Investing the lot - YOUR ideas?

StevieJ

EdInvestor wrote:

Many investors don't see the need to incur additional foreign exchange risk with little upside by investing in foreign stockmarkets, especially since so many UK blue chips are involved in the gorowth of these markets as part of their business.

Surely currency exchange risks exist in the UK markets e.g. the oil companies
stock in trade is priced in US dollars.

EdInvestor

OK, let's see what performance you get for taking this extra risk of investing overseas, for which you ought to receive a premium.

Figs from Citywire showing best performer in the sector and 5th best, over 10 years.

Asia Pacific ex Japan: +163%, +112%
Asia Pacific incl Japan +90% +58%

Europe excl UK +362% +204%
North America +303% +112%

Global emerging markets +148% + 114%
Global growth +214% +165%

Now let's look at the UK over the same 10 year period:

UK All companies +356% +260%
UK Equity Income +308% +253%

The UK performance is virtually the same as the mainstream overseas markets in Europe and the US, and very much better than in emerging/global markets.

So what extra return are you getting for being exposed to the extra currency risk? Nothing.

It's also worth noting that many foreign funds have higher hidden charges and that many foreign companies do not pay dividends, or pay lower divis than UK companies.Since 50% of the real returns from shares consists of dividend income, this makes a real dent in your profits over the long term.

Generali

EdInvestor wrote:

So what extra return are you getting for being exposed to the extra currency risk? Nothing.

It's also worth noting that many foreign funds have higher hidden charges and that many foreign companies do not pay dividends, or pay lower divis than UK companies.Since 50% of the real returns from shares consists of dividend income, this makes a real dent in your profits over the long term.

There are some pretty funky risks out there, investing in foreign stocks. For example, it is my understanding that in Russia a company can announce a dividend and then then withdraw it again at any point over the following 12 months.

dunstonh

You haven't factored in allocation and rebalancing Ed.

Plus, by picking 10 years, you are basically ruling out Emerging Markets, Asia Pacific and Specialist which are more relevant today than they were 10 years ago.

Going forward, where is the growth? UK with its year on year declining manufacturing, aging population, increasing tax burden, expensive work force, Increased red tape, sliding down the economy size league table?

Overseas markets give you access to countries with different economic cycles and situations to the UK. It increases the potential for future growth.

Globalisation has made the world a very different place today to what it was 10 years ago. Its about finding balance and where the future is. Not the past which is all past peformance league tables do.

BTW, I did a sector allocated portfolio with annual rebalancing using the best cumulative funds over 10 years and it came out 385.5%. Trumps your 356% (source financial express). Doesnt mean anything though as most of the funds you want to be in going forward didnt exist 10 years ago.

EdInvestor

OK let's look at the figures over 5 years in % growth


Asia Pacific ex Japan: +155 +115
Asia Pacific incl Japan +100 +63

Europe excl UK +150 +112
North America +19 +7 Ouch!

Global emerging markets +254 + 149
Global growth +144 +90

Now let's look at the UK over the 5 years:

UK All companies +164 +135
UK Equity Income +117 +101

Your "sector allocated protfolio is not going to do any better than investing at home because the gains on the emerging markets side will be wiped out by the losses in the US due to the rise of sterling.

Again, there is no risk premium and not much putperformance either.

dunstonh

What you going to do when the UK takes a turn like America has?

Plus again, you are looking at straight line performance with no rebalancing.

I have redone the portfolio with the same sector allocation with annual rebalancing for a period of 5 years and it comes out as follows:
210.3% which trumps your 164% or 117% for top performance by an even larger amount.

Even sector average performance on each sector comes out at 83.9% which compares to 69.0% on UK equity Income sector average and 58.6% on UK all comapnies sector average.

Chrismaths

And there is no mention of how much volatility was experienced by either portfolio. No point bandying about return figures without including the other side of the equation.

EdInvestor

Let's be realistic, guys.

Dunstonh is talking about "sector allocated portfolios" and "rebalancing", not to mention low upfront charges.This is the language of someone with investing skills and a professional approach.

But the average advisor couldn't give a monkey's about designing investment portolios, "rebalancing" them or even bothering to inform clients about how they are performing.

All he wants is to flog a product that preferably gives him a nice slug of money upfront and provides a bog standard performance that is good enough to avoid any misselling complaints in future.

Most investors can't expect to get much out of a relationship with a standard advisor. Sooner or later they will realise this and arrive somewhere like this website seeking some basic facts.

I do appreciate that anyone who wishes to get paid for providing a service needs to make it look fairly complicated. But IME it just doesn't have to be that way.

chesky369

I love both of you.

si1503

EdInvestor wrote:

Let's be realistic, guys.
But the average advisor couldn't give a monkey's about designing investment portolios, "rebalancing" them or even bothering to inform clients about how they are performing.

In that case find another advisor! This is why it is recommended that if the OP decides to seek independent advice they go with an Investment Specialist IFA.