Global Tracker Funds

I've just spent part of the day setting up my S&S ISA, and now those 5 videos are saying that global index trackers are the better option...

jdw2000 wrote: »

Is this thread about world equity index trackers, or have I got the wrong end the stick?

The title of the thread is global trackers. Generally the thing they are tracking is equity indices. You could instead get a tracker that tracks bonds or properties. But generalising over the long long term you would expect equities to perform the best, because the upside is uncapped whereas bonds are defined by their fixed returns.

A portfolio would generally have more than one 'asset class', as a diversified portfolio constructed from uncorrelated assets is a useful thing to have long term.

And if we are talking world equity index trackers, then are these more worthwhile investments than S&S ISAs?

No.

On the one hand, a world equity index tracker is a passive fund set up on a 'collective investment scheme' basis to allow investors to pool their resources and participate in the returns of an investment in a portfolio of equities, which are held in the same proportion as the equities which make up a particular wold index.

On the other hand, a S&S ISA is a tax wrapper which can be used to protect a variety of financial instruments (including publicly listed shares and bonds, and a whole variety of funds or collective investment schemes)

So to answer your question, no it is not 'more worthwhile' to invest in a particular fund within your investments, than to invest in some unspecified funds via a tax wrapper. It is a comparison of apples to oranges, or apples to fish, or apples to grandmothers.

Some might say, "which is better, a car or petrol" or "is it more worthwhile to buy pot noodles, ramen noodles, or a dish to hold noodles". They make no more sense than the people who ask whether they should buy an index tracker or a tax wrapper to hold investments. You can do both and hold them at the same time.

Always make sure you know what the incentive is or preference of those who are presenting information.

Monevator is very good but is passive biased, you would therefore critically assess any information presented to determine whether this has been selective to support this basic argument.

This could be selective timescales, data sets that are skewed or any other methodology that shows the graph in the manner that supports a particular viewpoint.

For an inexperienced investor then a passive approach often works well, however a simple tracker probably isn't best. The passive fund of funds are probably better, like vanguard lifestrategy, black rock consensus or l &g multi index, as they automatically rebalance removing that hassle and potential costs depending on your platform.

There's loads of research and arguing for an against passive and active, in bigger markets with loads of liquidity and info then it's difficult for a manager to outperform. However they can be more agile in specialist areas and this is borne out by data to a large extent, so things like smaller companies and emerging markets, and actually equity income seems to have outperformance by active managers.

If you see a new investor you want diversification and these specialist areas will only for a small percentage of most people's portfolios so the fettered fund of funds listed above are a good place to start to look.

jdw2000 wrote: »

In this video (http://monevator.com/this-former-hedge-fund-manager-reveals-how-you-can-invest-for-life-in-five-quick-videos/) the chap appears to be saying that global index trackers (such as ones you can get from Vanguard or BlackRock) outperform investment funds (such as the one I have recently taken out via an ISA called BlackRock Volatility Strategy Fund IV).

The chap in the video shows a graph where the greater gains are clearly illustrated. I'm just wondering if people who have knowledge of both types of investment have any feelings either way on which one is better.

The gains are 'clearly illustrated' on his video by drawing you a graph and saying, look an index tracker gave a bigger number than the managed fund. But as he doesn't provide the data behind it or mention what fund it is (not necessarily a fund you would select, just some random average fund) it is not 'clearly illustrating' anything at all.

It is just his estimate of how much he feels a tracker fund investing into a market will outperform something that's managed - based on an assumption of how much you pay for the management, which he considers will be a drag on performance (because while lots of managers beat the index, lots of managers don't beat the index, and so on average they equal the index, and you are paying higher fees for it).

Your 'Blackrock volatility strategy' funds available through your provider are not trying to beat or not beat a global index in a specific year. They are multi-asset funds targeting a particular level of volatility / risk. The global index can and will go up and down by tens of percent a year and many investors do not want to ride a rollercoaster up and down. Aegon Retiready therefore have a simple product where you just pick where you are on a scale of risk and go ahead with buying one of their funds from I to IV.

The aim of the Fund is to manage the volatility of its portfolio at or around 15% and to seek a total return. The volatility management strategy will have a direct impact on the Fund’s returns which may be limited by this strategy. The measure of volatility is the annualised, equal-weighted volatility of the monthly portfolio returns over a rolling three year period, with the aim of maintaining the volatility of the Fund within a 13% lower tolerance and 16% upper tolerance band.

The Fund aims to gain investment exposure primarily to equity securities and fixed income securities globally, money-market instruments, deposits, cash and near cash. In order to achieve its objective, the Fund invests primarily in units of collective investment schemes and derivatives which provide exposure to the above asset classes. At any time, a substantial amount, or even all of the Fund’s assets may be held as cash to assist in achieving the fund’s objective. The Fund may also invest directly in transferable securities (equity securities and fixed income securities)... etc etc...

... There is no guarantee that the Fund will achieve its objective of managing volatility at or around 15%, or that it will be managed at all times within the intended 13% lower tolerance and 16% upper tolerance band.

The funds have not been running long enough to see how successful they have been in the past and extrapolate that out over the coming decades but Blackrock themselves have been going donkeys' years with both passive and active products.