Global Tracker Funds

DrWatson1

buffman wrote: »

Do take into account when you invest in a global fund you are in effect 'selling' sterling at these levels. If sterling was to appreciate to levels seen at the beginning of the year (and global stock markets are static), you would lose about 15%.

Is this the same with Bonds? I'd been looking at this Vanguard bond Index, and the gains seem fairly linear, suggesting there is not the exposure to currency swings experienced by equities.

I was looking at investing a lump sum, but would be reluctant to do so if there was some currency exposure, as given the modest gains of this tracker it might take the best part of a decade to regain these losses.

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-global-bond-index-accumulation/charts

bowlhead99 wrote: »

It is just his estimate of how much he feels a tracker fund investing into a market will outperform something that's managed - based on an assumption of how much you pay for the management, which he considers will be a drag on performance (because while lots of managers beat the index, lots of managers don't beat the index, and so on average they equal the index, and you are paying higher fees for it).

It is also suggested in those videos, and is argued consistently by defensive investors, is managed funds only have a 10% chance of beating passive funds over the long term.

I assume there is some robust empirical data to support this assertion, so in reality, what chance does the lay investor have of finding that one-in-ten managed fund?

Ray_Singh-Blue

DrWatson1 wrote: »

Is this the same with Bonds? I'd been looking at this Vanguard bond Index, and the gains seem fairly linear, suggesting there is not the exposure to currency swings experienced by equities.

I was looking at investing a lump sum, but would be reluctant to do so if there was some currency exposure, as given the modest gains of this tracker it might take the best part of a decade to regain these losses.

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-global-bond-index-accumulation/charts

That fund is "hedged GBP" , but someone said bonds are currently perfectly priced to deliver reward-free risk

Linton

DrWatson1 wrote: »

........
It is also suggested in those videos, and is argued consistently by defensive investors, is managed funds only have a 10% chance of beating passive funds over the long term.

I assume there is some robust empirical data to support this assertion, so in reality, what chance does the lay investor have of finding that one-in-ten managed fund?

If your options are to either buy a broad index fund or to choose a managed fund at random then the index fund is by far the best way to go.

However there are other approaches:

A fund's performance is pretty obviously determined mainly by what it invests in and only marginally by differences in charges. By going for broad index funds you are choosing a particular type of allocation, dominated by very large companies and by some relatively small companies that are, perhaps temporarily, very popular. You may believe that some other allocation of underlying investments will provide either a higher return or the same return at less risk. Such a belief may reasonably lead you to buying managed funds that together provide your desired allocation.

The implication is that for a novice investor broadly based index funds (or funds that invest in a portfolio of index funds) may well be the safest and easiest approach. For a small investor the differences between the two approaches may be pretty marginal in absolute terms and so the extra effort in constructing a sensible managed portfolio may not be worthwhile. However more experienced investors with large portfolios may well prefer the flexibility and diversity of managed funds.

MPN

So would the Vanguard FTSE All World ETF be a good option? Does this include the UK and does it rebalance itself like the Vanguard Life Strategy 100 fund?

coastline

MPN wrote: »

So would the Vanguard FTSE All World ETF be a good option? Does this include the UK and does it rebalance itself like the Vanguard Life Strategy 100 fund?

A few links to read..

https://www.moneyadviceservice.org.uk/en/articles/tracker-funds-index-funds-exchange-traded-funds

Load your selections onto the following MSCI World Index chart..

You can see VLS 100% trailing a bit due to its UK exposure...

https://www.trustnet.com/Tools/Charting.aspx?typeCode=NM990100

Select Exchange Traded Funds...Vanguard Group Inc (IRL)...Vanguard FTSE All World UCITS ETF GBP

Select IA Unit Trusts & OEIC's...Vanguard Investments UK Ltd...Vanguard LifeStrategy 100% Equity Acc

Ray_Singh-Blue

MPN wrote: »

So would the Vanguard FTSE All World ETF be a good option? Does this include the UK and does it rebalance itself like the Vanguard Life Strategy 100 fund?

That's what I plumped for.

Yes it includes the UK. To over-simplify, It basically includes all stocks from everywhere, in proportion to their size.

The VWRL fund is made up of stocks of about 3000 individual companies. The three biggest holdings at present are:

Apple Inc, 1.6%
Microsoft Corp, 1.2%
Exxon Mobil Corp,1.0%.

The principle being that, say Apple with a value of $600BN currently represents about 1.6% of the value of all the companies traded on stock exchanges around the world. Funds like this offer balanced exposure to stocks and shares in the world's publicly listed companies, without any judgement about which companies, sector or geographies might outperform or underperform.

MPN

With a tracker does it matter as much as to when you invest into them? The old saying with active funds is buy low sell high so is this still applicable or as relevant with trackers?

bowlhead99

MPN wrote: »

With a tracker does it matter as much as to when you invest into them? The old saying with active funds is buy low sell high so is this still applicable or as relevant with trackers?

How could it not be? I'm sure the old saying with any kind of investment is buy low sell high. It doesn't make a difference whether the fund is constructed to follow a specific index or not.

If you buy it for a small amount of money and sell it for a large amount of money, you will make a profit, and if you buy if for a large amount of money and sell it for a small amount of money, you will make a loss. The intention is to make a profit rather than loss, so buy low sell high sounds the right way round to me.

However, the 'sell high' and 'buy low' that deliver the profit, are not fixed absolute levels, it just refers to a situation of when the high is high relative to the low. The high (the point at which you sell) is a long way off in the future. The low (the point at which you want to buy) is either now (if you are buying now) or some way off into the future (if you are postponing buying to do something else with your money for the timebeing).

So the selling will occur at some unknown far off time and level, and the buying is going to happen either at today's price or at some future unknown price. If you decide to buy next year instead of today, you might get a better price or you might get a worse price. Either way, you'll have missed out on a year's worth of dividends which you could have spent or re-invested.

As you can't predict the future, there doesn't seem to be an advantage to waiting for next year 'to see what happens', because you do know what will happen: you know that what will happen is that the fund will either be more expensive or it will be cheaper or it will be the same. And then you will still have to decide what is going to happen the year after, to decide if you should invest there and then or wait another year 'to see what happens'. You will never catch the very lowest price, because you don't know whether the price is about to go lower or higher.

What you can say, is that markets go up over the long term, and so buying something today will probably turn out to be a low price compared to when you sell it in 15-20 years. So from that perspective whether you buy today or next week or next tax year or next Christmas, you will make money in the end.

jdw2000

Very interesting and informative thread.

For a novice such as myself a passive, simple tracker sounds appealing.

The standouts seem to be the Vanguard FTSE All World ETF and the Vanguard Life Strategy 60 / 100 funds.

Any key or important differences between them to be kept in mind? I believe a question was asked earlier as to whether the FTSE All World one re-balanced as the VLS one does?

Linton

jdw2000 wrote: »

The standouts seem to be the Vanguard FTSE All World ETF and the Vanguard Life Strategy 60 / 100 funds.

Any key or important differences between them to be kept in mind? I believe a question was asked earlier as to whether the FTSE All World one re-balanced as the VLS one does?

The key difference between the two funds is that the FTSE All World fund will be based on whatever the allocation is in the real world. So the % to each geography will vary over time. With the VLS100 fund the manager decides what %s to allocate to each geography and so will have to rebalance over time to keep these %s constant. The FTSE All World based fund shouldnt need to rebalance. You can see what the current %s are if you look at the details of the funds in https://www.trustnet.co.uk. You could choose on the basis of which % allocation you like - an active decision.

In terms of performance the difference isnt great. I guess it's more of a religious thing - a true passive believer cant regard the VLS100 as a passive fund as the manager has made a decision on % allocations which as regards the %UK is far in excess of what it should be. On the other hand the FTSE All World index doesnt represent the world either as its % China mainland is only 2.6%, which surely cant be right. Its possibly because IIRC Chinese internal markets are not available to outsiders.

By the way VLS60 has 60% equity/40% bonds annd so is very different to the other two.