World tracker - diverse enough?

[Gpop321]

I'm about to invest in a world tracker.

If I lump my whole lot in there, am I taking a risk in terms of diversity?


I'd read elsewhere that you should invest in roughly 4 funds, each of a different class (multi cap etc), but I'm wondering/hoping that a world tracker supercedes or negates this advice.


Any thoughts appreciated!
G

[JohnB]

1) A world tracker might not be truly the world depending on the index it chooses, it could omit the developing world, penny stocks etc.

2) You are opting out of gilts, corporate bonds, commodities etc. You aren't picking HYP or growth stocks, or any of the various investing diet plans

So you've picked a certain risk profile, higher than some, but with higher expected returns. Within that, what special skill do you have to picking a region or market segment that will do any better for the same risk. If you admit to yourself you don't have the skill, global is likely to be the best answer, low fees, low bother.

The only caveat is you might want 2 trackers, in case the company running one gets into trouble and your funds, while ringfenced, are unavailable to you for a while. Ditto brokers.

[Gpop321]

1) A world tracker might not be truly the world depending on the index it chooses, it could omit the developing world, penny stocks etc.

2) You are opting out of gilts, corporate bonds, commodities etc. You aren't picking HYP or growth stocks, or any of the various investing diet plans

So you've picked a certain risk profile, higher than some, but with higher expected returns. Within that, what special skill do you have to picking a region or market segment that will do any better for the same risk. If you admit to yourself you don't have the skill, global is likely to be the best answer, low fees, low bother.

The only caveat is you might want 2 trackers, in case the company running one gets into trouble and your funds, while ringfenced, are unavailable to you for a while. Ditto brokers.

Thank you, well put.
I'm actually planning on going half tracker and the other half managed (via Fisher investments), to protect against the situation you describe in your last para.

And you're right, I have no skill in this field - I'm looking for low maintenance growth really.

The tracker I'm looking to invest in is the Fidelity World Index P Accumulator.

[bluedonkey]

Why Fisher Investments?

[Gpop321]

Why Fisher Investments?

They've got a strong track record of beating the mcsi most years (net of fees, too)

[JohnW]

'I'm actually planning on going half tracker and the other half managed (via Fisher investments), to protect against the situation you describe in your last para.’

I’d tread carefully there; you need to really have your wits about you and there’s a lot going on under the bonnet there.
Who holds your assets when you invest as you’re planning? Businesses like Fidelity, HSBC and Vanguard use custodians (international banks and the like). If Fisher use the same custodian as your tracker provider you haven’t diversified that risk. That’s point 1.
Can you provide a link allowing us to see Fisher’s fees? I can’t see the fees. Low fees are good, high fees are bad; are they hiding their fees because they’re low? Morningstar research finds the single best predictor of fund performance is fees; the higher the fees the worse the fund. That’s point 2.
If you have a long investing period ahead of you, an extra 0.5%/year in costs can make a difference of large proportions to you total wealth, because of the compounding effect. Don’t under=estimate compounding and avoid high fees if you’re investing for more than several years with more than a trivial amount of money. That’s point 3.
Fisher won’t promote or perhaps even provide trackers, I’d guess from their website. They’re in the business of active fund management it appears. The research and theory is that investors are more likely to get lower returns with active than with tracker funds. Listen to the professor at King’s College https://www.evidenceinvestor.com/active ... is-better/. That’s point 4.
Be careful with Fisher and read Tim Hale's book.

[bluedonkey]

Why Fisher Investments?

They've got a strong track record of beating the mcsi most years (net of fees, too)

Could you provide a link please?

[Gpop321]

I’d tread carefully there; you need to really have your wits about you and there’s a ...

Thank you
1) great point, and fortunately they each use different custodians (Barclays & Fidelity)

2) fisher's fees appear high (1.5%), but this incorporates everything - ongoing charge, platform fee etc etc, so comparable to typical overall IFA fees.

3) their track record shows the fund is a regular high performer, beating the mcsi index net of fees. I can't see how to add screenshots or I would post the relevant graphs! Also, I can't post links for some reason ("your account is not approved to post links")?

Can anyone recommend a better alternative to Fisher (citing a combination of better performance and lower fees)?

Thanks again for the input - it's all very useful!

P.S. just bought the Tim Hale book

[Gpop321]

They've got a strong track record of beating the mcsi most years (net of fees, too)

Could you provide a link please?

Sorry, I tried but the website says "your account is not allowed To post links" - argh!

Just Google "Fisher investments UK" tho and that's them

[Moosehoosenew]

Fisher have certainly built up a strong profile and the owner appears to have netted enough for a large sailing craft.
Why use them if you can just buy the same products for less fees?

[Gpop321]

Fisher have certainly built up a strong profile and the owner appears to have netted enough for a large sailing craft.
Why use them if you can just buy the same products for less fees?

Fair question! Essentially, I'm not skilled in this area. Active fund management isn't something I want to get into, tho you're right - if I closely followed and copied fishers fund and trading patterns, I'd be a bit better off.

[JohnB]

Its unusual for someone to want both a global index tracker and a managed fund from a specialist company. Normally people fall strongly one side or the other of the passive/active debate. Have you read Lars Kroijer's Investing Demystified which made me lie in the passive camp. Past performance of an active can easily be an anti-predictor of future performance, as it could have been luck and survivor bias, and is likely to revert to the mean. Picking active funds needs similar skill (and luck) to picking the shares underlying share themselves. Remember Scottish Mortgage Trust?

[ukmtk]

My newbie recommendation is the world tracker V3AB. Vanguard is huge and have low costs.
This tracker is a simply low cost unit. So great for monthly savings.
It is an accumulator so you don't have to worry about dividend reinvestment.
If you have a large sum I'd recommend drip feeding it in monthly chunks.
Current markets are high so the underlying shares will be too.
I currently buy V3AB using my monthly savings in my SIPP.

[JohnW]

Thanks again for the input - it's all very useful!

P.S. just bought the Tim Hale book'

'
I don't have much to offer once you've read Hale's book. By then you'll know where you're comfortable standing amongst different investment approaches, and it would be pointless my arguing against something I thought was sub-optimal since you'll have enough understanding to make a sensible decision for yourself.
Until that time, I'm going to offer a perspective.

2) fisher's fees appear high (1.5%), but this incorporates everything - ongoing charge, platform fee etc etc, so comparable to typical overall IFA fees.

3) their track record shows the fund is a regular high performer, beating the mcsi index net of fees. I can't see how to add screenshots or I would post the relevant graphs! Also, I can't post links for some reason ("your account is not approved to post links")?'

'Firstly, two points. The commodification of investment products which has occurred with low cost diverse tracker funds has meant people of ordinary, or perhaps a bit above ordinary, smartness don't need to pay for personal investment advice from a IFA or DFM. Those might help you with tax or estate planning etc, but they're an unnecessary expense for investing. That saves you 0.5%/year, and you'll probably get a better portfolio because the advisor won't suggest you hold only one or two low cost trackers because it undermines the apparent value you get from them - 'if it's that simple, why do I need you?'. Now, surely, we can get a decent platform and fund(s) costing less than 1%/year?
The second of the first point is you and 15 million other personal investors around you have to stop thinking, and writing more importantly, that 1.5%/year is acceptable. The industry has little incentive to lower fees unless people complain long and loud that they're too high. You have to invest in UK we assume, so you're stuck with UK fees; but in other comparable countries you can get platform, fund etc all up for a modest fixed annual fee plus 0.1%/year. That's what we should be aiming for.
Secondly, Fisher was a regular high performer; there's no present tense with investment performance, it's either past or future. Past performance doesn't tell you about future performance; how often do they remind us of that? #1.
The overwhelming research conclusion is that active funds are likely to give poorer returns than trackers. Read the SPIVA reports or the Morningstar active/passive barometer, or listen to the London professor this week https://www.evidenceinvestor.com/active ... is-better/ #2.
Active funds might outperform the market by luck or skill or both. A lot do it by luck we can be sure because chance plays a big part in realised returns, and their outperformance turns to periods of underperformance which wouldn't happen if skill were the cause. Those that continue to outperform the market might still be doing it by luck; just as it's possible to roll 6 on a dice with each of 5 consecutive throws as this will occur 0.01% of the time by luck; the dice isn't biased, it's just luck. People calculate how much outperformance, and for how long, a fund needs to exhibit to make luck an unlikely cause, leaving skill as the reason; it's a lot https://www.ifa.com/articles/paradox-of-skill #3.
No one has described how to identify the unusual manager(s) who will have the skill, and not need the luck, to outperform the market, ahead of time. So we have to wait for a decent period to be sure which ones have the skill, but which time they might be ready to move on or retire. #4.
Passive investors can only get market returns less costs. The rest, the active investors, are now squabbling over what's left which is market returns. As a group, active investors can only get market returns less costs, like their passive sisters, but the costs are higher for the active brothers. Where's the gain? Clearly, some active fund managers make the gain at the expense of other active fund managers who lose compared to market returns, unfortunately we don't who will be who ahead of time, and persistence of performance is uncommon (see the SP persistence score card). #5.

[BullDog]

OP, forget about any wealth managers such as Fisher or SJP.

If you want a global tracker and there's nothing wrong with that, I suggest contributing monthly to LGGG, Legal and General global tracker. Fees are extremely low and you won't be contributing towards buying Ken Fisher his next super yacht. The money stays in your pocket, not his.

BTW, if you have started a conversation with Fisher, they are known to pester you to death by mail and phone calls with pressurised sales talk. Avoid.

[Arborbridge]

LGGG or one of the Vanguard world trackers will invest heavily in the USA - around 65%. One should note, that this isn't "diverse", but it may be what you want. i.e. the biggest amount in the biggest economies, but it also means a significant none diversity at company level as a big percentage will be in the large US companies like Apple or Microsoft.

Nothing much wrong with that, but just something to be aware of if your are wanting diversity.

Arb.

[Gpop321]

All, this is great advice, thank you! I really appreciate you all taking the time to give me pointers.

Fisher definitely hooked me (pun intended) with an ad at a time when I was dissatisfied with my current financial portfolio, but I'm well aware now that there are other options in terms of active fund management and passive. I'm now swithering about two different trackers (each with distinct underlying custodian banks)...

[MuddyBoots]

LGGG or one of the Vanguard world trackers will invest heavily in the USA - around 65%. One should note, that this isn't "diverse", but it may be what you want. i.e. the biggest amount in the biggest economies, but it also means a significant none diversity at company level as a big percentage will be in the large US companies like Apple or Microsoft.

Nothing much wrong with that, but just something to be aware of if your are wanting diversity.

Arb.

I started a thread about the high proportion of US firms in global trackers a while back, but as the indices tracked are usually based on company size it makes sense. Some big countries like China have restrictions on foreigners owning their shares too.

My conclusion was that if I wanted more truly global exposure I could put some into a developing economy tracker to include BRICS countries, most of the big investment firms have them. But those will have a very different risk profile and I decided against it, for now at least.

[JohnW]

world trackers will invest heavily in the USA - around 65%. One should note, that this isn't “diverse",'

By the time you believe trackers are the way to go, this issue of ‘diversity’ is pretty small beer but I’ll put my tuppence worth in.
The SP500 misses 20% of the smaller US companies, but if you look at a long chart of returns and risk you find the SP500 is a pretty good proxy for the whole US market. Omitting emerging market stocks from a global index cuts out about 15% of possible stocks, but the returns and risk with or without EM stocks have fluctuated one better or slightly worse than the other ever long periods. It’s not worth getting too worked up about.
Now, a global cap weighted index is heavy in US stocks, particularly the magnificent 7 or whatever they’re called now, making the index not ‘diverse’ by some meaning of the word. But does it matter, or what should we do about it? I’d say nothing. Suggestions welcome.
If a global index held only 3 stocks, two similarly big making up 85% of the index and a third quite small stock contributing 15%, would you settle for a cap weighted index fund or would you like to over-weight the small stock at the expense of the bigger two? To use the index fund would be to follow the wisdom of the market in its belief about the prospects of the three stocks, otherwise you’d be making an active investment choice; we’ve been there and we have our doubts about it unless you’re happy with a bit more risk for a bit more return (or loss). Don’t fret over cap weighting appearing to be unbalanced or too concentrated. Beer is 95% water, does that make it unbalanced? No, it’s just the way beer is.

[kempiejon]

If we're tracking costs can be controlled. If you want a global tracker you could get the Vanguard world etf VWRL which charges 0.22%.
Someone on TLF pointed out to me some time ago you can closely copy the holdings with 90% of VEVE the global developed world at 0.12% charges and 10% of VFEM the emerging market etf for 0.22%.
That plan might need some rebalancing.
I did something similar when I rebuilt all my pension funds into a SIPP. I chopped the developed into USA, Europe xUK, Japan, Asia xJapan and Emerging. I might consider rebalancing but haven't decided to just yet. I left the UK out of the global as I had plenty of UK exposure in my ISAs.