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Beating the World Index

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
bobsmydog
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Beating the World Index

#154364

Postby bobsmydog » July 23rd, 2018, 12:57 pm

So, here's the thing: I am struggling lately to beat the FTSE all world total return index over year to date and 1 year. :(

My portfolio:
Total return 1 year 0.6 lower than all world
Total return year to date 0.7 lower than all world
Total return 2 years 5.6 higher than all world.

I am considering moving over to ishares Global Factor ETFs (which on past performance outperform the parent index) as core portfolio holdings with some specialist ETFs as satellites as and when, for a bit of spice.

This would be much simpler to keep an eye on, than the 48 rag bag of investments I currently own: the old grey matter is starting to shrink.

Daft idea or cunnng plan?

tjh290633
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Re: Beating the World Index

#154429

Postby tjh290633 » July 23rd, 2018, 3:36 pm

Apologies if you have posted it already, but what are your present investments?

TJH

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Re: Beating the World Index

#154499

Postby TUK020 » July 23rd, 2018, 6:41 pm

And sorry if this sounds like a dumb question, but in what currency do you want to do so?

hiriskpaul
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Re: Beating the World Index

#154521

Postby hiriskpaul » July 23rd, 2018, 8:54 pm

Two suggestions:

1. World small caps

2.World index with 10% gearing.

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Re: Beating the World Index

#154582

Postby bobsmydog » July 24th, 2018, 8:00 am

tjh290633 wrote:Apologies if you have posted it already, but what are your present investments?

TJH

Mixed: 70% equities, 20% fixed income, 10% property

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Re: Beating the World Index

#154583

Postby bobsmydog » July 24th, 2018, 8:01 am

TUK020 wrote:And sorry if this sounds like a dumb question, but in what currency do you want to do so?


Sterling

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Re: Beating the World Index

#154586

Postby ADrunkenMarcus » July 24th, 2018, 8:07 am

bobsmydog wrote:So, here's the thing: I am struggling lately to beat the FTSE all world total return index over year to date and 1 year. :(


I imagine the same happens to the very best investors. However, isn't a year too short a period to worry about? The long-term comparison is key. If you achieve, for example, a total return CAGR of 9% compared to an index's 8.5% then that difference will become pronounced over time as compounding works its magic. And it could well be that for some years you do much worse than the index.

Best wishes

Mark.

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Re: Beating the World Index

#154611

Postby bobsmydog » July 24th, 2018, 10:04 am

ADrunkenMarcus wrote:
bobsmydog wrote:So, here's the thing: I am struggling lately to beat the FTSE all world total return index over year to date and 1 year. :(


I imagine the same happens to the very best investors. However, isn't a year too short a period to worry about? The long-term comparison is key. If you achieve, for example, a total return CAGR of 9% compared to an index's 8.5% then that difference will become pronounced over time as compounding works its magic. And it could well be that for some years you do much worse than the index.

Best wishes

Mark.


Yes very true, but quite a lot of work has gone into this lack lustre performance so I am now wondering whether it is worth the effort.
Maybe I can get the same returns in the future by plonking everything into global ETFs (as the older I get the muddled I get).

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Re: Beating the World Index

#154613

Postby tjh290633 » July 24th, 2018, 10:07 am

bobsmydog wrote:
tjh290633 wrote:Apologies if you have posted it already, but what are your present investments?

TJH

Mixed: 70% equities, 20% fixed income, 10% property

And what form do they take? Equities, ITs, funds?

Why do you think that switching to ETFs will improve things?

TJH

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Re: Beating the World Index

#154619

Postby Wmnr » July 24th, 2018, 10:34 am

I'm assuming you comparing your entire portfolio against a global equity index. If your portfolio is like mine then fixed interest investments have done poorly with the threat of increased interest rates.

Perhaps just comparing the equity part of your portfolio against a global equity tracker might be better.

Also, the US has had a far stronger equity market compared to everything else recently, so the higher your US exposure, the better you will have done. I think most global trackers will be 50% US exposure but I bet your portfolio is less than that.

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Re: Beating the World Index

#154620

Postby colin » July 24th, 2018, 10:38 am

Seems like to beat the World index these days you only need to buy one of these new Factor Funds ETFs as discussed here https://www.lemonfool.co.uk/viewtopic.php?f=55&t=11351
why not improve your chances and just buy them all?

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Re: Beating the World Index

#154647

Postby JohnB » July 24th, 2018, 11:36 am

Erm, doesn't investing in a basket of factor funds mean you get the index fund, just at higher cost?

If the OP thinks he has an 'edge' to beat the index funds, then finding a factor fund that matches that edge will save a lot of effort, which sounds a good idea it its becoming a chore.

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Re: Beating the World Index

#154653

Postby bobsmydog » July 24th, 2018, 11:57 am

tjh290633 wrote:
bobsmydog wrote:
tjh290633 wrote:Apologies if you have posted it already, but what are your present investments?

TJH

Mixed: 70% equities, 20% fixed income, 10% property

And what form do they take? Equities, ITs, funds?

Why do you think that switching to ETFs will improve things?

TJH

Funds, ETFs and REITs

bobsmydog
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Re: Beating the World Index

#154656

Postby bobsmydog » July 24th, 2018, 12:05 pm

Wmnr wrote:I'm assuming you comparing your entire portfolio against a global equity index. If your portfolio is like mine then fixed interest investments have done poorly with the threat of increased interest rates.

Perhaps just comparing the equity part of your portfolio against a global equity tracker might be better.

Also, the US has had a far stronger equity market compared to everything else recently, so the higher your US exposure, the better you will have done. I think most global trackers will be 50% US exposure but I bet your portfolio is less than that.


Yes I am comparing whole portfolio which has taken a hit from fixed interest.

I suppose what I am wondering is whether a global ETF approach would offer just as good a risk/reward as a mixed portfolio. (Coupled with a bit of moving in and out of cash as and when.)

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Re: Beating the World Index

#154678

Postby xeny » July 24th, 2018, 12:49 pm

bobsmydog wrote:
Yes I am comparing whole portfolio which has taken a hit from fixed interest.


The fixed interest is presumably there to remove volatility from the portfolio and the acknowledged cost of that is worse average performance.

Wouldn't it make more sense to benchmark the performance of the equity part of the portfolio with the world index, and accept that if you want the insurance of carrying some fixed interest then you've got to pay for it in the form of a drag on whole portfolio returns?

It seems almost as if you're grumbling that your portfolio (which is lower risk which implies an expectation of lower return) is offering lower returns than a 100% equity portfolio?

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Re: Beating the World Index

#154690

Postby hiriskpaul » July 24th, 2018, 1:21 pm

JohnB wrote:Erm, doesn't investing in a basket of factor funds mean you get the index fund, just at higher cost?

No, they don't aggregate that way.

Factor investing assumes historical ways of investing will continue to have an edge over the market. They might, but I suspect that if factor investing becomes too popular it will simply destroy any long term factor premium. A problem with factor investing is that it does cost more than simple whole of market trackers, both in fees and internal transaction charges, so the factor funds have to cover those extra costs before being able to beat the market funds.

Another problem is that although factor investing does appear to have beaten the market in the long term, it does not necessarily do that over the short term. As an example, minimum volatility is supposed to beat the market over the long term, but I have been invested in USMV (ishares US min vol ETF) since 2012, but that has underperformed the S&P since purchase. Even US small caps have underperformed the S&P 500 over the last 5 years (but not over 10).

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Re: Beating the World Index

#154693

Postby hiriskpaul » July 24th, 2018, 1:27 pm

xeny wrote:
bobsmydog wrote:
Yes I am comparing whole portfolio which has taken a hit from fixed interest.


The fixed interest is presumably there to remove volatility from the portfolio and the acknowledged cost of that is worse average performance.

Wouldn't it make more sense to benchmark the performance of the equity part of the portfolio with the world index, and accept that if you want the insurance of carrying some fixed interest then you've got to pay for it in the form of a drag on whole portfolio returns?

It seems almost as if you're grumbling that your portfolio (which is lower risk which implies an expectation of lower return) is offering lower returns than a 100% equity portfolio?

The equity part of the portfolio is not necessarily the same risk as a world equity index, but I agree it would make more sense to benchmark separately.

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Re: Beating the World Index

#154877

Postby bobsmydog » July 25th, 2018, 9:06 am

Thanks everyone for your thoughts.

You are so right - I was comparing apples with oranges so have since compared my portfolio with Vanguard life strategy 80% and am doing rather well now :D I guess this is because my equity part is generally on the high risk/return side.

Still tempted to move towards a simpler approach, and so progressing those thoughts:

Interesting to see risk profile of Vanguard 80% equity is level 4 which is the same as Vanguard Global Momentum factor with quite different returns but that thought is for another day, another thread I guess.


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