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    • Chris75
    • By Chris75 16th Oct 16, 9:22 PM
    • 115Posts
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    Chris75
    Global Tracker Portfolio Weightings
    • #1
    • 16th Oct 16, 9:22 PM
    Global Tracker Portfolio Weightings 16th Oct 16 at 9:22 PM
    I am interested in the idea of global index tracker funds and started with the idea that one global tracker fund would be a total answer - but now I am not so sure.

    I consider that the weightings used between markets for both the MCSI & FTSE world indexes are unhelpful - both have a strange weighting with excessive US exposure. I note that very few global tracker addicts seem to query exactly what it is that they are tracking.

    I have been searching the internet and have found a company called Elm that has an interesting take on portfolio weightings. Whilst I do not intend to use their services (at the moment anyway) Their ideas seem sensible and they could be easily adapted to make the UK the home market rather than the US.

    What do you think?

    https://elmfunds.com/blog/our-asset-allocation-methodology/
Page 1
    • dunstonh
    • By dunstonh 16th Oct 16, 9:28 PM
    • 85,082 Posts
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    dunstonh
    • #2
    • 16th Oct 16, 9:28 PM
    • #2
    • 16th Oct 16, 9:28 PM
    Their ideas seem sensible and they could be easily adapted to make the UK the home market rather than the US.
    No. it is important not to use US research when investing from the UK. US taxation is different to the UK. Asset models take into account taxation differences. Plus, the US is home biased compared to other markets. Not for any financial reason but for commercial reasons. Currency fluctuations come into play as well.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Chris75
    • By Chris75 16th Oct 16, 9:46 PM
    • 115 Posts
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    Chris75
    • #3
    • 16th Oct 16, 9:46 PM
    • #3
    • 16th Oct 16, 9:46 PM
    Is there any equivalent UK based research/ application on tracker fund weightings?

    I do not think that I like the US bias of MCSI & FTSE global (nor necessarily some of the other weightings) but if I mess with them without logic it somehow seems to contradict the idea of passive tracking.

    The Elm ideas do not seem that biased by tax & they do explain the domestic weightings so they could be changed for another home market.

    I am not sure what to say about the currency fluctuations as surely they would occur in a global fund wherever the holder was based.
    Last edited by Chris75; 16-10-2016 at 9:49 PM.
    • Thrugelmir
    • By Thrugelmir 16th Oct 16, 10:23 PM
    • 51,214 Posts
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    Thrugelmir
    • #4
    • 16th Oct 16, 10:23 PM
    • #4
    • 16th Oct 16, 10:23 PM
    I consider that the weightings used between markets for both the MCSI & FTSE world indexes are unhelpful - both have a strange weighting with excessive US exposure.
    Originally posted by Chris75
    US companies dominate the global indexes, something like 30 odd out of the top 40. FTSE only represents 6.7% of the "global" index. When the top 100 companies are combined and weighted.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
    • ChopperST
    • By ChopperST 17th Oct 16, 9:52 AM
    • 1,035 Posts
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    ChopperST
    • #5
    • 17th Oct 16, 9:52 AM
    • #5
    • 17th Oct 16, 9:52 AM
    Sorry for the hijack.

    Where is the most reliable information for individual countries market cap?
    • AnotherJoe
    • By AnotherJoe 17th Oct 16, 10:30 AM
    • 4,114 Posts
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    AnotherJoe
    • #6
    • 17th Oct 16, 10:30 AM
    • #6
    • 17th Oct 16, 10:30 AM
    Sorry for the hijack.

    Where is the most reliable information for individual countries market cap?
    Originally posted by ChopperST
    I bet you arent. How difficult is it to just post a new question. Why not do that?
    • AnotherJoe
    • By AnotherJoe 17th Oct 16, 10:36 AM
    • 4,114 Posts
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    AnotherJoe
    • #7
    • 17th Oct 16, 10:36 AM
    • #7
    • 17th Oct 16, 10:36 AM
    I am interested in the idea of global index tracker funds and started with the idea that one global tracker fund would be a total answer - but now I am not so sure.

    I consider that the weightings used between markets for both the MCSI & FTSE world indexes are unhelpful - both have a strange weighting with excessive US exposure.
    Originally posted by Chris75
    If you disagree* then you can create your own with with just two funds, one global, and one global ex-US, in whatever proportion you deem corrects the "excessive" US holdings of the global, or one US only and one global ex US.


    * How did you arrive at your definition of "excessive"?
    • Linton
    • By Linton 17th Oct 16, 11:25 AM
    • 6,935 Posts
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    Linton
    • #8
    • 17th Oct 16, 11:25 AM
    • #8
    • 17th Oct 16, 11:25 AM
    Up to date and conveniently presented data on world capitalisation is difficult to fund. You could look here. It shows US at approx 40%,Asia at 33% and Europe at 19.5% (of which the UK is 4.7%). Unfortunately it doesnt state the date for which the data applies, however given the Asian% it would seem to be relatively recently.

    The MSCI World Index is for countries deemed to be "developed" which much of Asia including China and India isn't. The FTSE All world index isnt truly all world either as it only covers large and mid cap companies. Whether these omissions fully account for the differences between the % actual market capitalisations given in the economic data and the % allocations in the index funds I dont know.
    Last edited by Linton; 17-10-2016 at 11:28 AM.
    • ChopperST
    • By ChopperST 17th Oct 16, 2:19 PM
    • 1,035 Posts
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    ChopperST
    • #9
    • 17th Oct 16, 2:19 PM
    • #9
    • 17th Oct 16, 2:19 PM
    Thanks as always for the informative reply Linton.

    @ anotherjoe my question is directly related to the OPs and the discussion on this thread so what's the point in clogging up the forum with another identical thread, there's so much duplication already?
    • _CC_
    • By _CC_ 17th Oct 16, 2:49 PM
    • 213 Posts
    • 186 Thanks
    _CC_
    Unfortunately it doesnt state the date for which the data applies, however given the Asian% it would seem to be relatively recently.
    Originally posted by Linton
    "Our information in this data visualization comes from the World Federation of Exchanges monthly report from November 2015"
    • AnotherJoe
    • By AnotherJoe 17th Oct 16, 5:49 PM
    • 4,114 Posts
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    AnotherJoe
    Thanks as always for the informative reply Linton.

    @ anotherjoe my question is directly related to the OPs and the discussion on this thread so what's the point in clogging up the forum with another identical thread, there's so much duplication already?
    Originally posted by ChopperST
    because you then end up with dozens of "related" questions many of which will be peripheral and actually not be related.

    Plus, were it to be a seperate question maybe the world expert on stock allocations might see your title , whereas they might ignore a thread about what weightings to have. Or even if they see the thread they may just answer the OPs question and not bother reading all the way through each response to see if there are other questions they could answer.

    Finally, its rude to the OP, if he's subscribed to this thread he starts getting emails saying he has a reply and each time its answering your question, not his. Like this one for example
    Last edited by AnotherJoe; 17-10-2016 at 5:57 PM.
    • Chris75
    • By Chris75 18th Oct 16, 9:14 AM
    • 115 Posts
    • 45 Thanks
    Chris75
    Thank you all for your comments.

    Those who argue for global trackers often see them as logical but I have rarely seen the split of what they track questioned. This is one of the reasons that I was interested in the link that I posted at the head of this topic.

    The link highlighted the difference between the MCSI, FTSE, earnings, GDP, population, market capitalisation & other basis of apportionment. It also highlighted the problems of where to place multinational companies in all of this as it could easily skew any of the other apportionment models.

    Are global trackers "logical" or just cheap?
    • bigadaj
    • By bigadaj 18th Oct 16, 11:34 AM
    • 7,786 Posts
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    bigadaj
    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
    • By nb0825 18th Oct 16, 3:40 PM
    • 85 Posts
    • 26 Thanks
    nb0825
    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

    ASIA EXCL. JAPAN 3% CHINA 2% EMERGING MARKET 1% EUROPE excl. UK 15% FOREIGN EXCHANGE 1% GLOBAL 3% JAPAN 6% NORTH AMERICA 55% OTHER 5% UK 9%
    • bowlhead99
    • By bowlhead99 18th Oct 16, 4:10 PM
    • 5,091 Posts
    • 8,996 Thanks
    bowlhead99
    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
    Originally posted by nb0825

    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%.
    Last edited by bowlhead99; 18-10-2016 at 4:12 PM.
    • nb0825
    • By nb0825 19th Oct 16, 9:03 AM
    • 85 Posts
    • 26 Thanks
    nb0825
    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%.
    Originally posted by bowlhead99
    Yes I see what you're saying. Its not an exact weighting but a pretty guideline of how to weight your portfolio if you're going for a fully diversified global portfolio rather than lumping all into 1 tracker.
    • bowlhead99
    • By bowlhead99 19th Oct 16, 10:41 AM
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    bowlhead99
    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.
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