The Lemon Fool

Urbandreamer wrote:My issue is that the names of my Aviva investments, I.E UK equity index tracker have not changed, but what they track HAS. They are now excluding things that they previously did not. I'm also less than happy with their exclusion choices.

In my opinion the best way to think about an index is that it is a set of rules. The constituents and weights within that index will change all the time, for a variety of reasons. But the rules should stay the same so that as long as you like the rules, then you should be happy.

From time to time a fund manager will change the index they follow. But they have to notify fundholders who may then choose to switch.

Or more rarely an index provider will change the rules for their index. An example might be a country moving from "emerging" status to "developed" status.

In general the broader an index, the less likely that changes are and so the lower the turnover with resultant costs. A fund following an all-share index in theory would never have to re-weight. There would be no promotions or relegations. In ETF form there would be no buying or selling due to cashflows in and out of the fund. And only corporate actions would trigger a rebalancing.

Conversely the narrower and more customised an index is, the more you are exposed to the whims of that fund and its manager.

Urbandreamer wrote:

Dod101 wrote:I am not sure what this discussion is about, ...

Dod

Well my intention was that people be aware that they may not be investing in what they think that they are investing in.

If, as one poster has remarked, performance is similar and you don't care once you have established the facts, then good for you.
If you don't know, well I'd like you to either find out or decide in advance that you don't care.

What I would be unhappy about is people believing that they are investing in a certain way, when in fact they are not.

Statements have been made on this thread that I'm sure are believed to be true, that are in fact not true.

An index is just that. It doesn't HAVE to be weighted to the large cap companies. That is simply the method used to produce a lot of them, there are small cap indices and thematic indices.
An index can exclude certain parts of the market, as I pointed out in my first post. Claiming otherwise doesn't change the facts as they exist.
There are many who provide such indices, Morning Star is just one provider. This link introduces you to the range that they provide.
https://indexes.morningstar.com/indexes/screener

My issue is that the names of my Aviva investments, I.E UK equity index tracker have not changed, but what they track HAS. They are now excluding things that they previously did not. I'm also less than happy with their exclusion choices.

As I said though, it won't affect me for long as I shall be consolidating my DC schemes into my SIPP.

Thanks for that clarification. I can only agree with you but as I am not into passive investing it does not really affect me. I disagree with those fund managers and indeed companies that have embraced ESG sometimes to the detriment of their performance. I believe all companies should attempt to be good citizens but not at the cost of failing in their primary duty which is fiduciary care to their shareholders. Tampering with the constituents of indices is just another example of that.

Dod

baldchap wrote:I would agree that anything with ESG applied is not truly passive. Mind you the same could be said for 'dividend' and 'quality' ETFs.

Personally I am not a fan of anything labelled ESG, or Trust managers who treat it like a new religion.

Interestingly the LG ESG dividend ETF (LDUK) has a defence company and miner in its top 10, but no tobacco or oil.
Make of that what you will.

Your post inspired me to share my thoughts on the points you raised..

Generally passive ETFs are not really passive as the indices tend to have rules and committees to make judgements who decide which companies are included in the index (see S&P500, S&P600 as two good examples). Whereas passive purists often represent passive investing as "buying the market". So in a way I am sympathetic to thinking of ESG as being just another twist on the "quality filters" and "governing bodies" that run other indices. It could be argued that ESG goes a bit further but it's debateable and certainly not black and white. Reality is as ever complex. Personally I wish S&P600 actually applied their profitability filter more rigorously and their judgement a bit less but that's me wanting to be the index's manager.

I have problems with ESG as reality is complex. Try making solar panels without mining (this may be possible at some point but currently isn't). Who wants to live in a country without only outdated rusting weapons for defence facing a foe with a well funded arms industry? Defence is a necessary evil in my eye. Now Tobacco may be okay for some but I loath it and whilst I consume alcohol I think the morality of the industry is dubious. SO, I conclude there is no ESG that matches my beliefs and I think ESG harms UK industry that we need to build a safer and better world.

Lootman wrote:In my opinion the best way to think about an index is that it is a set of rules. The constituents and weights within that index will change all the time, for a variety of reasons. But the rules should stay the same so that as long as you like the rules, then you should be happy.

.

Very well expressed. Selecting a weighting method is just one of the rules.