Global Tracker Portfolio Weightings

Hopefully they are logical and cheap, but by no means perfect.

They are unlikely to wholly match your particular preferred asset allocation, though whether they perform better or worse is another point for debate.

For small sums when starting out then differences are likely to have little impact, when building up to larger fund values then it doesn't make much sense to use one fund or etf, and with multiple funds you can vary asset allocation as you wish.

nb0825 wrote: »

I had a similar conundrum a few months back, so a took a sample of 10 global equity trackers and what their country weighting was and took an an average. Polug this into excel you'll get a nice pie chart

Seems like you have an issue with the way the different funds report their allocations even if they were following the same basic index.

Some will explicitly list things like China or India while others just lump them in emerging markets. And some would have their 1% in Korea lumped within their Asia Pacific, but a rival index would keep it in emerging markets based on different definitions FTSE to MSCI. So when you see China at 2%, EM 1% and Other at 5% and Global at 3%, that's over 10% of mess!

Compared to MSCI ACWI or FTSE all-world, the UK at 9℅ seems high with Japan at 6% looking low. I generally think of Japan as being similar size to France, Germany, Switzerland combined, at about 8-9%.

Yes it's a useful rough starting point, given a global tracker is an obvious competitor / rival to building your own portfolio. Might as well see what the competition is up to.

However, the world market caps of different asset classes and regions are swayed by how much money there is in the world controlled by whom and what other people want to hold, which does not necessarily accord with your objectives.

If you used market weighting to decide your split between, for example, equities and fixed interest securities, you'd have a massive amount more in fixed interest, because of all the banks and pension funds or insurance companies or other institutions and governments which want to hold that sort of stuff and all the companies and governments who want to issue it. However, 70%+ in bonds doesn't suit my needs.

Similarly the international institutional wall of money which drives prices might not want or need much exposure to the higher volatility of emerging markets, and it is hard to deploy billions and trillions in things like emerging markets and smaller companies, while their volatility and capacity might be fine for you and me.

As such, the world cap index is only one idea of a way to go, a "sample portfolio" if you will.

You can use the same logic to say you don't need to put 1.5% of your money in Apple just because its big, when you are a small investor who is not trying to deploy $30 trillion. However, then you get into a big old "active vs passive" debate which has been done a thousand times and is best avoided.

The allocation on something other than market cap, such as population, GDP etc can throw up some differences in how you might like to allocate the money because different countries have different proportions, or different types, of companies listed versus private versus gov state owned etc. The ideas in the OP are not massively original, but provide some ideas of how to overcome the "flaws" of traditional indexing but still having a mechanical model to create a personalised custom allocation to follow as a target allocation rather than just winging it on the portfolio manager's gut feel from time to time.