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World Equity Index tracking funds
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- Lemon Quarter
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Re: World Equity Index tracking funds
Thanks for the replies,
We ended up purchasing 2.5k in the Fidelity World Index Accumulation class P fund. This was done via our IWeb stocks and shares ISA. We hadn't really given the FX angle to this style of investment any thought, to be honest. So fingers crossed things will even out over time.
Matt and Mel
We ended up purchasing 2.5k in the Fidelity World Index Accumulation class P fund. This was done via our IWeb stocks and shares ISA. We hadn't really given the FX angle to this style of investment any thought, to be honest. So fingers crossed things will even out over time.
Matt and Mel
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- Lemon Quarter
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Re: World Equity Index tracking funds
The past performance of FRCL, or any other fund, is in the past, it tells us nothing about the future performance. Funds that did well in the past have no better chance of doing well in the future than funds that did badly. iWeb charges £5 per trade. Stamp duty is unavoidable for FRCL. You do not have to pay stamp duty on ETF or OEIC purchases though. All three types of fund pay stamp duty on purchases within the fund.
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- Lemon Pip
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Re: World Equity Index tracking funds
I am surprised how close VWRL & IUSA followed each other, unlike FRCL; the graph is for total return
https://tinyurl.com/ychsbyvv
######## Graph Legend ########
No Epic Colour ColourCode
0 EVWRL Blue 1a83f6
1 EIUSA Green 437c17
2 EFRCL Maroon 7d0552
Could be due to high weighting of us stocks in vwrl or world markets becoming synchronised? Where are the bear markets?
https://tinyurl.com/ychsbyvv
######## Graph Legend ########
No Epic Colour ColourCode
0 EVWRL Blue 1a83f6
1 EIUSA Green 437c17
2 EFRCL Maroon 7d0552
Could be due to high weighting of us stocks in vwrl or world markets becoming synchronised? Where are the bear markets?
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- Lemon Half
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Re: World Equity Index tracking funds
GeoffF100 wrote: Funds that did well in the past have no better chance of doing well in the future than funds that did badly.
That's a traditional piece of wisdom which doesn't always stack up against present realities. In the case of trackers, those that follow an index are going to do almost equally as well or badly as one another, or the index they follow. Past performance will show you how well they have tracked in the past which is a function of whether they go for full replication or sampling. With more stocks to buy, full replication could be more expensive, if potentially more accurate in tracking.
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- Lemon Quarter
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Re: World Equity Index tracking funds
Alaric wrote:GeoffF100 wrote: Funds that did well in the past have no better chance of doing well in the future than funds that did badly.
That's a traditional piece of wisdom which doesn't always stack up against present realities. In the case of trackers, those that follow an index are going to do almost equally as well or badly as one another, or the index they follow. Past performance will show you how well they have tracked in the past which is a function of whether they go for full replication or sampling. With more stocks to buy, full replication could be more expensive, if potentially more accurate in tracking.
I was not very explicit there. "Doing well" here is doing well in risk adjusted terms before costs. Trackers are always average on that basis. They never do well or badly, before costs. (There are bad trackers, but we try to avoid them.) My statement is not just a traditional piece of wisdom, there is a lot of research backing it up, and nothing credible that contradicts it.
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- Lemon Slice
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Re: World Equity Index tracking funds
Stanley117 wrote:LooseCannon101 wrote:I have been investing in Foreign and Colonial Investment Trust (ticker - FRCL) for the past 20 years and would thoroughly recommend this to someone like you who needs an uncomplicated investment strategy. FRCL has delivered 9% per annum on average over the past 20 years. The phrase 'on average' must be understood as the ride is far from smooth. It feels like a big dipper at times!
How does the total return from FRCL compare to a cheap world index tracker or Vanguard VWRL etf ?
To invest a lump sum would cost 0.2% Dealing plus stamp duty. I assume this would be cheaper on a platform like iWeb ?
http://www.fandc.com/document/fund-mana ... sentation/
The above link (page 11) gives the relative performance of Foreign and Colonial Investment Trust - Total Return against it's benchmark (MSCI World Equity Index) over the past 5 years. There was only one year (2016) when it failed to reach the benchmark. The rest of the presentation is worth reading as well.
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- Lemon Quarter
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Re: World Equity Index tracking funds
The last 5-10 years has been a great time for taking risks as risk taking has (mostly) been handsomely rewarded. FRCL is a geared investment (they borrow money to invest in shares). Anyone using gearing over the last 10 years should have done very well, but if you look at the 10 year NAV (Net Asset Value) performance of F&C you will find that it has underperformed the AIC benchmark FTSE World Index by 11.9%. Given the fact that this is a geared investment I would say that was a very poor result if you consider what the market is up 150% over 10 years and borrowing costs have been very low. However, the share price return has outperformed the benchmark by 19.8%. How is that possible? It is possible because F&C has been running at a discount to NAV for those 10 years, which boosts returns, and over the last 2-3 years has seen that discount sharply diminish, which boosts returns even more.
From this point, with only a small discount, F&C are much less likely to reap any discount benefit, although it could happen if the discount goes to a premium. IMHO, the risk is now much more to the downside - stock market falls, gearing increases losses and the discount widens. To see what can go wrong look back to the last crisis. Between the end of September 2007 and end February 2008, the F&C share price dropped by 41%. During that same period, the World Index dropped by 31%. Investing in Global ITs such as F&C can work really well, but I would only do it if I could buy at a significant (at least 10%) discount. Even in that case I would be wary of any that used gearing right now.
To illustrate GeoffF100's point about past returns not being predictive of future returns, it is worthwhile looking at the Global ITs that had the best 10 year performance 10 years ago. These were British Empire, RIT Capital Partners and Caledonia. Over the last 10 years all of these ITs have significantly underperformed the World Index.
In general buying an actively managed fund that sets out to beat the World Index, or whatever, means taking on additional risk. The risk may result in better or worse performance than the benchmark. Some people like taking the additional risk as there is no way to beat the benchmark if you do not take this "fund management" risk. Increasingly though I am not taking this risk. The reason is that the expected return for taking on the additional risk is negative. The jargon here is that the additional risk is "Uncompensated" risk. The reason the risk is uncompensated is the overwhelming evidence that the vast majority of actively managed funds underperform their benchmarks over the long term and the likelihood of picking funds that do beat their benchmarks over the long term is very small.
From this point, with only a small discount, F&C are much less likely to reap any discount benefit, although it could happen if the discount goes to a premium. IMHO, the risk is now much more to the downside - stock market falls, gearing increases losses and the discount widens. To see what can go wrong look back to the last crisis. Between the end of September 2007 and end February 2008, the F&C share price dropped by 41%. During that same period, the World Index dropped by 31%. Investing in Global ITs such as F&C can work really well, but I would only do it if I could buy at a significant (at least 10%) discount. Even in that case I would be wary of any that used gearing right now.
To illustrate GeoffF100's point about past returns not being predictive of future returns, it is worthwhile looking at the Global ITs that had the best 10 year performance 10 years ago. These were British Empire, RIT Capital Partners and Caledonia. Over the last 10 years all of these ITs have significantly underperformed the World Index.
In general buying an actively managed fund that sets out to beat the World Index, or whatever, means taking on additional risk. The risk may result in better or worse performance than the benchmark. Some people like taking the additional risk as there is no way to beat the benchmark if you do not take this "fund management" risk. Increasingly though I am not taking this risk. The reason is that the expected return for taking on the additional risk is negative. The jargon here is that the additional risk is "Uncompensated" risk. The reason the risk is uncompensated is the overwhelming evidence that the vast majority of actively managed funds underperform their benchmarks over the long term and the likelihood of picking funds that do beat their benchmarks over the long term is very small.
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- Lemon Quarter
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Re: World Equity Index tracking funds
hiriskpaul wrote:In general buying an actively managed fund that sets out to beat the World Index, or whatever, means taking on additional risk. The risk may result in better or worse performance than the benchmark. Some people like taking the additional risk as there is no way to beat the benchmark if you do not take this "fund management" risk. Increasingly though I am not taking this risk. The reason is that the expected return for taking on the additional risk is negative. The jargon here is that the additional risk is "Uncompensated" risk. The reason the risk is uncompensated is the overwhelming evidence that the vast majority of actively managed funds underperform their benchmarks over the long term and the likelihood of picking funds that do beat their benchmarks over the long term is very small.
Mel and I were under impression that Fidelity Word Index funds, are "passive" i.e. not actively managed, as they merely track an index, which a computer algorithm and a data set should be able to perform.
Sorry, as you all know, we are newbies, only just getting used to a lot of the terminology.
But is my above assumption correct? That is, a straight index tracker, is passive?
Matt
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- Lemon Half
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Re: World Equity Index tracking funds
You are correct Mel. The post by hiriskpaul that has caused you doubt is I think prompted by another post by loosecannon that is suggesting you consider Foreign and Colonial Investment Trust, which is not a passive tracker. It is a complicated world out there.
regards, dspp
regards, dspp
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- Lemon Quarter
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Re: World Equity Index tracking funds
dspp wrote:You are correct Mel. The post by hiriskpaul that has caused you doubt is I think prompted by another post by loosecannon that is suggesting you consider Foreign and Colonial Investment Trust, which is not a passive tracker. It is a complicated world out there.
regards, dspp
Thank you!
You're right about the "complicated" bit. ETFs, OEICs, passive/active etc. We choose this fund as it gives us some Global Equity exposure, and is cheap as funds go.
Matt (Mel's husband )
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- Lemon Quarter
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Re: World Equity Index tracking funds
It can be confusing and the terms don't help. "Passive" to me implies lack of trading activity, but some so called passive funds, such as momentum ETFS, trade more than some active funds do. I think words such as systematic and mechanistic better describe what is going on with a passive fund.
In passive funds the investing is indeed done by following a set of rules with very little judgement applied by human beings to either improve returns or make them worse. Arguably the simplest passive fund is one that delivers market returns, following a strategy usually called capitalisation weighting, but I think "market weighted" would be a better description. In this system a fund sets out to hold the same proportion of shares in each company in the index. So a World tracker big enough to hold 1% by value of the world stock market would hold 1% of the shares in each company. So 1% Apple, 1% BP, 1% Samsung, 1% Greggs , etc. Of course 1% of Apple shares is worth considerably more than 1% of Greggs, which is where the "capitalisation weighted" nomenclature comes from. The system is very simple and scalable. It also requires very little trading. Trading is still needed as the number of shares in each company changes over time, new companies join the market and others leave it via takeovers, but trading and the associated costs are kept low. I think Vanguard quote something like 0.01% or under trading costs for most of their tracker funds.
Fidelity World is a cap weighted tracker and as crazy as it may seem, the simple systematic approach it follows results in long term returns that are greater than the vast majority of actively managed funds and quite probably better than many other so called passive funds that end up doing a lot of trading.
If you are content with better results than the majority of other investors who buy into actively managed funds, buy a low cost cap weighted tracker, such as Fidelity World. If you want to try and beat the market, by all means have a go. The odds are against you succeeding, but it is vital for proper pricing that enough people put money into active funds. As an increasingly passive investor, it is beneficial to me that there are sufficient people around who try to beat the market.
In passive funds the investing is indeed done by following a set of rules with very little judgement applied by human beings to either improve returns or make them worse. Arguably the simplest passive fund is one that delivers market returns, following a strategy usually called capitalisation weighting, but I think "market weighted" would be a better description. In this system a fund sets out to hold the same proportion of shares in each company in the index. So a World tracker big enough to hold 1% by value of the world stock market would hold 1% of the shares in each company. So 1% Apple, 1% BP, 1% Samsung, 1% Greggs , etc. Of course 1% of Apple shares is worth considerably more than 1% of Greggs, which is where the "capitalisation weighted" nomenclature comes from. The system is very simple and scalable. It also requires very little trading. Trading is still needed as the number of shares in each company changes over time, new companies join the market and others leave it via takeovers, but trading and the associated costs are kept low. I think Vanguard quote something like 0.01% or under trading costs for most of their tracker funds.
Fidelity World is a cap weighted tracker and as crazy as it may seem, the simple systematic approach it follows results in long term returns that are greater than the vast majority of actively managed funds and quite probably better than many other so called passive funds that end up doing a lot of trading.
If you are content with better results than the majority of other investors who buy into actively managed funds, buy a low cost cap weighted tracker, such as Fidelity World. If you want to try and beat the market, by all means have a go. The odds are against you succeeding, but it is vital for proper pricing that enough people put money into active funds. As an increasingly passive investor, it is beneficial to me that there are sufficient people around who try to beat the market.
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- Lemon Quarter
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Re: World Equity Index tracking funds
hiriskpaul wrote:It can be confusing and the terms don't help. "Passive" to me implies lack of trading activity, but some so called passive funds, such as momentum ETFS, trade more than some active funds do. I think words such as systematic and mechanistic better describe what is going on with a passive fund.
...
If you are content with better results than the majority of other investors who buy into actively managed funds, buy a low cost cap weighted tracker, such as Fidelity World. If you want to try and beat the market, by all means have a go. The odds are against you succeeding, but it is vital for proper pricing that enough people put money into active funds. As an increasingly passive investor, it is beneficial to me that there are sufficient people around who try to beat the market.
Thanks for this, Paul, all makes sense. It's very early days for Mel and I, so we are more than happy to take this fairly passive approach, in some of dabbling in equity. FWIW we have about 20-25% in this FWI accumulating fund now, and the remainder in a few UK FTSE firms of varying levels of capitalisation.
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- Lemon Pip
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Re: World Equity Index tracking funds
Completely off topic and not meant in any way to confuse or influence the O.P., but merely in comment on loosecannon101's post 134548 above, Foreign & Colonial was also my introduction to collective investing.
At a time when buying shares (including FRCL) through a stockbroker cost anywhere north of 1.5%, the standard initial charge on buying unit trusts (now known as O.E.I.C.S.) was 5% and in the pre-internet age when index funds were just something that I had only read about in Burton Malkiel's "A Random Walk Down Wall Street", F&C's introduction of the first truly low cost share purchase scheme was a breath of fresh air and pre-empted the move to low cost investing in this country.
My F&C shares have long since been transferred into a low cost ISA and there they remain. But now every time hiriskpaul posts one of his erudite and persuasive essays my conviction is temporarily challenged, my finger momentarily hovers over the sell button, but some how I can't commit to killing off the old dog. The robots would not approve.
p.s. Peter Spiller of Capital Gearing Trust (CGT), historically the arch exponent of trading discounted investment trusts and who can claim to defeat the indexes, still seems to find room for FRCL in his portfolio. I await next months CGT annual report to see exactly where.
http://www.capitalgearingtrust.com/~/me ... 202018.pdf
At a time when buying shares (including FRCL) through a stockbroker cost anywhere north of 1.5%, the standard initial charge on buying unit trusts (now known as O.E.I.C.S.) was 5% and in the pre-internet age when index funds were just something that I had only read about in Burton Malkiel's "A Random Walk Down Wall Street", F&C's introduction of the first truly low cost share purchase scheme was a breath of fresh air and pre-empted the move to low cost investing in this country.
My F&C shares have long since been transferred into a low cost ISA and there they remain. But now every time hiriskpaul posts one of his erudite and persuasive essays my conviction is temporarily challenged, my finger momentarily hovers over the sell button, but some how I can't commit to killing off the old dog. The robots would not approve.
p.s. Peter Spiller of Capital Gearing Trust (CGT), historically the arch exponent of trading discounted investment trusts and who can claim to defeat the indexes, still seems to find room for FRCL in his portfolio. I await next months CGT annual report to see exactly where.
http://www.capitalgearingtrust.com/~/me ... 202018.pdf
Re: World Equity Index tracking funds
Hi LittleDorrit
Don’t succumb!
I started years ago with with profit including Eq Life- moved to Inv Trusts and then discovered John Bogle,Burtom Malkiel etc
Been totally indexed for 18 years now -never looked back-Portfolio done well through some serious ups and downs-let’s me sleep at night!
There is no way back for Indexers(never say never!)
Enjoy the vicarious thrill of this Investment going up and this one collapsing and leave it at that!
xxd09
Don’t succumb!
I started years ago with with profit including Eq Life- moved to Inv Trusts and then discovered John Bogle,Burtom Malkiel etc
Been totally indexed for 18 years now -never looked back-Portfolio done well through some serious ups and downs-let’s me sleep at night!
There is no way back for Indexers(never say never!)
Enjoy the vicarious thrill of this Investment going up and this one collapsing and leave it at that!
xxd09
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- Lemon Quarter
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Re: World Equity Index tracking funds
Reading an article in Saturday's FT Money by Terry Smith of Fundsmith which concluded with the advice that unless you are confident you can pick the few stocks which outperform (as most of the index do rather badly) you would do better to buy the index and another by Ian Cowie in the Sunday Times which said it was a big mistake to concentrate on UK shares as American markets account for 54% of world markets, while UK shares account for only 6% and now might be a good time to buy US shares, reminded me that I had downloaded the following article ages ago and never got round to digesting: http://monevator.com/why-a-total-world- ... -you-need/. Having read it again, a global index fund does sound rather tempting: I could tell my sprogs to drip feed into that and let them get on with it while I got on with my life. It would presumably offset any Brexit related drops in the UK market as well. Is the Fidelity World Index Fund (mentioned in this thread) the one to go for or does anyone know of anything better? And as well as drip feeding future deposits, would it be a good or bad idea to put an extra large sum (accumulated uninvested cash in ISAs and SIPPs) into such a fund at this moment?
I must check to see what the FWIF has done since April compared with my own p/f performance which has not been great. I wonder how the experts on here have fared, not that movements in such a short period have much significance. I'll need to go back over a longer period.
I must check to see what the FWIF has done since April compared with my own p/f performance which has not been great. I wonder how the experts on here have fared, not that movements in such a short period have much significance. I'll need to go back over a longer period.
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- Lemon Slice
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Re: World Equity Index tracking funds
I don't know about better but if you want to avoid funds and prefer ETFs (i.e. HL customers) then SWDA may fit the bill. I have recently put a chunk of my ISA in this as I am not confident I can pick a better place for this money at the moment.
http://www.morningstar.co.uk/uk/etf/sna ... 0P0000LZZD
http://www.morningstar.co.uk/uk/etf/sna ... 0P0000LZZD
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- Lemon Quarter
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Re: World Equity Index tracking funds
Thanks. I don't know anything about ETFs. My accounts are with Iweb and Interactive Investor and I don't think they charge extra for funds but will check.
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- Lemon Half
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Re: World Equity Index tracking funds
MaraMan wrote:I don't know about better but if you want to avoid funds and prefer ETFs (i.e. HL customers) then SWDA may fit the bill. I have recently put a chunk of my ISA in this as I am not confident I can pick a better place for this money at the moment.
http://www.morningstar.co.uk/uk/etf/sna ... 0P0000LZZD
Any reason why SWDA and not IWDG which is the hedged version? OK, your are paying a 0.1% premium (0.3% versus 0.2%) for the currency hedging. What's the view on risk from exchange rate movement with our current weak pound?
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- Lemon Slice
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Re: World Equity Index tracking funds
I share your concern and maybe I should have chosen IWDG, in this environment one could make a case for the pound rising, falling or remaining where it is. Who knows? Trackers are for those of us who don't believe they know better than the market, same goes for those who seek to hedge currency movements. I think the hedges try to reduce the exposure to currency fluctuation, not remove it, but at some cost. I suppose my feeling is that in the long term it will smooth itself out.
This is an interesting read http://monevator.com/how-hedging-your-s ... t-returns/
This is an interesting read http://monevator.com/how-hedging-your-s ... t-returns/
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- Lemon Slice
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Re: World Equity Index tracking funds
Regarding hedged indexes.
I'd be cautious in assuming that the hedging is as cheap as you think, or as effective as you might believe.
iShares have a link (regret I'm off out now and can't locate it instantly) which gives details on this and its much more complicated than you might expect....
I'd be cautious in assuming that the hedging is as cheap as you think, or as effective as you might believe.
iShares have a link (regret I'm off out now and can't locate it instantly) which gives details on this and its much more complicated than you might expect....
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