World tracker that trackers all stocks

bowlhead99

intowhere wrote: »

I am looking at something that tracks all the stocks in all of the world, in their correct proportions.

You can't get it.

If you take the Shanghai or Shenzhen stock exchange for example. China is home to 1.4 billion people (getting on for 20% of world population). Combine it with India you are probably over 35% of world population. So, you might think you'd like to allocate a decent proportion of your money to those countries. However, due to the way the markets are structured, a 'Westerner' can't just rock up and invest his billions or trillions in the Chinese stock exchange. There have historically been serious restrictions on what shares classes of what companies you can buy as a non local, and you will have practical access problems as well as significant liquidity problems even if you could get in, because the market is not very efficient.

Same in Russia. The biggest company might in theory be worth $x hundred billion but perhaps only 5% of it is in free float with the other 95% controlled by the state and a politically connected oligarch.

So, the index publishers such as FTSE or MSCI have to work around these problems and create an index allocating your money to the biggest companies by 'free float' market capitalisation with liquidity rules to sift out the minnows or the tough markets when building something like FTSE's "global all-cap index". Then having come up with their ~8000 stocks that make up the index (of which only 2.33% is China and 1.2% is India and 0.34% is Russia - for under 3.9% total) you will find anyone building an index fund to track it will use sampling techniques and optimisation to hold a lot fewer than 8000 stocks.

So, "I just want to hold all the stocks in the world in their 'correct' proportions" is a hollow and impractical request. You can't access all the stocks in the world without huge expense and impracticality and it will be a proportion that is reflective of what is easy to do, rather than something that allocates your money to places that have the highest GDP, consumer population etc.

ChesterDog wrote: »

I don't think it's as important as you might think, including the small caps of each market.

They would have such a small presence in the total index that their performance would be barely felt unless something quite spectacularly odd happened to small caps globally.

That's true. Much is made of statistical analysis that proves the outperformance of smaller and leaner undiscovered growth companies compared to big cash cow giants, and we pat ourselves on the back to think that we have come up with a great idea of investing in small cap where a company can double its market share and profits without the total market size growing, whereas a largecap co with 55% market share cannot double its market share.

However as you suggest, smallcap is a tiny part of the market if you are allocating your money across stocks the simplest and cheapest way in a single fund, i.e. by market capitalisation.

In the UK for example, the FTSE All-share index at end of July represented companies having free float market cap of £2,374 billion (i.e. almost £2.4 trillion). The largest component within that was the FTSE 100 stocks (and indeed the biggest ten of those 100 were 35% of the £2.4 trillion mentioned and the next 90 were another 40%+). Whereas the companies making up the small-cap end of that £2.4 trillion were less than 4%, i.e. under £0.09 tn

So, imagine you can earn 9% on smallcaps and 8% on midcaps and 7% on large-to-mega. Perhaps it maybe makes sense to put a third into each of those share classes to average out the returns and volatility to something acceptable. However if you don't do that because you want an all in one policy to instead follow that sort of simple 'all-share marketcap mix' you might find yourself getting an extra percent-and-a-half on the smallcaps... but the smallcaps are under 4% of your portfolio... so your total enhancement to returns is something like 0.05%.

A twentieth of a percent on your returns is - figuratively - nothing, as your annual returns might be +15% or -40%. Nobody really cares if it's +15.05% or -39.95% instead. You would likely see a larger differential in return than that if (for example) you put 10% into China, India and Russia instead of taking the index standard allocation of less than 4%.

ChesterDog

I'm afraid Bowlhead engenders laziness.

When I made my post, I actually had in mind when I did so that he would come along and expand upon it in a suitably detailed and explanatory fashion.