US Economy

[Oggy]

Yes - largely agree with previous 3 posts. I too limit UK to about 4% as per my global funds and I don't see the UK economy going anywhere anyways. My concern is that I am about 80% in the US. No bad thing for growth, not great for diversity/risk perhaps. Hence I am looking around for a global fund with less US bias than the usual 60/70 odd percent or else a global fund ex US which has decent growth. Tricky.....

The trouble is, investing in UK companies is not the same as investing in the UK economy. There seems to be a lot of recency bias going on in the PI world and I have read comments elsewhere of people talking about dumping their UK holdings and investing everything in the US. Nothing screams over extended bull run more to me and they are simply momentum investing. Now, I have a lot of time for momentum investing (don't sell your winners etc.) but it makes no sense to me in buying with total disregard to valuation. I agree that everyone should have significant exposure to the best US stocks but I cannot bring myself to buy the whole market. No doubt, the S&P 500 has some world leading companies across a number of sectors, but it still leaves you with ~30% exposure to financials, consumer discretionary, energy and material sectors that I do not want any exposure to. The situation is even worse if you go the equal weighted S&P500 root.

Understood. So where/what does one invest in if you like trackers - as i do?

[simoan]

The trouble is, investing in UK companies is not the same as investing in the UK economy. There seems to be a lot of recency bias going on in the PI world and I have read comments elsewhere of people talking about dumping their UK holdings and investing everything in the US. Nothing screams over extended bull run more to me and they are simply momentum investing. Now, I have a lot of time for momentum investing (don't sell your winners etc.) but it makes no sense to me in buying with total disregard to valuation. I agree that everyone should have significant exposure to the best US stocks but I cannot bring myself to buy the whole market. No doubt, the S&P 500 has some world leading companies across a number of sectors, but it still leaves you with ~30% exposure to financials, consumer discretionary, energy and material sectors that I do not want any exposure to. The situation is even worse if you go the equal weighted S&P500 root.

Understood. So where/what does one invest in if you like trackers - as i do?

The whole world loves index trackers, so if you're not prepared to do your own research, analyse, and invest in individual companies, then a tracker is the only real alternative. Maybe one day I will join the club, when all I can do is sit in a chair and dribble, but for now I would rather avoid it and invest in companies in industries and sectors of my own choosing. That was the original ethos on the pre-cursor to this site, after all. It does concern me though that ETFs tracking market cap weighted indices have pretty much destroyed price discovery and the S&P 500 has become just one big momentum trip dependent on a small handful of companies.

[Lootman]

Yes - largely agree with previous 3 posts. I too limit UK to about 4% as per my global funds and I don't see the UK economy going anywhere anyways. My concern is that I am about 80% in the US. No bad thing for growth, not great for diversity/risk perhaps. Hence I am looking around for a global fund with less US bias than the usual 60/70 odd percent or else a global fund ex US which has decent growth. Tricky.....

The trouble is, investing in UK companies is not the same as investing in the UK economy. There seems to be a lot of recency bias going on in the PI world and I have read comments elsewhere of people talking about dumping their UK holdings and investing everything in the US. Nothing screams over extended bull run more to me and they are simply momentum investing. Now, I have a lot of time for momentum investing (don't sell your winners etc.) but it makes no sense to me in buying with total disregard to valuation. I agree that everyone should have significant exposure to the best US stocks but I cannot bring myself to buy the whole market. No doubt, the S&P 500 has some world leading companies across a number of sectors, but it still leaves you with ~30% exposure to financials, consumer discretionary, energy and material sectors that I do not want any exposure to. The situation is even worse if you go the equal weighted S&P500 root.

But do you not think that the S&P 500 is in fact more diversified than the FTSE-100, or any UK portfolio you could put together? And not just because it is 500 stocks?

Obviously the US has the big tech companies plus a lot of fast-moving medium sized ones. The UK does not. And disruptors like Uber and Airbnb.

The US has world-beating industrials like Caterpillar, Deere, GE, GM, Ford and so on.

UK chemical companies since ICI? The US has Dow Chemicals and Dupont.

The US is also superior in biotech, property, utilities, aerospace and defence.

And where the UK is strong e.g. banks, pharma, oil you can easily find that or better in the US e.g. JP Morgan, Eli Lilly, Exxon.

The only sector I can think of that is perhaps better represented in the UK is mining, with BHP and Rio Tinto, although the former is Australian anyway. The US has Freeport, Newmont and that is about it.

[simoan]

The trouble is, investing in UK companies is not the same as investing in the UK economy. There seems to be a lot of recency bias going on in the PI world and I have read comments elsewhere of people talking about dumping their UK holdings and investing everything in the US. Nothing screams over extended bull run more to me and they are simply momentum investing. Now, I have a lot of time for momentum investing (don't sell your winners etc.) but it makes no sense to me in buying with total disregard to valuation. I agree that everyone should have significant exposure to the best US stocks but I cannot bring myself to buy the whole market. No doubt, the S&P 500 has some world leading companies across a number of sectors, but it still leaves you with ~30% exposure to financials, consumer discretionary, energy and material sectors that I do not want any exposure to. The situation is even worse if you go the equal weighted S&P500 root.

But do you not think that the S&P 500 is in fact more diversified than the FTSE-100, or any UK portfolio you could put together? And not just because it is 500 stocks?

Obviously the US has the big tech companies plus a lot of fast-moving medium sized ones. The UK does not. And disruptors like Uber and Airbnb.

The US has world-beating industrials like Caterpillar, Deere, GE, GM, Ford and so on.

UK chemical companies since ICI? The US has Dow Chemicals and Dupont.

The US is also superior in biotech, property, utilities, aerospace and defence.

And where the UK is strong e.g. banks, pharma, oil you can easily find that or better in the US e.g. JP Morgan, Eli Lilly, Exxon.

The only sector I can think of that is perhaps better represented in the UK is mining, with BHP and Rio Tinto, although the former is Australian anyway. The US has Freeport, Newmont and that is about it.

I'm not sure why you've misinterpreted my point? Maybe you're using it to make a different point? I want to invest in good companies wherever they are. I am not advocating investing in UK companies for the sake of it, and certainly not investing in the FTSE 100 index. Just because a company is the best in the world, it doesn't make it a good investment if the economics of the sector or industry it operates in are poor. Is that clearer?

[Lootman]

But do you not think that the S&P 500 is in fact more diversified than the FTSE-100, or any UK portfolio you could put together? And not just because it is 500 stocks?

Obviously the US has the big tech companies plus a lot of fast-moving medium sized ones. The UK does not. And disruptors like Uber and Airbnb.

The US has world-beating industrials like Caterpillar, Deere, GE, GM, Ford and so on.

UK chemical companies since ICI? The US has Dow Chemicals and Dupont.

The US is also superior in biotech, property, utilities, aerospace and defence.

And where the UK is strong e.g. banks, pharma, oil you can easily find that or better in the US e.g. JP Morgan, Eli Lilly, Exxon.

The only sector I can think of that is perhaps better represented in the UK is mining, with BHP and Rio Tinto, although the former is Australian anyway. The US has Freeport, Newmont and that is about it.

I'm not sure why you've misinterpreted my point? Maybe you're using it to make a different point? I want to invest in good companies wherever they are. I am not advocating investing in UK companies for the sake of it, and certainly not investing in the FTSE 100 index. Just because a company is the best in the world, it doesn't make it a good investment if the economics of the sector or industry it operates in are poor. Is that clearer?

Maybe I misunderstood but the topic was asking about the prospects for investing in the US and so I gave one of my reasons for doing that - diversification. There are others.

Sounds like you are a bottom-up investor and so have less interest in geographic allocations and index investing. But even so you presumably use some kind of benchmark to measure your success. Historically I find the FTSE-100 too easy to beat but the S&P 500 is hard to beat - 15% or so compounded for the last 15 years, and 24% in 2023!

[simoan]

I'm not sure why you've misinterpreted my point? Maybe you're using it to make a different point? I want to invest in good companies wherever they are. I am not advocating investing in UK companies for the sake of it, and certainly not investing in the FTSE 100 index. Just because a company is the best in the world, it doesn't make it a good investment if the economics of the sector or industry it operates in are poor. Is that clearer?

Maybe I misunderstood but the topic was asking about the prospects for investing in the US and so I gave one of my reasons for doing that - diversification. There are others.

Sounds like you are a bottom-up investor and so have less interest in geographic allocations and index investing. But even so you presumably use some kind of benchmark to measure your success. Historically I find the FTSE-100 too easy to beat but the S&P 500 is hard to beat - 15% or so compounded for the last 15 years, and 24% in 2023!

No, I don't use a benchmark and if I did it certainly wouldn't be the FTSE100. These days I want to take a lower risk approach than even the S&P500 offers. Once you've won the game, why continue playing? I guess everyone has their own approach based on their own financial and lifestyle position. I actually enjoy the bottom-up approach to investing and my results have been good enough on a risk/reward basis to continue for now. And if I couldn't beat the UK indices I am honest enough to myself to give up but I would go 100% Fundsmith rather than track an index, if that were the case.

[CryptoPlankton]

Yes, definitely no way to beet the market

Yes, very good! What are your thoughts on the US economy and S&P 500?

I'm not sure my thoughts are worth airing to be honest, as I'm not a trained economist, and really not clever enough to play the short game on the markets. FWIW, I think the S&P 500 might be slightly ahead of itself at the moment (perhaps in anticipation of lower inflation?) so, if I was looking shorter term, I might be hesitant about now being a good entry point. But, to be honest, as a long-term investor (content with the results) I don't see much point in trying to second guess what will happen next, I leave that to the more ambitious - time in the market and all that...

Sorry not to have any useful insights, but I thought it would be rude not to reply!

[simoan]

Yes, very good! What are your thoughts on the US economy and S&P 500?

I'm not sure my thoughts are worth airing to be honest, as I'm not a trained economist, and really not clever enough to play the short game on the markets. FWIW, I think the S&P 500 might be slightly ahead of itself at the moment (perhaps in anticipation of lower inflation?) so, if I was looking shorter term, I might be hesitant about now being a good entry point. But, to be honest, as a long-term investor (content with the results) I don't see much point in trying to second guess what will happen next, I leave that to the more ambitious - time in the market and all that...

Sorry not to have any useful insights, but I thought it would be rude not to reply!

Same here to be honest. Someone once called economics the "dismal science" but it's not a science at all, is it? Just lots of people guessing what might happen, and commonly proving they can't even correctly estimate interest rates even a couple of months in advance. When I start to get excited about the US economy I normally look at this webpage: https://fiscaldata.treasury.gov/america ... onal-debt/

Personally, if it was a company with that much leverage, I wouldn't invest in it. April is going to see the largest 2 and 5 year Treasury issuance ever and Trump has promised to cut corporate taxes from 21 to 15%. Something doesn't add up in my simplistic brain. I take great comfort in the knowledge that I have no idea what will happen... Japan alone owns about 3% of US debt and now they have some inflation and the prospect of positive interest rates, who knows whether they will repatriate it? I'll let people on higher pay grades guess.

[ukmtk]

I was looking for a single investment that I could advise a newbie to use for global exposure.
I decided that V3AB/V3AM fit the bill. So in my SIPP I now buy V3AB with my regular monthly savings.
I liked it as it is relatively low cost per unit (great for modest monthly savings).
It also fits the bill for US exposure.

[EthicsGradient]

I was looking for a single investment that I could advise a newbie to use for global exposure.
I decided that V3AB/V3AM fit the bill. So in my SIPP I now buy V3AB with my regular monthly savings.
I liked it as it is relatively low cost per unit (great for modest monthly savings).
It also fits the bill for US exposure.

Which, translated, is Vanguard ESG Global All Cap UCITS ETF - (USD) Accumulating
https://www.vanguard.co.uk/professional ... cumulating
It includes emerging markets.

[spasmodicus]

V3AM looks very similar to VWRL. The former has 60.3% USA exposure, the latter 58.5%. The top four companies in both are APPLE,MICROSOFT,AMAZON, NVIDIA, so global diversification is imo pretty minimal. As with VUSA, 100% USA weighted, these are pretty much a straight bet on the USA doing well, which has of course been a good bet over the past 5 to 10 years, especially compared with our own poor ISF (FTSE 100 tracker). Will it be a good bet for the future? I dunno.
S

[Lootman]

V3AM looks very similar to VWRL. The former has 60.3% USA exposure, the latter 58.5%. The top four companies in both are APPLE,MICROSOFT,AMAZON, NVIDIA, so global diversification is imo pretty minimal.

There is a lot more to US stocks than just tech though. Looking at my top 8 US performers they are, in order of percentage gain:

Apple, up 670%
Eli Lilly, up 615%
MicroSoft, up 566%
United Rentals, up 524%
Waste Management, up 475%
Nvidia, up 469%
JP Morgan, up 347%
Berkshire Hathaway, up 325%

5 of those 8 are not tech stocks.

[OhNoNotimAgain]

3% of my portfolio is in VUSA (Vanguard's S&P 500 tracker) with a further 40% in American operating companies (followed by 17% in Canada). My British investments are less than 5% (I view my British multinational shareholdings as "international" rather than "British" because they make the vast majority of their money outside the UK).

Ironically 5% in the UK is overweight. The UK market cap is about 4% of global market cap. In terms of global GDP, less than that.

I am aiming in the new tax year to have nothing in the UK, and not much in Europe. It quite simply is not necessary. North America and Asia (especially Japan and India) are the places to be.

Yes, because price is the best way of measuring anything and everything.

[Lootman]

Ironically 5% in the UK is overweight. The UK market cap is about 4% of global market cap. In terms of global GDP, less than that.

I am aiming in the new tax year to have nothing in the UK, and not much in Europe. It quite simply is not necessary. North America and Asia (especially Japan and India) are the places to be.

Yes, because price is the best way of measuring anything and everything.

No but risk-adjusted returns are.

Humouring you, what are your top three reasons for believing that the UK stock market will out-perform in the next 5 years?

This should be good.

[simoan]

Yes, because price is the best way of measuring anything and everything.

No but risk-adjusted returns are.
In
Humouring you, what are your top three reasons for believing that the UK stock market will out-perform in the next 5 years?

This should be good.

I though it was a valid point; market capitalisation alone is no reason to invest in a stock market, or for that matter, any individual stock. Valuation matters. I can’t see any argument with that.

[Lootman]

No but risk-adjusted returns are.

Humouring you, what are your top three reasons for believing that the UK stock market will out-perform in the next 5 years?

I though it was a valid point; market capitalisation alone is no reason to invest in a stock market, or for that matter, any individual stock. Valuation matters. I can’t see any argument with that.

I can partly agree, although momentum investing seems to work for long periods of time. And the US has been out-performing for over 30 years now. So whilst you might need a good reason to believe that will continue, you also need a good reason to believe that it will change.

But with Ohno he limits his investments to UK largecaps as a matter of preference regardless of fundamentals, and I stand by my criticism of that. But like a stopped clock, he might be right at some point, I suppose.

[OhNoNotimAgain]

I though it was a valid point; market capitalisation alone is no reason to invest in a stock market, or for that matter, any individual stock. Valuation matters. I can’t see any argument with that.

I can partly agree, although momentum investing seems to work for long periods of time. And the US has been out-performing for over 30 years now. So whilst you might need a good reason to believe that will continue, you also need a good reason to believe that it will change.

But with Ohno he limits his investments to UK largecaps as a matter of preference regardless of fundamentals, and I stand by my criticism of that. But like a stopped clock, he might be right at some point, I suppose.

The US stock market has indeed done well over the last few decades as private, corporate and sovereign debt have all increased.
In addition executive stock options have made US executives very wealthy, even though they typically borrow against their shareholdings. Corporate share buy-backs, typically financed by debt, are now the biggest buyers of US equity in order to reduce dilution from share-option schemes.

Sure, there have been some high profile success stories but you don't hear much about GE or Boeing in stock market reports these days.

The focus on making executives richer does have its downsides.

Tony Dye, a famous UK value fund manager, was sacked in early 2000 just before the dot com bubble broke. Just saying.

[Lootman]

Sure, there have been some high profile success stories but you don't hear much about GE or Boeing in stock market reports these days.

Actually GE is back in the news a lot as it has done very will since its restructuring, and particularly since it started its process of spitting up its powergen, healthcare and aerospace businesses. GE stock has tripled in the last 30 months. Or perhaps you were thinking of the British GE, that vanished decades ago? And at least the US still has an industrial/manufacturing sector.

Boeing has more than doubled since its Maxjet/Covid low in 2020. All part of why America is known as the "country of second chances" perhaps. Although I will concede that Enron never came back.

[simoan]

Sure, there have been some high profile success stories but you don't hear much about GE or Boeing in stock market reports these days.

Actually GE is back in the news a lot as it has done very will since its restructuring, and particularly since it started its process of spitting up its powergen, healthcare and aerospace businesses. GE stock has tripled in the last 30 months. Or perhaps you were thinking of the British GE, that vanished decades ago? And at least the US still has an industrial/manufacturing sector.

Boeing has more than doubled since its Maxjet/Covid low in 2020. All part of why America is known as the "country of second chances" perhaps. Although I will concede that Enron never came back.

What does this prove? We’re just talking about share price movements now. All shares go up and down in price and you can look a genius or a fool in equal measure if you get your timing right or wrong. GE has been a total disaster over the long term.

[Lootman]

Actually GE is back in the news a lot as it has done very will since its restructuring, and particularly since it started its process of spitting up its powergen, healthcare and aerospace businesses. GE stock has tripled in the last 30 months. Or perhaps you were thinking of the British GE, that vanished decades ago? And at least the US still has an industrial/manufacturing sector.

Boeing has more than doubled since its Maxjet/Covid low in 2020. All part of why America is known as the "country of second chances" perhaps. Although I will concede that Enron never came back.

What does this prove? We’re just talking about share price movements now. All shares go up and down in price and you can look a genius or a fool in equal measure if you get your timing right or wrong. GE has been a total disaster over the long term.

It proves as much as Ohno cherry-picking them as his two examples of US shares doing badly.

I am still waiting for the answer to my question about why the UK is likely to out-perform the US in any time period going forward? I just do not see it.