The Lemon Fool

JohnW wrote: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.

If you found the water evaporated, you wouldn't be very happy - any more than you would if the big shareholdings eroded.

Funny thing - in another context, people get very worried about HYP1 having one share producing 25% of its income. Yet in this context it is suggested that a far higher concentration should done be cause for fretting.

Arb.

Gpop321 wrote: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

If you want a Global Tracker that is as divers as possible then the Vanguard Global All Cap comes to mind.

If you go to a site like HL and search the index funds then you can see the global diversity of the funds and also look for how many holdings the funds have. Some funds keep the cost down by not investing in emerging markets and/or small caps. possibly Fidelity/ L&G etc. I think the HSBC fund is Global large + med + emerging but no small.

If you cant see this info then download the KIDD document for more info. Like I said, the amount of stated holdings is a clue to how global and diverse a fund is.

I am not saying what fund is best, just picking up on your words Diverse & Tracker. Thus, Vanguard Global all Cap would be the one.

Regards, D.L.

If you want a Global Tracker that is as diverse as possible then the Vanguard Global All Cap comes to mind.

This is the V3AB (no divs) or V3AM (with divs) I mentioned earlier.
With nice low cost units.

ukmtk wrote:

If you want a Global Tracker that is as diverse as possible then the Vanguard Global All Cap comes to mind.

This is the V3AB (no divs) or V3AM (with divs) I mentioned earlier.
With nice low cost units.

Thanks for the info, there is a slight difference though. The Vanguard Global All Cap fund has 1276 more holdings than the above mentioned ETF's and is the same low cost. It also has a slightly less percentage in the USA (not enough to make a difference though). That's why I thought it was worth mentioning.

Regards, D.L.

V3AG/B have an environmental, social and governance bent.

The Index is constructed from the FTSE Global All Cap Index (the “Parent Index”) which is then screened for certain environmental, social, and corporate governance criteria by the sponsor of the Index, which is independent of Vanguard.
The Fund promotes environmental and social characteristics by excluding companies from its portfolio based on the impact of their conduct or products on society and / or the environment. This is met by tracking the Index.

They also say they'll exclude companies operating in adult entertainment, alcohol, gambling, tobacco, cannabis, non-renewable energy and weapons They will charge you 0.24% which is not the cheapest way to track globally but it might be the nicest with a caveat.

The Fund may hold securities which do not comply with the ESG requirements of the Index until such time as the relevant securities cease to form part of the Index

Apologies DL - I did think it was the same as you mentioned - my mistake.
I do like the low cost of the V3AB/V3AM unit (£4.50) compared to some of Vanguard's £40-£50 units.
It is useful for modest monthly savings.

Arborbridge wrote: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.

I was looking at an ex-US global tracker the other day, after feeling that I have too much in the US.

I noticed from its holdings that even when all the US megacaps are excluded there is only one UK share in the top ten. That is Shell at number ten and that is half Dutch of course. The two biggest holdings were Taiwan Semi and Novo Nordisk.

So any over-reliance on the US can be compensated for by adding trackers with a focus on Asia and Europe.

Lootman wrote:

Arborbridge wrote: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.

I was looking at an ex-US global tracker the other day, after feeling that I have too much in the US.

I noticed from its holdings that even when all the US megacaps are excluded there is only one UK share in the top ten. That is Shell at number ten and that is half Dutch of course. The two biggest holdings were Taiwan Semi and Novo Nordisk.

So any over-reliance on the US can be compensated for by adding trackers with a focus on Asia and Europe.

That's an interesting pair of largest holdings.
TSMC are a great company, so China wants it by invasion if necessary. Warren Buffet pulled out of TSMC recently because of the invasion risk.
Novo Nordisk is share I bought today, am possibly too late. However my doctor would prescribe me Ozempic if there was a ready supply. The fact that no supply is available tells me the company is selling everything it can make.

Sorcery wrote:
That's an interesting pair of largest holdings.
TSMC are a great company, so China wants it by invasion if necessary. Warren Buffet pulled out of TSMC recently because of the invasion risk.
Novo Nordisk is share I bought today, am possibly too late. However my doctor would prescribe me Ozempic if there was a ready supply. The fact that no supply is available tells me the company is selling everything it can make.

TSMC is a company beloved of some ITs - rather too much for my liking. I don't think the fund managers should be quite so sanguine about this situation.

Arb.

As others have mentioned, a global tracker will have a hefty allocation to the USA, and the top holdings will be the usual suspects: Apple, Microsoft, NVIDIA, Amazon, Meta (Facebook), Alphabet (Google). Personally, I think these stocks are typically on unsustainable P/E ratios and are heading for a long term decline. I therefore prefer iShares Edge MSCI World Minimum Volatility UCITS ETF (MVOL) which has none of these in the top 10.

It's important to note that if you do a simple comparison of MVOL against a simple tracker, recent performance will appear a little weaker. However, that's largely because of the price increases of the bit US technology stocks.

For a UK investor, I would also consider Vanguard LifeStrategy 100% which has a lower allocation to the US (about 50%), and higher allocation to the UK (25%).

Personally, I think these stocks are typically on unsustainable P/E ratios and are heading for a long term decline. I therefore prefer iShares Edge MSCI World Minimum Volatility UCITS ETF (MVOL)’

Five months ago you were proposing a blended fund the stocks of which came from the largest 500 US stocks held by cap weighting which seems a different kettle of fish from MVOL. Nonetheless, I wouldn’t try to turn anyone away from MVOL but offer a couple of comments.
I think I read there are three million indexes so there must be one to appeal to every palate, but they can’t all be of similar worth, and I don’t know how to determine if the MVOL index is one I should invest into. That fund has 260 stocks, and although that small number might be the inevitable consequence of an attempt to reduce volatility, during the early 2020 covid meltdown MVOL did every bit as badly as a global cap weighted fund. Can we find out if MVOL has had a better Sharpe ratio than a standard comparator? Not that it would tell us about the future.
Another problem with MVOL and its kin is does the investor have the resolute patience to watch their choice under-delivering compared to some mainstream index fund for some years? Because chopping and changing costs investors dearly according to Morningstar’s ‘mind the gap’ research.

To expand a point made earlier in the thread.

I would also ensure there is no "dei/diversity /equity inclusion" element to the tracker/or investment, even if you broadly support the stated aims, which I did but have subsequently become more and more disillusioned with as it has evolved .

The first point is it stops a tracker being mechanical reflection of the market and is open to manipulation (so you might miss out)
The second issue is it a metric that can be gamed (so not necessarily even true, this builds on point 2)
The third issue is that companies seeking to get included need to meet that criteria and there is a whole cottage industry of grifters offering consultancy services to achieve the right score. This adds nothing to the product or profits and provides a good hustle for some undesirables (who are basically racists).

Just as a tangent: while comparing various world tracker funds, I discovered this:
https://www.schwab.com/research/mutual- ... fees/swppx

Which appears to be a US tracker... but with extremely low fees (0.02%) and really impressive returns.

Tempting, definitely. But do US trackers present a different risk profile than world trackers?

Gpop321 wrote:Just as a tangent: while comparing various world tracker funds, I discovered this:
https://www.schwab.com/research/mutual- ... fees/swppx

Which appears to be a US tracker... but with extremely low fees (0.02%) and really impressive returns.

Tempting, definitely. But do US trackers present a different risk profile than world trackers?

Fidelity run a class of ETFs in the US with a 0% annual management charge. They make their money from stock lending the underlying, which index funds are perfect for doing. You can also buy and sell them for free, and no stamp duty of course.

Beta is now free.

I can think of no reason why the risk profile of a US domiciled ETF would be worse than a UK or Irish fund.

Oh, the Fidelity ETF sounds excellent - can you post a link please (or if this website stops you posting links, can you post the name I should google for)?

Gpop321 wrote:Oh, the Fidelity ETF sounds excellent - can you post a link please (or if this website stops you posting links, can you post the name I should google for)?

https://www.fidelity.com/mutual-funds/i ... lsrc=aw.ds

But don't get too excited as a UK broker may not be willing to let you buy one of these.

Lootman wrote:

Gpop321 wrote:Just as a tangent: while comparing various world tracker funds, I discovered this:
https://www.schwab.com/research/mutual- ... fees/swppx

Which appears to be a US tracker... but with extremely low fees (0.02%) and really impressive returns.

Tempting, definitely. But do US trackers present a different risk profile than world trackers?

Fidelity run a class of ETFs in the US with a 0% annual management charge. They make their money from stock lending the underlying, which index funds are perfect for doing. You can also buy and sell them for free, and no stamp duty of course.

Beta is now free.

I can think of no reason why the risk profile of a US domiciled ETF would be worse than a UK or Irish fund.

Broaden the risk-profile however and ... if the US ETF isn't UK reporting registered, which it mostly likely isn't, then all capital gains and dividends are counted as 'income' by HMRC and taxed at your income tax marginal rate. A enforced sale/return of capital in one year could leave you with a large income tax liability in that year.

Another factor is that anything more than something like $60K of US assets opens you (or rather heirs) up to US Estate Tax (death duties/inheritance tax). The US/UK tax treaty gives Brits the same generous allowance as per US citizens, north of $12 million before any tax becomes liable, BUT only providing you complete the correct forms, correctly filled in and submitted within the correct time window. Once case I am aware of used a older version of the form, was correctly filled in but rejected, and by the time that was flagged it was too late to re-submit as the re-submission would have been outside of the time-window. a.k.a. pay a pro to do that for you as the few £K that might cost could potentially save 100's £K's.

With a Irish ETF it is the fund that owns the shares, so even if you die the fund remains 'alive', only UK Inheritance Tax measures applied. And if HMRC registered, which more likely the fund will be, gains are as usual, capital gains counted as capital gains, not income. Ireland also has a similar tax treaty with the US as that of the UK's and US dividends are withheld 15% withholding tax, instead of the standard 30% rate. And that tax can be offset against UK dividend taxation.

On the counter side, increasingly the UK is being locked down, which is a precursor flag of potential confiscations (such as via unfair/punitive taxation rates). The general recommendation is not to keep your liquid money/wealth in your resident country. Recent (Sunak) Tory policy is flagging that to more extremes, as would a Lab government increase that domestic risk. As such utilising a non UK brokerage/banking is increasingly in effect being 'recommended' by the state (outflight of capital). But in turn the state is increasingly making that more difficult, where other countries have to report back to the UK when a Brit holds such accounts/brokerages and where the state can consider that as being 'tax evasion' - even if the taxation rate is punitive/unfair/extreme.

Other countries may employ similar anti-capitalist policies. A world tracker will encompass a broad selection of such - overheads. There is reasonable opinion that a UK home is more inclined to have the UK government set policies that help prop that up, as is the US government inclined to prop up its stock/bond markets. Broadening from a bunch of US stocks such as the S&P500 that includes many firms with international exposure to all-world, is potentially inclined to add in drag/cost factors, make things worse rather than better for the investor.