Mutual fund vs etf - FTSE AllWorld index

[xxd09]

Forrado- great to hear from you again or have I been missing your posts?
I followed your many posts on Investment Trusts and retirement -abroad?-with great interest back in those far off days of Motley Fool
I too dabbled with investment trusts after with profit insurance companies
However I discovered John Bogle and indexing long ago and never looked back
Only Funds were available then so that’s what I have-not going to change to ETF equivalents now-too much hassle and not a trader anyway-I sell a chunk of units once or twice a year only for living expenses
I run a 2 fund portfolio only
Vanguard Global Equity Index Fund accumulation and a Vanguard Global Bond Index Fund hedged to the Pound-that’s it
Now 73-17 years retired and a portfolio of 30/65/5- equity/bonds/cash-does it for me-0.27 % running costs
Sat through 2000,2008 and now this one-portfolio currently down 2.6% from January highs
Looks like we both discovered the same Kool Aid -you a bit later than me
xxd09

[WAC786]

I spent ages looking for a cheap all world ETF and I found LCWL by Lyxor. TER is 0.12% and it is accumulating. The investment in China, South Africa, Argentina, Chile and Zambia (random?!) is pretty small though.

They also have a UK ETF LCUK, which is distributing but only charges 0.04%!!!!

[GeoffF100]

I spent ages looking for a cheap all world ETF and I found LCWL by Lyxor. TER is 0.12% and it is accumulating. The investment in China, South Africa, Argentina, Chile and Zambia (random?!) is pretty small though.

They also have a UK ETF LCUK, which is distributing but only charges 0.04%!!!!

Here are the potential problems with Lyxor:

https://monevator.com/lyxor-core-etfs-v ... -wrinkles/

[Hariseldon58]

I had a Lyxor ETF suddenly close on me !! Quite annoying...

I have noticed in the past that some ETFs have a low ocf but when you compare performance with a larger ETF from a bigger provider, despite a higher OCF the performance is markedly better.

Personally I’d stick to Vanguard, iShares or State Street.

[WAC786]

I spent ages looking for a cheap all world ETF and I found LCWL by Lyxor. TER is 0.12% and it is accumulating. The investment in China, South Africa, Argentina, Chile and Zambia (random?!) is pretty small though.

They also have a UK ETF LCUK, which is distributing but only charges 0.04%!!!!

Here are the potential problems with Lyxor:

Ah thank you for this - I didn't realise the 30% tax withholding situation from US was different for Irish domiciled funds! I shall keep LCUK but will certainly switch out of LCWL (dont have much in there anyway).

I am not approved to post links so had to remove it from your post GeoffF100.

[1nvest]

• When an active manager is tempted to take profits, the index holds on. Academic research shows us that much of the extra value holding shares can bring comes from holding just a few big time winners.

A risk with holding the few/single share(s) that do well is that sooner or later that stock might falter, and in having outperformed others massively has become excessively (heavily) weighted - such that its decline/failure disproportionately weighs down the whole portfolio. Index funds typically strive to reduce that risk be restricting any one stock from being more than 10% of the whole index value. But even then individual sectors can become over-weighted. Think dot com stocks pre 2000 dot com bubble bursting, financials pre 2008 financial crisis.

The nature of gains are indeed that its the few that uplifts the whole. Plot individual holdings left to right worst to best and generally the right tail best case outcome(s) counter and more the left tail worst case outcome(s). The average of all tending to be less than the average of the whole (most stocks/holdings relatively under-perform the average). That pattern is generally fractal, applies at monthly/yearly/decade type measures.

Inspect the yearly data from here (US data) https://tinyurl.com/ya3ry45e Click the Annual Returns link and then for each year determine the best of the two assets, and the worst. Then measure the average all of the yearly best asset, and measure the average of the yearly worst asset. You'll see figures of (rounding) +24% and -2%. Now as you don't know which will be the years best/worst in advance, 50/50 weighting both will yield the average of those outcomes, +11%. But that was like holding one asset that gained +24%/year and another asset that lost -2%/year right and left tails. As though one were a ten-bagger (increased 10 fold) over a 11 year holding period, but where the risk exposure to that each/every year was around 50% rather than risk exposure having increased to perhaps 99%.

A problem with indexes is that they are sold by the worlds largest sector (financials) who make massive amount of profits (you only have to look at their buildings and building locations, amounts of pay etc. to see that). They're experts at extracting value, including from the likes of you and me investing in funds. Stocks will be sold on the basis of them having been great choices for investors in the past. But consider that Indexes that are used to present 'historic average' outcomes are just mechanical investment methods that have evolved over time and where the best case survivors have become the reference points. Dow and Jones for instance devised multiple indexes (Utilities, Transport, Industrial averages) and they transformed over time to the best case single index (Dow Jones Industrial Average). Similarly the US market was a right tail market, one of the best outcomes, others endured far worse outcomes. Additionally factor in costs, spreads, fees, taxes ..etc. and forward time actual rewards for investors are on average lower than what is sold as historic past performance/rewards.

All world will tend to be more middle road, but that will add in elements of drag - such as currency conversion spreads/costs, dividend withholding taxes ...etc. Potentially with multiple layers of those costs (for instance a stock that has international business activities that is listed/domiciled in one country may already have paid withholding taxes and currency conversion costs on some of its earnings, and then you pay taxes/costs again when it pays dividends to you).

Many firms are now international. Where they list is then somewhat irrelevant. You don't need to buy the entire haystack to ensure you capture that one great left tail best case outcome, as the more you spread money around the less benefit that great case becomes relative to the whole. 0.1% invested in a single case (assuming equal weighted holdings of 1000 stocks) that gains 500% generates the same as 1% invested (assuming 100 stocks held) in a single case that gains 50%

[JohnW]

Index funds typically strive to reduce that risk be restricting any one stock from being more than 10% of the whole index value.

That's new to me. Can you point to one or two index funds that do that, or even a reputable index that does that?

[WAC786]

I am hoping this isn't too much of a divergence form the original post but having thought about LCWL and its domicile. Aftering having carried out quite abit of research am thinking along the lines of following accumulating ETFs to cover majority of the globe:

UK: LCUK, TER= 0.04%
USA: CSPX, TER = 0.07%
Europe Ex UK: VERG, TER = 0.10%
Japan: LGJG, TER = 0.10%
Emerging markets: EIMI, TER = 0.18%

Cheaper with more control but potentially more effort! Thoughts appreciated.

[Hariseldon58]

You might be better off with CSP1 rather than CSPX ( UK version denominated in £) same underlying fund.

There comes a point where the odd basis point or two on costs is pretty irrelevant, the tracking error is likely to be more significant.

[WAC786]

Good point thanks for letting me know.