Passive trackers

Linton

capital0ne wrote: »

Bonds provide a big upside when combined with equities, they actually minimise risk in the correct proportion. Read The Intelligent Asset Allocator by Bernstein for more info.

This is subject rarely mentioned by the experts on MSE, probably because they seem more interested in guessing what to pick and why.

Good luck

I think you will find many of us have read Bernstein. Unfortunately the current high price and very low returns of safe government bonds undermine his strategy. When reading such books it is dangerous to take their advice blindly, especially when the author is focussed on selling a line. You do need the understanding and scepticism to question and check what is being said and if necessary devise your own strategies to meet your objectives.

Thrugelmir

bostonerimus wrote: »

Good question. You would have a small cap, value, EM index if you agree with the research that claims to show better risk/return performance if you overweight those. You could just buy the DFA funds....I think they are trading in the UK now http://eu.dimensional.com/en/

...that implement that strategy or do it yourself.

I wouldn't regard the UK shares listed in their funds as small cap in isolation. Might be in global terms. Hence my earlier comment.

Linton

bostonerimus wrote: »

Good question. You would have a small cap, value, EM index if you agree with the research that claims to show better risk/return performance if you overweight those. You could just buy the DFA funds....I think they are trading in the UK now http://eu.dimensional.com/en/

...that implement that strategy or do it yourself.



The range of index funds available in the UK might not be as varied as available in the UK, but you can certainly find global small cap, and EM trackers easily. I'm not sure how much finer you need to go, or if you need to at all.

Global small cap indexes would be better characterised as global midcap indexes covering as they do perhaps 30% of the FTSE100. Add in the market capitalisation weighting and you get in my view an unsatisfactory answer to small cap investing. I believe that small cap investing needs human intervention if only to weed out the dross. For that reason I cant see Global Small Cap active funds as being of much interest either, you really need managers with local knowledge and understanding. Compare UK, European, and Japanese Small Cap active funds with the very few corresponding indexes and trackers

The other areas apart from geography you need to be concerned with in my view are sector, company size and growth vs defensive. I would suggest that these can be more important than geography. If you could come up with a genuine European Small cap tracker underweight in technology with a defensive bias I may be interested. Or perhaps an index based alternative to Fundsmith where the manager is achieving good results by focussing on solid profitable mainly large companies in a highly restricted set of sectors.

Take EM. It covers a very wide range of economies from the arguably close to developed world and high tech industry of South Korea to parts of Africa with very few large companies apart from extractive industries and banks. Does an EM tracker represent a meaningful categorisation? To me it seems little better than the US category of "International". I would advocate investing in Asia Pac, China and frontier markets through separate investments each with a considered allocation.

bostonerimus

Linton wrote: »

Global small cap indexes would be better characterised as global midcap indexes covering as they do perhaps 30% of the FTSE100. Add in the market capitalisation weighting and you get in my view an unsatisfactory answer to small cap investing. I believe that small cap investing needs human intervention if only to weed out the dross. For that reason I cant see Global Small Cap active funds as being of much interest either, you really need managers with local knowledge and understanding. Compare UK, European, and Japanese Small Cap active funds with the very few corresponding indexes and trackers

The other areas apart from geography you need to be concerned with in my view are sector, company size and growth vs defensive. I would suggest that these can be more important than geography. If you could come up with a genuine European Small cap tracker underweight in technology with a defensive bias I may be interested. Or perhaps an index based alternative to Fundsmith where the manager is achieving good results by focussing on solid profitable mainly large companies in a highly restricted set of sectors.

Take EM. It covers a very wide range of economies from the arguably close to developed world and high tech industry of South Korea to parts of Africa with very few large companies apart from extractive industries and banks. Does an EM tracker represent a meaningful categorisation? To me it seems little better than the US category of "International". I would advocate investing in Asia Pac, China and frontier markets through separate investments each with a considered allocation.

I'm playing devil's advocate for this sort of slicing and dicing. As you say you can do it to some extent but if you want to get esoteric the UK index offerings aren't that mature yet and at some point the size of the market means that the maths and sample size required for indexing simply breaks down......but at that point I would not want to be in that market for the same reason I avoid single stocks. So I retreat back into the warm statistical arms of large US and global indexes.