USA overpriced

Mistermeaner

Mentioned in a few threads but nothing dedicated

This poorly informed amatuer has read a few things on t' web and has a hunch that the US is overpriced and due a major drop , much more so than UK and rest of world.

What do others think?

Hes been lucky once dropping a pile of equities early sept and avoided the drop, and also bought back when lower than sold. Pure luck.

Going to trust to luck again and sell US equities. Thing is current US exposure is in the main in pension, as 70% of world ex UK fund that is its self 40% of total pension pot. Im ok with little bits of US exposure in my vanguard and other minor funds but will sell half of this world ex uk fund tomorrow.

This leaves me with 20% of my pot to buy something nice and shiny, there doesnt seem to be any world ex US + ex UK funds in the limited range available in my pension - any thoughts on what to buy?

I have already property, gilts, small comps uk+us, and a mixed fund.

Dont want emerging markets , commodities or any additional uk / eu

Whats left? Bonds?

Drp8713

Who knows, I have a target asset allocation and will be topping up the USA around Christmas. I am not going to reduce my exposure to one of the major markets based on guess work.

Somebody will be along in a minute to say the historic average CAPE is 16.5 and its now 26 so a crash is round the corner, but that in itself means it was overvalued at 17, 19, 21, 25 etc and still it went up.

It may crash 30% in 3 months time but might go up 35% over the next 3 months....

masonic

You should probably DYOR and come to your own conclusion. Would you have listened to the gold bugs who were incessantly posting here a couple of years ago?

System

If the US market tanks, don't think your money will be safe in the FTSE as think you will find it will take a hammering too.

bowlhead99

If you drop half of the world-ex-UK fund to get rid of some U.S. exposure, then you're also getting rid of some Japan, other Asiapacific-ex-Japan, and Europe. So if it was only the U.S. stuff you wanted to drop, and you were happy with the rest of the portfolio, then you should probably buy those three areas back.

But you've said you don't want any more EU - so did you want to drop it as much proportionally as the U.S. stuff? Is it as overvalued as that was? Or did you just have too much of it generally?

What's in the "mixed" fund. Presumably that has some bonds in it as well as equities? For simplicity and an easy life, if you don't want to pick a sector, you could just add to your mixed fund. Whether you do that, or you buy a dedicated bond fund, you'll effectively have sold out of a full equities fund and moved it into something that's partially or fully non-equities. Again, if you were just looking to dump U.S. equities for other regions but had been happy with the general "equities vs other" mix, that seems a step too far.

At the end of the day if you're just going to trust "luck" and make snap judgments based on snippets seen on the interweb to add and drop sectors at will, it sounds like you're just gambling rather than having a dry plan. So, impossible to advise really, because you are modifying your holdings to buy and sell a bit of what you fancy and we don't know what you fancy next.

No doubt Ryan Futuristics will be along soon to say you're right to reduce U.S. exposure because it's higher than its historic average according to CAPE ratio. However, this doesn't mean the whole market is "due a major drop". Merely that on average it has potentially less further up to go, over the next decade or two, than some other areas that potentially look a bit cheaper and could be prioritised.

An obvious comment/question is, if you think U.S.is generally overvalued and due a drop, and you know that movements of largecaps in a particular region are typically magnified or exaggerated in the movements of smallcaps, then why are you just dropping your largecap U.S. exposure (forcing you to dump other regions at the same time), when you could sell some dedicated U.S. small cap fund and avoid a potentially bigger loss when the US tanks like you think it will...

Mistermeaner

Hi all , thanks for posts.

Yes it is a whim and a hunch - but sometimes you just got to go with that.

Ive not worked it out exactly but given range of funds im approx total 40% US equities in my pension fund and for the moment want that closer to 25% - nothing major just a bit of rebalancing based on gut.

Im leaning towards doing as you suggest which is to buy into the mixed fund, which is as you correctly point out a bit of all sorts inc. U S and bonds.

Fyi mixed fund is: zurich managed 2EP
World ex UK fund is: zurich aquila world ex UK

Be interested in ryanfuturistic take on things, in part through his influence im backing woodford in my isa

Also re the small caps: they are only 5% of pot so happy with exposure there

Cheers

bowlhead99

ggb1979 wrote: »

Be interested in ryanfuturistic take on things, in part through his influence im backing woodford in my isa

I think you would be interested to hear his take on selling the US, because you have heard him say it before and you know he would agree with you and it is always nice to get one's opinion validated.

But you should perhaps be more interested in people whose opinions you haven't heard laid out all over the forum already.

- RF would generally concur with your idea to sell US,

- would not generally concur with your idea to switch into bonds,

- would favour buying parts of the EU with lower valuations -e.g. spain, italy ( although you've rejected EU),

- would favour buying more peripheral Europe stuff like Eastern Europe/ Russia and emerging markets generally (although you've rejected emerging markets),

- would not favour accessing global markets through trackers like your ZA World ExUK equity index, because he prefers active management in order to seek value - and high weighting to high priced assets is not his style,

- would favour buying funds with a value or high dividend slant such as the Woodford one you already hold outside the pension (athough you've rejected any more UK).

Maybe putting words into someone else's mouth is a bit cheeky but you've read it all several times in the last few months and you generally know his views on most markets because he talks at length about the same stuff in multiple threads. No offence intended to the guy. But if you were truly looking for inspiration you would not be looking to hear the same opinions you've already heard from someone who wears his heart on his sleeve - you would seek out something new from an unknown.

There are a great many threads where people have asked for input on their portfolio, and every asset class under the sun will have been mentioned here or there if you look at enough of those types of threads. You seem to have at least considered most major asset classes, so it's just a case of deciding whether to try to get a balance of all of them or go heavily towards or away from a subset of them.

In equities, if you've considered most major markets around the world and both large and small caps and developed world and emerging world listed equities, then the only other things to consider are unlisted equities (private equity) or specific investing styles (e.g. value/income) or specific specialist market sectors or themes (tech, healthcare, infrastructure, energy, resources, renewables).

In non-equities if you've considered gilts and bonds and commodities/metals and properties as much as you'd like, perhaps that only leaves hedge or 'absolute return' funds, whether opaque and complex like SL GARS or some kind of long/short equities based fund that doesn't move the same way as long-only equities.

All of the non-equities categories have more specialist subsectors available, e.g. with bonds you can consider EM income funds as being quite distinct from to sterling gilts or UK high yield bonds or to global mixed dated corporate bonds or short-dated anything. Within property you have global commercial real estate focussed on shopping centres or offices or factories or you have niche UK OAP care homes etc etc. In commodities and resources, gold is different to oil is different to rubber or pork bellies.

So there is a lot out there, but the answer to the question "I like to buy on gut feel and sentiment I pick up from the internet, and just dumped half my developed world ex uk tracker, what might I like to buy next?" is not a simple one.

Thrugelmir

ggb1979 wrote: »

Yes it is a whim and a hunch - but sometimes you just got to go with that.

Must be something..............

The oil price is proving interesting. As the Saudis production cost is around $10 a barrel. A level at which which the fracking Americans simply cannot compete. A global game of poker being played at the moment. May all turn to sand. There again the story could cause major headaches.

Mistermeaner

Thanks Bowl head as ever for your wise words.

You are correct re the tendencies to seek opinions which match your own, and while I like Ryan's style I am interested in others hence the questions I ask on here.

The wisdom shared with me does go in, and while I may not end up making the right decisions I do I hope make them in balanced way after considering the input received.

Just to reassure in case I've not been clear; I am not rejecting EU, US, emerging markets etc. outright as I already have exposure to these in my portfolio - my aim was to reduce exposure to US equities from present circa 40% to ~25%, the simplest way for me to do this was selling a portion of my holdings in that US heavy equity tracker; the question was, which I think has been well answered, is what else is there out there that I may consider (vs. just re-apportioning it amongst my existing portfolio which I think covers most of the usual bases - UK, US, EU, emerging, small caps, bonds etc.).

I hope you're reassured that I am listening and the advice is being being heeded

Where I am leaning is that I don't fancy any significant allocation to 'specialist' funds so will probably just reapportion amongst my existing.

What I find interesting in all this process is that while there are literally thousands of funds out there and the choices can seem overwhelming, essentially for 90% of people the questions regarding portfolio allocation boils down to question of asset type (equity, bond, gilt, etc) and geographical location (UK, US, EU, etc) - there is a myriad of different ways of achieving these things but fundamentally that is what most are aiming for and deciding about, so once you see through the noise for most people it is relatively simple. The tough questions are then deciding on the allocations

Linton

ggb1979 wrote: »

...
Yes it is a whim and a hunch - but sometimes you just got to go with that.

Ive not worked it out exactly but given range of funds im approx total 40% US equities in my pension fund and for the moment want that closer to 25% - nothing major just a bit of rebalancing based on gut.
....

No you dont have to go with it. Following whims and hunches is normally in my view a bad idea because they tend to be short term over reactions to noise and often after the event. Far better to decide on a high level allocation and stick with it for a long time, several years at least. Dont rebalance too often as you then loose momentum gains, once a year is fine.

If you are steadily paying money in it may be reasonable to use that to modify your overall allocation, but I dont believe selling one sector to buy another because of gut instinct helps in the long term.