Global Tracker Funds

MPN

But still even though the L&G is a Unit Trust the two Vanguard funds perform better overall on a 1, 3 & 5 year basis according to the Trustnet table?

Linton

MPN wrote: »

So basically the Vanguard funds I mentioned are overall doing slightly better than the L&G. The only other difference is the Vanguard funds are OEICs and the L&G is an IT - does this make a difference? Is the L&G IT more risky?

Despite its name the L&G fund is an OEIC/UT not an IT. The two Vanguard funds invest in different things, one is a small companies fund and the other invests predominantly in large companies. So saying one is better than the other is meaningless. From the figures in Trustnet any difference in performance between the L&G International fund which follows the FTSE World Index and the Vanguard fund which does the same thing could simply be explained by their performance being measured on different dates. Looking for The Best Fund is futile. Choose one that meets your requirements.

TrustyOven

MPN wrote: »

But still even though the L&G is a Unit Trust the two Vanguard funds perform better overall on a 1, 3 & 5 year basis according to the Trustnet table?

"Performed"
That's the past. There's no telling how it will be in the future.

I think some of the performance difference would be differences in charges, and differences in asset allocation.

I can't remember now, but when I last looked a couple of weeks ago, they not only had different allocations to UK, but I think some of the EM countries, and I think Money Market, and also property were different. (but I think those were the multi-asset L&G vs VLS80, so not pure 100% equities as per this thread discussion)

This all might be the main reason for the different past performance.

bowlhead99

MPN wrote: »

So basically the Vanguard funds I mentioned are overall doing slightly better than the L&G. The only other difference is the Vanguard funds are OEICs and the L&G is an IT - does this make a difference? Is the L&G IT more risky?

The two vanguard funds and the L&G funds you mention are all trying to do different things.

The Vanguard FTSE Developed World-ex-uk fund replicates an index of developed world shares outside the UK, resulting in exposure to massive companies around the world (largest holding being apple at $600bn). It covers a couple of thousand stocks with median size about $35bn. It deliberately ignores the several trillion dollars worth of emerging markets stocks and any of the local or multinational companies listed in the UK, to give exposure only to FTSE's definition of developed markets outside the UK.

The L&G international index also takes stocks from outside the UK but doesn't ignore emerging markets so it will include economies like Russia, Brazil, India, China, South Africa, Malaysia etc, giving it less space for the other countries. To keep costs down it doesn't hold every single company but a representative sample (tracking error was below 0.1% last year). The L&G one like the Vanguard one is still using FTSE as the organisation providing the guiding index so the other countries will be in basically the same proportions as the Vanguard one. So by comparison you would say that the chunk of allocation to emerging market companies in this fund have been replaced in Vanguard's one by more exposure to the developed stuff (62% US, 10% Japan etc). Clearly it will perform differently depending on how emerging markets do compare to the mix of everything else.

The Vanguard Global Small Cap uses an MSCI index with several thousand smallcap stocks (so no Apples or Googles or HSBCs or Volkswagens or Toyotas or Glaxos or Mcdonalds or BHP Billitons or Sonys or Cokes or Exxons or Shells etc) across 23 developed countries including the UK, again with USA as the biggest; median company size is under $2bn.

All of the funds are trying to do different things. As it happens, over the last 5 years they all returned between 100-110%. But in some periods smallcap will significantly underperform largecap or vice versa, in some periods emerging markets will significantly outperform developed markets etc and the differences between global regions or company sizes can and will produce differences which are many multiples of the annual management charges. So, don't buy one over the other because 'it performs the best' - that's a nonsense.

In the opening post you mentioned Lifestrategy 100. That is a global largecap fund (including emerging markets) but has a significant allocation to the UK (deliberately smaller today than it was when it first launched, due to their perceptions of UK investor demand, but still overweight compared to the UK market size on a world stage, and much higher than a fund which is deliberately ex-UK).

So, that will obviously produce a different result to a global ex-UK fund, particularly given the fact a pound bought $1.61 five years ago and now buys 20% less than that, so ex-UK assets maintaining their price in dollars are worth 25% more pounds. And the UK index was relatively heavier weighted to certain sectors such as oil and mining which are flat or down over five years while the other funds as you saw were up 100% in sterling terms. So, VLS100 only did ~90% over the five years while L&G international trust did ~100%.

If you think the UK index's largest constituents are going to continue to crash to the same extent over the next five years and sterling is going to devalue by 20% again, then sure, avoid the UK and stick to an ex-UK fund. If you want to ignore all the biggest companies in the world that you've heard of, and focus on $3-4 trillion of global companies instead of $30-40tn, then use a smallcap fund and likely prepare for a rockier ride. If you think emerging markets have no place in a portfolio, use a developed-world only fund instead of an all-world fund. If you don't want property or bonds in your portfolio, stick to a fund that only holds equities.

But whatever you do, don't buy a fund on the basis that 'it performs best' when you are only taking a one, three or five year view and the funds you are comparing invest in different stuff.

aajax42

I am very new to this, but the mantra I hear repeatedly is 'Low charges, comound interest, low charges compound interes and you cant predict the market.
http://time.com/money/4514371/jack-bogle-vanguard-founder-bogleheads/

dunstonh

aajax42 wrote: »

I am very new to this, but the mantra I hear repeatedly is 'Low charges, comound interest, low charges compound interes and you cant predict the market.
http://time.com/money/4514371/jack-bogle-vanguard-founder-bogleheads/

You cant predict the market.
Low charges are desirable but are a secondary concern.
compound interest does not apply to investments unless you invest in fixed interest securities.

MPN

Thank you bowlhead99 for such a great post which explained everything about these funds.

After this information I think I will invest half of my ISA in the Vanguard FTSE Developed World Ex UK fund and the other half in the L&G fund so I have some exposure to the emerging markets. I didn't realise the Lifestrategy 100 also had exposure to the emerging markets so thank you for that information but I will stick with the other two funds I mentioned.

Interesting that nobody else yet has suggested or recommended any other global index funds except for the Fidelity World Index in this thread?

Ray_Singh-Blue

Deciding whether to buy VWRL over the fidelity world index, is like deciding to paint your room Dulux apple white or Dulux jasmine white.

Deciding whether to buy a global stock index tracker rather than some managed funds, is like deciding whether to paint your room cream or blue.

Deciding whether to buy a global index tracker rather than a selection of shares, is like deciding whether to paint your room or tile it.

Ie. you have already made 99% of the decision

dunstonh

Interesting that nobody else yet has suggested or recommended any other global index funds except for the Fidelity World Index in this thread?

Board doesnt like it when investments are recommended. So, many will avoid doing so. Also, there isnt enough to go on to make a recommendation anyway unless you just want to pull same names out of thin air.

The main thing to look for is whether it is global inc UK or exc UK and what benchmark/index have they are tracking followed by the tracking error. VLS100 is not a tracker. It is a fettered fund of funds with a defined asset allocation.

MPN

Thanks for pointing that out dunstonh about the VLS100. Everybody I have spoken to seems to talk about the VLS funds as trackers so good to know that it isn't.