100 isn't the market - it's 3 or 4% of the market - VWRL seems to have been the de facto passive standard for some time now. It's done a little better than the FTSE, though maybe not as well as yourself. But the FTSE is a fairly low bar for 21st century investors. Its hardly moved in 20 years, though of course including dividends, especially if reinvested, tells a different story.

Newroad
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Re: ETF protection / ring fencing / etc

#442835

Postby Newroad » September 16th, 2021, 9:25 pm

Hi NotSure.

That (" ... a little better ...") is perhaps a slight understatement (FYI - VWRL was incepted in the UK in May 2012) - source TrustNet

Image

However, people have their own predilections. For example, if someone's starting premise is only to invest in their home market, then maybe comparing the effect of their stock picking against the FTSE 100 is a reasonable thing to do if UK resident.

My personal view is quite the opposite of this - I want to have as few constraints in choice of investment as practical for me (and also opposite in other respects as well - in effect, I pay professionals to allocate the active component within my relatively unconstrained choices).

Horses for courses and all that.

Regards, Newroad

tjh290633
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Re: ETF protection / ring fencing / etc

#442852

Postby tjh290633 » September 16th, 2021, 11:19 pm

NotSure wrote:
tjh290633 wrote:...The easiest way to demonstrate that is to take my income unit data and compare it with that for the FTSE100 over the whole period....


The FTSE 100 isn't the market - it's 3 or 4% of the market - VWRL seems to have been the de facto passive standard for some time now. It's done a little better than the FTSE, though maybe not as well as yourself. But the FTSE is a fairly low bar for 21st century investors. Its hardly moved in 20 years, though of course including dividends, especially if reinvested, tells a different story.

The FTSE is the market in which I invest. That is why I compare my portfolio against it. If you wish to judge VWRL, then you need to compare it with a portfolio which invests in that market. Otherwise it is a case of apples and oranges.

TJH

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Re: ETF protection / ring fencing / etc

#442858

Postby Lootman » September 16th, 2021, 11:38 pm

tjh290633 wrote:
NotSure wrote:
tjh290633 wrote:...The easiest way to demonstrate that is to take my income unit data and compare it with that for the FTSE100 over the whole period....

The FTSE 100 isn't the market - it's 3 or 4% of the market - VWRL seems to have been the de facto passive standard for some time now. It's done a little better than the FTSE, though maybe not as well as yourself. But the FTSE is a fairly low bar for 21st century investors. Its hardly moved in 20 years, though of course including dividends, especially if reinvested, tells a different story.

The FTSE is the market in which I invest. That is why I compare my portfolio against it. If you wish to judge VWRL, then you need to compare it with a portfolio which invests in that market. Otherwise it is a case of apples and oranges.

Yes and no. If you want to know how you did relative to the market you invest in, then you would do as you do, and compare your returns to the FTSE-100 or All-Share as appropriate. That shows your share picking skills.

But there is another reason to benchmark your portfolio against an index and that is to check your asset allocation. That shows whether you chose the right markets to be in. And given the FTSE-100's dismal showing for over 20 years now, an approach that only invested in the FTSE-100 is going to have done badly in global terms. Comparing your returns to VWRL or something like that will reveal the opportunity cost of investing in only one country.

Put another way, you may have handsomely beaten the UK market but significantly under-performed the global equity market. During the time I have been investing the UK market cap has gone from being about 10% of global market cap to now being about 5% of global market cap.

tjh290633
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Re: ETF protection / ring fencing / etc

#442970

Postby tjh290633 » September 17th, 2021, 11:53 am

Lootman wrote:Yes and no. If you want to know how you did relative to the market you invest in, then you would do as you do, and compare your returns to the FTSE-100 or All-Share as appropriate. That shows your share picking skills.

But there is another reason to benchmark your portfolio against an index and that is to check your asset allocation. That shows whether you chose the right markets to be in. And given the FTSE-100's dismal showing for over 20 years now, an approach that only invested in the FTSE-100 is going to have done badly in global terms. Comparing your returns to VWRL or something like that will reveal the opportunity cost of investing in only one country.

Put another way, you may have handsomely beaten the UK market but significantly under-performed the global equity market. During the time I have been investing the UK market cap has gone from being about 10% of global market cap to now being about 5% of global market cap.

That is a result of the FAANGS. I do not wish to invest in them. The reason for the 20 year performance of the FTSE100 is the dot-com mania in 1999 which drove it to a peak at the end of 1999. Avoiding the dot-coms avoided the fall afterwards. I fear the same may happen with the FAANGs. I have no wish to invest in any of Vanguards funds or ETFs. I have exposure to global markets through several of the companies in which I invest. I do not wish to invest in companies that do not have a London quote. Neither do I wish to get involved in foreign currencies.

TJH

1nvest
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Re: ETF protection / ring fencing / etc

#442974

Postby 1nvest » September 17th, 2021, 12:12 pm

Lootman wrote:Put another way, you may have handsomely beaten the UK market but significantly under-performed the global equity market. During the time I have been investing the UK market cap has gone from being about 10% of global market cap to now being about 5% of global market cap.

There's always the FT30 stock index that could be used as another benchmark that likely will make rewards look relatively good (even better than if comparing to the FT100).

NotSure
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Re: ETF protection / ring fencing / etc

#442993

Postby NotSure » September 17th, 2021, 12:55 pm

tjh290633 wrote:The FTSE is the market in which I invest. That is why I compare my portfolio against it. If you wish to judge VWRL, then you need to compare it with a portfolio which invests in that market. Otherwise it is a case of apples and oranges.


Yes and no... I was rather comparing active vs. passive. While an active investor has to concentrate on a tiny segment of the market to do it properly, a passive investor has no such constraints, despite their ignorance and lack of effort.

Because VWRL has had such a good run (and the FTSE such a bad one), passive looks a no-brainer in the rear-view mirror to a UK investor. However, I fully understand there are no guarantees things will look the same in 10 or 20 years, especially if US tech stumbles and UK flies.

AleisterCrowley
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Re: ETF protection / ring fencing / etc

#443001

Postby AleisterCrowley » September 17th, 2021, 1:07 pm

There's plenty of evidence that, as a group, active investors lag the market. Of course some will do better, which may be down to having a genuine edge.
On the other hand any random selection of stocks from a particular market could over-perform significantly...

Alaric
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Re: ETF protection / ring fencing / etc

#443012

Postby Alaric » September 17th, 2021, 1:31 pm

AleisterCrowley wrote:On the other hand any random selection of stocks from a particular market could over-perform significantly...


There's a long term study sometimes quoted on this site showing that a partial random selection can do very well when it hits a handful of winners and holds for ever regardless of concentration risk. It wasn't random in that selections were diversified across separate sectors, but semi-random in that shares were selected by a specific characteristic evaluated at the time of selection.

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Re: ETF protection / ring fencing / etc

#443023

Postby Lootman » September 17th, 2021, 2:10 pm

tjh290633 wrote:
Lootman wrote:Yes and no. If you want to know how you did relative to the market you invest in, then you would do as you do, and compare your returns to the FTSE-100 or All-Share as appropriate. That shows your share picking skills.

But there is another reason to benchmark your portfolio against an index and that is to check your asset allocation. That shows whether you chose the right markets to be in. And given the FTSE-100's dismal showing for over 20 years now, an approach that only invested in the FTSE-100 is going to have done badly in global terms. Comparing your returns to VWRL or something like that will reveal the opportunity cost of investing in only one country.

Put another way, you may have handsomely beaten the UK market but significantly under-performed the global equity market. During the time I have been investing the UK market cap has gone from being about 10% of global market cap to now being about 5% of global market cap.

That is a result of the FAANGS. I do not wish to invest in them. The reason for the 20 year performance of the FTSE100 is the dot-com mania in 1999 which drove it to a peak at the end of 1999. Avoiding the dot-coms avoided the fall afterwards. I fear the same may happen with the FAANGs. I have no wish to invest in any of Vanguards funds or ETFs. I have exposure to global markets through several of the companies in which I invest. I do not wish to invest in companies that do not have a London quote. Neither do I wish to get involved in foreign currencies.

If you invest overseas via ETFs then there is not a currency issue if you choose the GBP-denominated share class. Any currency issues are handled by the fund manager at institutional rates.

As for FAANGs and dot.com companies, there is a world of difference. Many dot.com companies had no P/E ratios because they had no earnings. Right now Apple is on a PE ratio of 18, which is fairly modest by most standards. It pays a dividend, as does MicroSoft (although MSFT is not in FAANG, it has certainly performed like one in the last few years). Never say never but the idea that companies like Apple and MicroSoft are going to collapse as companies and investments seems far-fetched.

I am not a HYP or UK-only investor like you. But if I were, I would still hold, say, 10% or 20% in a global ETF as a way of boosting returns whilst actually reducing overall risk.


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