VLS 100 Vs. Fidelity Index World Vs. L&G general International

geeovana

Hello,

Trying to decide which fund to start investing in on a regular basis for a retirement fund. I want to invest solely in securities as I'm planning on not touching this money for 15-20 + years so I don't think I need to dilute returns with bonds at present.

I was initially interested in the Vanguard Life Strategy Funds for obvious reasons (popularity being the most prevalent), however after a bit of research have found the following two funds; Fidelity Index World Fund and Legal & General International Index Trust.

I understand the main differences with regards VLS investing solely in tracker funds whilst Fidelity invests in a mixture of tracker and individual securities and L&G solely in Individual securities however which would be a better option with regards a global diversification? It is easy to compare Fidelity against L&G and see their country weightings are very similar, however not so easy to compare the VLS fund.

The cost of Fidelity and L&G funds are lower than VLS at 0.13% compared to 0.22% and they have both outperformed the VLS fund in previous years. I see this mainly from them being heavily skewed towards the US.

Is there any issue choosing either of these two funds over the VLS 100 as my main investment? As other markets grow in the future (e.g. India) will the funds automatically skew towards these as they have for the US at present?

One issue I see with the L&G fund is the lack of exposure to the UK market, so if I decided I wanted UK exposure it may cost more in fees to add a UK fund to my portfolio. I wouldn't have this issue if I went with the Fidelity fund.

Thank you for taking the time to read and I appreciate any advice.

A_T

The L&G fund has no UK but has "developed emerging markets" including Taiwan and South Korea (but no India and China)

The Fidelity tracks only developed markets including UK - no emerging.

VLS100 has developed and emerging markets - but is heavily overweight to the UK.

Overall the large majority of each is in North America, Western Europe and Japan so over the long term differences in performance will be minimal.

At present the L&G and Fidelity fund track indexes that do not contain India or China so will not have them unless the index decides to include them.

firestone

L&G international will not have UK as that's its remit for all world you need L&G global equity index i believe

IanSt

If you really can't make your mind up on which one to choose then there is always the option of splitting your contributions into multiple funds. Though you will have to then consider whether there are any additional costs for you e.g. are there costs for each investment into a fund.

geeovana

Thanks for the replies.

After a bit more digging it looks like I am back with vanguard with their FTSE All-World UCITS ETF (VWRL).

This seems to include all areas still with a low OCF.

Seem sensible?

Linton

geeovana wrote: »

Thanks for the replies.

After a bit more digging it looks like I am back with vanguard with their FTSE All-World UCITS ETF (VWRL).

This seems to include all areas still with a low OCF.

Seem sensible?

If I was going for 1 global index fund it would be the Vanguard FTSE Global All-Cap Index Fund
- the inclusion of small cap adds to the diversification. Large companies tend to be less diversified as they operate in much the same global markets no matter where they are listed or head-quartered.
- it has only been going for under a year, but in that year has beaten the Vanguard All World ETF in each of the 3 quarters.

Though none of these funds is completely satisfactory in my view - the low allocation to China seems a major problem.

geeovana

Linton wrote: »

If I was going for 1 global index fund it would be the Vanguard FTSE Global All-Cap Index Fund
- the inclusion of small cap adds to the diversification. Large companies tend to be less diversified as they operate in much the same global markets no matter where they are listed or head-quartered.
- it has only been going for under a year, but in that year has beaten the Vanguard All World ETF in each of the 3 quarters.

Though none of these funds is completely satisfactory in my view - the low allocation to China seems a major problem.

Thank you. Can you give an example of what you would consider satisfactory? I'm guessing a collection of funds?

When you say the low allocation to China is an issue. Could the weighting of this change over time if it would be beneficial to the fund? or would it have to be actively managed to do this? Are tracker funds set up on day one and there allocations stay the same regardless?

IanManc

Part of the problem for funds wishing to buy Chinese shares is that the free float of shares on the market tends to be small. Many of the large Chinese companies have a large proportion of their shares in government hands. The lack of availability and small free float also lead to greater volatility in the Chinese stock market.

Linton

My view, others may disagree...

It seems the major indices are still sorting out what they are going to do about China - it isnt in the index funds because it isnt in the indexes. At some point China will appear as a serious % in the global indexes and the world's index funds will have a problem. I see that next year MSCI will start adding more China companies to its EM index and eventually the China % of that index will increase from 27% to 40%. This will still seriously undervalue China's position in the world economy. It doesnt seem clear when this will extend to the global indexes.

On the broader point.....

The justification for going for a global index fund is twofold...
1) Low charges and maintenance effort
2) The index fund represents an average of the market, which some people argue cannot be consistently outperformed (a discussion for elsewhere).

(1) has the counter argument that price and little management effort may affect quality and even slightly higher performance can easily outweigh extra charges. Therefore (2) is key.

The problem is that all indexes are constrained in some way. For most, if not all, practicality requires some lower limit to the size of companies in the index. Most, if not all, dont include all the world's stock markets - some explicitly only include "mature" markets. If you look on the net you will find lists of the world's stock markets by capitalisation. The geographic %s are significantly different to those in the global index funds. So one can question whether the global index funds do really represent The Market.

At the moment if you want to invest in the global market you really need a range of funds. The Vanguard all-cap fund seems as close as one can get in one fund.

geeovana

Linton wrote: »

My view, others may disagree...

It seems the major indices are still sorting out what they are going to do about China - it isnt in the index funds because it isnt in the indexes. At some point China will appear as a serious % in the global indexes and the world's index funds will have a problem. I see that next year MSCI will start adding more China companies to its EM index and eventually the China % of that index will increase from 27% to 40%. This will still seriously undervalue China's position in the world economy. It doesnt seem clear when this will extend to the global indexes.

On the broader point.....

The justification for going for a global index fund is twofold...
1) Low charges and maintenance effort
2) The index fund represents an average of the market, which some people argue cannot be consistently outperformed (a discussion for elsewhere).

(1) has the counter argument that price and little management effort may affect quality and even slightly higher performance can easily outweigh extra charges. Therefore (2) is key.

The problem is that all indexes are constrained in some way. For most, if not all, practicality requires some lower limit to the size of companies in the index. Most, if not all, dont include all the world's stock markets - some explicitly only include "mature" markets. If you look on the net you will find lists of the world's stock markets by capitalisation. The geographic %s are significantly different to those in the global index funds. So one can question whether the global index funds do really represent The Market.

At the moment if you want to invest in the global market you really need a range of funds. The Vanguard all-cap fund seems as close as one can get in one fund.

Thank you. Most helpful.

Can you give an example of a choice of funds?