Global Equity trackers vs other passive 100% equity funds

grey_gym_sock

Thrugelmir wrote: »

Market capitalisation alone is misleading. As there's a lot stock which isn't actively traded or free to trade. .

indexes described as based on capitalization are usually free-float adjusted, i.e. they try to exclude large shareholdings which aren't available to trade.

though i'm not clear whether you think that's a good or a bad thing ...

1 good thing about it is that it makes capitalization weighted index funds very scalable. i.e. they can keep getting much bigger without running out of available shares to buy.

OTOH, some may not like indexes being less representative of the world economy, which may be 1 effect of making free-float adjustments. though that can occur for other reasons, too.

i do think considering how your portfolio does or doesn't reflect the world economy, as opposed to reflecting investable world stock markets, may be worth doing. however, i'm dubious about trying to "fix" that by using an index based on economic scale.

however, that's for those of us who are trying to be (too) clever. there's nothing wrong with keeping it simple, e.g. by using a world tracker (or indeed, by using funds-of-funds like VLS 100).

Thrugelmir

grey_gym_sock wrote: »

though i'm not clear whether you think that's a good or a bad thing ...

Agnostic view.

BritishInvestor

londoninvestor wrote: »

I think they're pretty explicit that VLS is aimed at UK investors and will always intentionally overweight the UK.

Spoke to Vanguard last week and they said this may not be the case forever

BritishInvestor

kidmugsy wrote: »

If, as some writers suggest, international equity markets are likely to show closer and closer correlation, then you could be pretty relaxed about being overweight in the UK, especially as it's probably more tax efficient because of withholding tax on dividends received by the ETF.

Which ETF are you referring to?

BritishInvestor

jsinc wrote: »

There's more data available for HSBC and Fidelity as Vanguard fund only started late 2016.

There is always the option of using the benchmark data and making an assumption for tracking error if you want to go further back in time

bowlhead99

BritishInvestor wrote: »

Which ETF are you referring to?

The point being made is presumably that if major world markets/indexes are highly correlated then it doesn't matter so much whether you have a relatively higher or lower exposure to UK vs US elsewhere, if they all perform reasonably ok.

If that were the case then I suppose he is postulating that it could be better to use an index holding relatively more of the UK-listed companies (eg HSBC and Shell or BP and Tesco) rather than one that holds relatively more of, say, the US companies in the same industries (eg Citibank and Exxon and Walmart) because the latter would expose you to some irrecoverable withholding taxes as your fund or ETF picks up the dividends from the US based companies as the money leaves the US (ie the US index total return could be higher to an American than it is to us because we have lost income taxes at fund level which can't be offset on our own personal tax returns).

That might seem sensible if all other things were equal, but if course in reality there will be differences in how the underlying companies are taxed under corporation tax in the first place in their country(ies) of residence, together with what proportion is paid out as dividend vs buyback or reinvestment by the company concerned. While the world economies and markets are a intertwined, the differences among different regional indices in sector mix are significant (eg US having its FAANG stocks, exposure to car manufacturers and other sectors that are small or non existent in our own domestic main market etc). So that even if our stock markets are generally moving in the same direction at the same time as other regions, the size of the movements could be quite different.

As such, investing home vs away is certainly a bigger question than worrying about a bit of tax leakage to withholding taxes or stamp duties etc,, even if it's one thing to consider.

jsinc

BritishInvestor wrote: »

There is always the option of using the benchmark data and making an assumption for tracking error if you want to go further back in time

True, although perhaps more significant that the All-World index doesn't include small caps and has lower weighting of medium vs Global All-Cap index.

Don't remember the numbers but when I looked at relative index performance vs difference in known fund charges there was little between them. Index volatility and drawdown much the same. And much of that during an equity bull run and mostly small cap outperformance.

Honestly I didn't spend too much time deliberating for 5K LISA. After checking the above and global/sector allocations were broadly the same inc EM, picked HSBC as already invested elsewhere with Vanguard and lower ongoing fee. But objectively the Vanguard fund seems a purer global tracker.

Alexland

jsinc wrote: »

After checking the above and global/sector allocations were broadly the same inc EM, picked HSBC as already invested elsewhere with Vanguard and lower ongoing fee. But objectively the Vanguard fund seems a purer global tracker.

Agree it's unclear if the additional holdings in the Vanguard fund are going to generate sufficient additional return in the long run to justify the higher cost compared to the HSBC fund.

Alex

BritishInvestor

Alexland wrote: »

Agree it's unclear if the additional holdings in the Vanguard fund are going to generate sufficient additional return in the long run to justify the higher cost compared to the HSBC fund.

Alex

All Cap has slightly better risk adjusted returns over the last 15 years compared to All World, but it's only small and could easily be wiped out by tracking error. Any idea what HSBC costs are including transactions?

Alexland

BritishInvestor wrote: »

All Cap has slightly better risk adjusted returns over the last 15 years compared to All World, but it's only small and could easily be wiped out by tracking error. Any idea what HSBC costs are including transactions?

I've noticed the OCF of the HSBC FTSE All World Accumulation fund is showing as 0.16% on some platforms and 0.18% on others. According to their disclosure document (at 14/6/2018) the OCF is 0.19% and transaction costs are 0.04%.

https://investments.hsbc.co.uk/costs-and-charges

Their disclosure document is also showing a 0.25% account fee which I don't recognise as the HSBC Global Investement Centre charge 0.39%? Their World Selection ISA has an account fee of 0.25% but it doesn't allow you to hold this low cost fund. Maybe they are just quoting a typical account fee if you go elsewhere?

Also, although it's a couple of years out of date, the below HSBC flyer suggests it would have made very little difference in the past whether you invest in a World, All World or Global All Cap fund. Your total return over 10 years would still have been around 100%:

https://www.assetmanagement.hsbc.com/uk/attachments/advisers/passive/hsbc-ftse-allworld-index-fund-flyer.pdf

Alex