How much in your home market?

quarky

Thanks, some very informative posts.


I found this too, which is interesting for giving an indication of the sizes of some of the equity markets.
http://www.dailymail.co.uk/news/article-3197558/If-countries-size-stock-markets-Merrill-Lynch-map-reveals-America-largest-squint-eyes-Russia-China.html

coastline

quarky wrote: »

Thanks, some very informative posts.


I found this too, which is interesting for giving an indication of the sizes of some of the equity markets.
http://www.dailymail.co.uk/news/article-3197558/If-countries-size-stock-markets-Merrill-Lynch-map-reveals-America-largest-squint-eyes-Russia-China.html

As a guide you could look at the MSCI World Index.

https://www.msci.com/world

To compare performance the following is set with MSCI and FTSE All Share index.Reset the timescale to go back as far as 1985 I think ?

http://www.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,NASX

N1AK

quarky wrote: »

Thanks. I guess my question was, is there a legitimate reason to be overweight in regards in a particular market, because you live there?

3-4 years ago when I was pretty much getting started I had a UK bias because it seemed to make sense however I decided this was an emotional rather than logical or evidence based position just over a year ago and am gradually removing that bias from my portfolio now.

I've not seen any compelling evidence that a home bias provides effective protection from any particular investment risk (though I'd be happy to thank anyone who could share any).

Scarpacci

For my pension portfolio which is just passive trackers, it's about 20% UK - which is still close to 3x the UK's 7% share of the global equity market. That's around the same level as the Vanguard LifeStrategy 80. To be honest, I suspect 3x is still too much. Instinctively though, I look at the other 80% and say that's a lot of exposure to have to that "scary outside world". I can certainly see the psychology at work over rational investing decisions.

For my active portfolio of shares, it's 55% UK with the rest in the US (no Europe-listed companies, mainly because of dividend withholding taxes which are less easy to deal with than the US). The actual economic composition of those companies is nowhere near as UK-dependent, but obviously market performance can separate from the underlying companies so there's still risk in that (particularly as we approach the Brexit vote).

I wonder, given how sensitive many of us might be to the UK economy anyway, there might be sense in under-weighting the home market. Similar to the suggestion people don't tie up too much of their wealth in their employer's shares, I wonder if - at least at times - it might make sense to have been light on the UK as it's likely to suffer at the same moment your finances are.

bowlhead99

Scarpacci wrote: »

obviously market performance can separate from the underlying companies so there's still risk in that (particularly as we approach the Brexit vote).

I wonder, given how sensitive many of us might be to the UK economy anyway, there might be sense in under-weighting the home market. Similar to the suggestion people don't tie up too much of their wealth in their employer's shares, I wonder if - at least at times - it might make sense to have been light on the UK as it's likely to suffer at the same moment your finances are.

Brexit is an interesting one as I think much of the GBP currency weakness against USD for example (even though US fed have moderated the idea of 4 rate rises this year to maybe 2), reflects the pricing in of potential brexit. As such, if we vote to stay in (which I don't think is as close to 50/50 as some polls suggest) sterling should strengthen. So all of a sudden the 70- 80% of your assets held in foreign equities just lost 5 or 10% in sterling terms. However, selling all those foreign companies seems a bit mad, when many of them are very sound businesses.

My plans around this involve dollar short ETFs and spreadbet currency options to hedge some positions.

grey_gym_sock

John_Clark wrote: »

If you were running a UK pension fund, and your liabilities are in Sterling, it makes sense to keep your assets in Sterling too. If the value of Sterling falls, your liabilities will fall in proportion, so the fund still remains safe.

yes, but you need to hold sterling-denominated bonds (gilts or investment-grade corporate bonds) to match your liabilities.

shares which are traded in sterling don't really "match" liabilities, because their prices are too volatile. they might be less volatile than the prices of overseas shares, converted into sterling, but not that much less.

grey_gym_sock

bowlhead99 wrote: »

My plans around this involve dollar short ETFs and spreadbet currency options to hedge some positions.

i definitely won't be trying to be that clever

but glad to see you may be giving more business to IG group (which i hold shares in).

bowlhead99

grey_gym_sock wrote: »

i definitely won't be trying to be that clever

but glad to see you may be giving more business to IG group (which i hold shares in).

Yes, they're a decent platform and a decent business. I don't own any myself at the moment, but got shares in them for a few years when they IPOd in the early 2000s before going private again, and had them for a few more years once they came back on the market.

Decent growth and income too, but haven't had them for the last few years. Most of my investments are via collectives these days apart from the odd conviction-driven punt.

BananaRepublic

Scarpacci wrote: »

For my pension portfolio which is just passive trackers, it's about 20% UK - which is still close to 3x the UK's 7% share of the global equity market. That's around the same level as the Vanguard LifeStrategy 80. To be honest, I suspect 3x is still too much.

When deciding where to put money, you really need to take into account the risk associated with a given market. Some markets can be quite volatile, for example, so you need to think about that. I don't think a decent wodge in the UK market is too bad, although the UK market is one area where active funds can perform.

kidmugsy

quarky wrote: »

Thanks. I guess my question was, is there a legitimate reason to be overweight in regards in a particular market, because you live there?

Logically you should probably be underweight. Your house and your future career are already invested at home; it make sense that your investments be abroad.

A counter-argument is taxation: contrary to all the recent hoo-ha, a typical consequence of holding foreign shares is paying foreign withholding tax on the dividends; you avoid that by investing at home.