Best way to hold short term UK tracker

TheTracker

Here is a good backtest against the S&P500. Since 2005 the returns are a little in favour of the algorithm and with less volatility. Since Jan 2009 it would have underperformed the market by 50%. I am not a fan of any algorithm or merits of TA. Other studies have shown it historicaly works if there are frequent periods of 30%+ swings, but not across all swings.

https://www.quantopian.com/posts/response-to-investifys-myth-buster-article

TheTracker

Ryan_Futuristics wrote: »

Value investing's the only principle I feel confident will keep working (that would still under-perform recently by keeping you out of the US)

I hold a broadly passive portfolio with a value tilt. I'm 60% equities with 90% of that in passive trackers and a 10% UK Value tilt (6% of entire portfolio). The problem is there are no real index/trackers for this asset class, only approximates.

As a result I hold Vanguard FTSE UK Equity Income Index (VVUEIN, OCF 0.22%). Other choices include SPDR S&P UK Dividend Aristocrats ETF (UKDV, OCF 0.3%) and PowerShares FTSE RAFI UK 100 ETF (PSRU, OCF 0.5%). The ideal choice would appear to be Dimensional UK Value Fund or Dimensional UK Core Equity Fund, unfortunately there are no pleasing routes for me to buy these as my 6% is under 100k, and I don't use a DFA-chummy advisor.

I've also seen it said that a two fund solution might be constructed, one that provides cheap beta exposure and a second that provides concentrated exposure to value stocks. But I haven't seen this laid on the UK market with examples.

What if any index-based funds track your principle for the UK market? I wish to rebalance annually, contribute a lump sum annually, and avoid using a ferrari driving secret sauce pixie dust money manager. I anticipate holding for 10 years minimum, more likely 20-30.

Linton

scarletjim wrote: »

Yes I can certainly see how that could happen. I can't remember it in recent years, but I remember when the FTSE100 was at about 6900 maybe 13-15 years ago. The tech bubble burst, and it fell to somewhere in the early 6000s. It would have been easy to think of that as a temporary correction, and buy in big. But after that, a combination of big financial scandals, the impact of 9/11, and other economic factors, all meant that it fell much more, below 5000 I think, and never got back above 6000 until recent years. So riding that one out would have meant tying up the (already diminished) capital for say 10 or more years with no return / interest. So yes I absolutely see what you're saying. But...

...my only query is, how heavily could it fall? I mean realistically, and using history as a guide? Could anyone on here see it realistically falling below 5000 again? How many heavy long-term bear markets have we seen in the last 10 years?

That said, it would only take one such scenario to hurt that investment for a very long time, which is why I would never risk what I couldn't afford to pretty much entirely lose. Thanks for the reality check though.

You are wrong to believe that failure of the FTSE100 to reach a previous high means investing for many years with no returns.

1) The FTSE100 returns about 3% annually in dividends. Over time these make a major difference. Taking dividends into account the pre Tech Crash high of early 2000 was reached again in 2005 and is now about 80% higher than the 2000 value. The price just before the more recent crash was surpassed 3 years later.
2) You may also be continuing to invest new money whilst prices are cheap.
3) There are many other indexes and non-index funds that have out-performed the FTSE100. The US markets for example are well above pre 2007/2009 highs.

In the past 10 years there has been only one major long term fall, that of 2008/2009 when the FTSE dropped by nearly 50% over 18 months. There have been a couple of short duration 20% falls. Looking for more than 10 years there was a slightly larger fall than the 2007/2009 crash over a 3 year period starting January 2000. From when the FTSE100 was started in 1984 until 2000 was a period of fairly consistent rises apart from a short term but major fall in 1987 of around 40%.

Ryan_Futuristics

TheTracker wrote: »

I hold a broadly passive portfolio with a value tilt. I'm 60% equities with 90% of that in passive trackers and a 10% UK Value tilt (6% of entire portfolio). The problem is there are no real index/trackers for this asset class, only approximates.

As a result I hold Vanguard FTSE UK Equity Income Index (VVUEIN, OCF 0.22%). Other choices include SPDR S&P UK Dividend Aristocrats ETF (UKDV, OCF 0.3%) and PowerShares FTSE RAFI UK 100 ETF (PSRU, OCF 0.5%). The ideal choice would appear to be Dimensional UK Value Fund or Dimensional UK Core Equity Fund, unfortunately there are no pleasing routes for me to buy these as my 6% is under 100k, and I don't use a DFA-chummy advisor.

I've also seen it said that a two fund solution might be constructed, one that provides cheap beta exposure and a second that provides concentrated exposure to value stocks. But I haven't seen this laid on the UK market with examples.

What if any index-based funds track your principle for the UK market? I wish to rebalance annually, contribute a lump sum annually, and avoid using a ferrari driving secret sauce pixie dust money manager. I anticipate holding for 10 years minimum, more likely 20-30.

Actually for UK value I'd be happy with Mark Slater's MFM UK Growth - I'm a big fan of the Slaters' value approach (I use it myself for valuing stocks and funds), and it's not too replicated across other funds/indexes ... But right now I'm not tempted by valuations in UK smaller companies

I find there aren't the ETF's available here - Cambria's GVAL would save me a lot of effort, but it's fairly exorbitant to own outside the US ... Barclays CAPE ETN is another interesting one using principles I use a lot

For my approach, I use global valuations to set regional asset allocations (so right now I'm very underweight US, very overweight Emerging Europe, Italy - basically Meb Faber's approach) and always try to buy undervalue

I also try and keep the overall valuations low across my portfolio (which means always gradually rotating into cheap regions and sectors)

I don't find active vs passive to be a useful distinction - I think with the exception of one or two insightful managers, you can predict fund performance best simply by looking at regional exposure and value vs growth forecasts ... With the UK neither particularly expensive or cheap, I favour large cap dividend payers at the moment (which means my UK allocation is looking expensive, but defensive - and even through the recent 10% market correction, it barely lost 1% in value ... Which has also made finding a buying opportunity for the UK more difficult)