Legal and general - Global emerging market index fund.

Any

Are all indexes just a trackers then, even it it does not say "index tracker"?
I don't 100% understand when it is just a tracker and when it isn't.

I definitely want at least 1 tracker in my portfolio, but some show as "passive" management, and some have manager.. even though they are indexes, with "the manager is tracking the index"..

Jegersmart

Any wrote: »

Still has a manager.. I thought it was weird, but it does.
I view tracker as a "safer" bet.. But this doesn't actualy seem like a 100% tracker...
Charges are low, but it still mentions manager?

And also Legal & General is supposed to have generaly good reputation on index trackers?



I don't think 25% is spreading it "too thin" to be honest. Perhaps we have different view on balanced risk portfolio!
Also depends on risk attitude of the investor..

I have some even very low risk investments.. like fixed interest.

But I am only a beginner!

Thank you all for your help.

Hi Any

Thanks for the debate on this. "risk" or our perception of it is a very interesting subject. We do not judge risk very well as a species, our brains tend to take shortcuts and think in relative terms a lot. We also tend to look to the past or certain period in the past to judge how the future may look. I think it important to ensure as far as possible that one's mind is as open as possible to avoid being folled by randomness. There is a book by that name that should be read imho. Even the Black Swan by Taleb has some interesting views that can help.

Aaaaanyway, your statement of "very low risk, fixed interest" reflects this phenomena. We tend to forget that if there is a default then "fixed interest" instruments can be worthless within a very short time indeed. Most will say "ah, but that is very unlikely to happen" and they may be right but the impact of such an event will be considerable. When people refer to FI/Bonds as low risk, they really mean low volatility - which is related to risk depending on the situation but can't really be a measure of outright risk per se. Tell that to the banks who lost more money than they had ever made in their histories when the Latam countries decided to default a couple of decades back:) So we tend to underestimate the risk of something "very unlikely" to happen whilst also underestimating the *impact* of what would happen if it did...if you see what I mean....?

What I aim for in my investment portfolios is to maximise the risk I take at certain times whilst understanding the possible impact, and minimising my risk at other times for the oposite reason. That means I take much more risk - or my definition of risk - when the markets are in freefall and everyone panics. The opposite also applies. This feels wrong normally, so personally this is something that has become more second nature over a number of years. The point is that I do NOT want a balanced portfolio at all times because I want to maximise my returns. I do NOT want to earn just an average return of a longer period, otherwise I would just buy a global tracking fund and see where that gets me.

In my view, credit expansion has fuelled almost all asset classes over the past 30 years and this is unlikely to happen going forward because we can see the effects of that now, almost everywhere you look the debt burden is considerable/crippling. What this means to me is that I doubt that we will see the kind of market trends and conditions we have seen for the past few decades, so we need to keep an open mind as to how we can profit from what lies ahead. No one can tell the future of course so we have to watch for clues and try to interpret as best we can.

Another rambling post as I am busy and trying to multitask despite being male - but basically "risk management" is absolutely key - but one should remember that "risk management" can often mean that you want to *increase* risk - not reduce. Take also good care to understand risk and how it applies differently to everyone. As I said, I rarely want a "balanced" portfolio personally.

If anyone wants to take debates offline I am happy to do that as and when time allows - if others get bored on here..

J

Jegersmart

Any wrote: »

Are all indexes just a trackers then, even it it does not say "index tracker"?
I don't 100% understand when it is just a tracker and when it isn't.

I definitely want at least 1 tracker in my portfolio, but some show as "passive" management, and some have manager.. even though they are indexes, with "the manager is tracking the index"..

An index tracker is based on a defined basket or index and its components. Soemtimes these are transparent, other times they aren't.

In the case of this fund the aim seems to be:

"To track the capital performance of global emerging equity markets, as represented by the FTSE All-World Emerging Index, through investment in a representative sample of stocks selected from all economic sectors."

Whilst this is a little ambiguous potentially, I take it that the fund is not based on an index value like a normal tracker but the fund deals in shares based on the components of the index directly - presumably just adjusting positions when the index is revised on a periodical basis. Either way, it will either offer the exposure you want...or not....?

I could be worng though:)

J

Lokolo

Jegersmart wrote: »

An index tracker is based on a defined basket or index and its components. Soemtimes these are transparent, other times they aren't.

In the case of this fund the aim seems to be:

"To track the capital performance of global emerging equity markets, as represented by the FTSE All-World Emerging Index, through investment in a representative sample of stocks selected from all economic sectors."

Whilst this is a little ambiguous potentially, I take it that the fund is not based on an index value like a normal tracker but the fund deals in shares based on the components of the index directly - presumably just adjusting positions when the index is revised on a periodical basis. Either way, it will either offer the exposure you want...or not....?

I could be worng though:)

J

Yes this is what I think it is. Instead of having analysts deciding which individual companies or areas to buy in, the fund manager just picks the basis for the index and then the computer does the rest.

Any

Jegersmart wrote: »

Hi Any

Thanks for the debate on this. "risk" or our perception of it is a very interesting subject. We do not judge risk very well as a species, our brains tend to take shortcuts and think in relative terms a lot. We also tend to look to the past or certain period in the past to judge how the future may look. I think it important to ensure as far as possible that one's mind is as open as possible to avoid being folled by randomness. There is a book by that name that should be read imho. Even the Black Swan by Taleb has some interesting views that can help.

Aaaaanyway, your statement of "very low risk, fixed interest" reflects this phenomena. We tend to forget that if there is a default then "fixed interest" instruments can be worthless within a very short time indeed. Most will say "ah, but that is very unlikely to happen" and they may be right but the impact of such an event will be considerable. When people refer to FI/Bonds as low risk, they really mean low volatility - which is related to risk depending on the situation but can't really be a measure of outright risk per se. Tell that to the banks who lost more money than they had ever made in their histories when the Latam countries decided to default a couple of decades back:) So we tend to underestimate the risk of something "very unlikely" to happen whilst also underestimating the *impact* of what would happen if it did...if you see what I mean....?

What I aim for in my investment portfolios is to maximise the risk I take at certain times whilst understanding the possible impact, and minimising my risk at other times for the oposite reason. That means I take much more risk - or my definition of risk - when the markets are in freefall and everyone panics. The opposite also applies. This feels wrong normally, so personally this is something that has become more second nature over a number of years. The point is that I do NOT want a balanced portfolio at all times because I want to maximise my returns. I do NOT want to earn just an average return of a longer period, otherwise I would just buy a global tracking fund and see where that gets me.

In my view, credit expansion has fuelled almost all asset classes over the past 30 years and this is unlikely to happen going forward because we can see the effects of that now, almost everywhere you look the debt burden is considerable/crippling. What this means to me is that I doubt that we will see the kind of market trends and conditions we have seen for the past few decades, so we need to keep an open mind as to how we can profit from what lies ahead. No one can tell the future of course so we have to watch for clues and try to interpret as best we can.

Another rambling post as I am busy and trying to multitask despite being male - but basically "risk management" is absolutely key - but one should remember that "risk management" can often mean that you want to *increase* risk - not reduce. Take also good care to understand risk and how it applies differently to everyone. As I said, I rarely want a "balanced" portfolio personally.

If anyone wants to take debates offline I am happy to do that as and when time allows - if others get bored on here..

J

Ah, but you are only looking at different aspects of issue differently, risk is still a risk. You still need to assess both.

You can call "the probability of happening" volatility, but it still is a risk, just in different coat.

Fixed interest, spread over number of companies or/and countries, is lower risk in my eyes in impact (as they are also unlikely all to default at once) and probability of happening then global emerging markets.

I take your point on (if I understand correctly) investing when markets are low to maximise returns when they go up, but the risk you are taking also is "IF" it goes up!!
So while you might think that 25% of portfolio in very high risk area isn't that much as you might miss out on some returns, the fact is that IF the area doesn't go up or it goes tits up (and let's face it, the main problem is that those countries are not regulated in the same way, they are often politicaly unstable etc etc, so if I go back to your "impact" element, the impact will be massive) you loose the lot.
Perhaps temporarily, perhaps indefinitely.

Thank you on the advice.

Jegersmart

Any wrote: »

Ah, but you are only looking at different aspects of issue differently, risk is still a risk. You still need to assess both.

You can call "the probability of happening" volatility, but it still is a risk, just in different coat.

Fixed interest, spread over number of companies or/and countries, is lower risk in my eyes in impact (as they are also unlikely all to default at once) and probability of happening then global emerging markets.

I take your point on (if I understand correctly) investing when markets are low to maximise returns when they go up, but the risk you are taking also is "IF" it goes up!!
So while you might think that 25% of portfolio in very high risk area isn't that much as you might miss out on some returns, the fact is that IF the area doesn't go up or it goes tits up (and let's face it, the main problem is that those countries are not regulated in the same way, they are often politicaly unstable etc etc, so if I go back to your "impact" element, the impact will be massive) you loose the lot.
Perhaps temporarily, perhaps indefinitely.

Thank you on the advice.

I wouldn't call it advice, more observations for debate only:)

Yes, risk is a huge discussion so the simplistic points made above are not even scratching the surface. The point I am trying to make is that one should challenge one's own views on a regular basis especially what we think we "know". The fixed interest point is interesting because I personally belive that the debt markets are in severe imbalance - not just in terms of total debt but also with the growth of derivatives around it which may cause some chain-reaction events that have not been seen before, or if they have they have been smoothed out by bailouts/intervention to prevent wide-spread events. So whilst our experience and "knowledge" tell us that fixed interest spread over a wide area should be very low risk - I am just saying that I am open to the possibiluty that it is in fact not necessarily the case.


Fixed interest is a misnomer in any case, most debt will fluctuate as we have seen in the gilt markets where certain instruments have gained 20-40% in a year - where the opposite is also likely to happen right? The coupon at that point could be largely ireelevant of course....:)

All the best!

J