Global economies affecting global index funds

Cintrapark

Firstly - apologies for the rather basic question.

My portfolio is heavily dominated by a simply global ETF - Vanguard FTSE All-World UCITS ETF. This fund is pretty much dominated by the US - 54.2% of its market allocation exposure to be exact. In the event that the US economy gradually starts to lose its global dominance, will the country bias of this fund also begin to shift?

Is it safe to say that in terms of country exposure, this fund is pretty much a safe bet when considering shifting global economies?

Reaper

I offer no opinion on whether the US is in long term decline but if it is then a US heavy fund will decline too, even if it slowly reduces exposure.

Cintrapark

Thanks but isn't the point that a global fund is supposed to track the 'global reality'?

IanManc

Cintrapark wrote: »

Firstly - apologies for the rather basic question.

My portfolio is heavily dominated by a simply global ETF - Vanguard FTSE All-World UCITS ETF. This fund is pretty much dominated by the US - 54.2% of its market allocation exposure to be exact. In the event that the US economy gradually starts to lose its global dominance, will the country bias of this fund also begin to shift?

Is it safe to say that in terms of country exposure, this fund is pretty much a safe bet when considering shifting global economies?

The makeup of the index that a fund tracks is based on market capitalisation, and the proportion of shares from each country which make it up isn't fixed but fluctuates all the time.

Voyager2002

A quick look at the web-page for this fund yields these words:

• The index measures the market performance of large- and mid-capitalisation stocks of companies located around the world.
• Includes approximately 2,900 holdings in nearly 47 countries, including both developed and emerging markets.
• Covers more than 90% of the global investable market capitalisation.

Thus, if companies in (say) Ukraine become so successful that they eventually represent 60 per cent of world stock markets, the investments of this fundwould be gradually shifted out of less successful companies so that about 60 per cent of the fund would be held in the Ukraine.

In other words, the ETF will always represent world markets as they are. It will not anticipate: it will not move investment into Ukraine now to benefit from future growth there. (And since such growth is far from certain to occur, that is probably not something you would want it to do.)

msallen

Voyager2002 wrote: »

...nearly 47 countries...

Whats that then?
46 countries and the Vatican City?

Thrugelmir

Cintrapark wrote: »

Thanks but isn't the point that a global fund is supposed to track the 'global reality'?

Indexes themselves are manufactured. Many aren't pure. To be truly global, weighting for China (for example) would have to be significantly higher. Investrors are somewhat concerned. As Chinese companies historically have a tendancy to suspend their shares from trading during periods of sell-off. Not ideal for index funds.

EdSwippet

Voyager2002 wrote: »

... if companies in (say) Ukraine become so successful that they eventually represent 60 per cent of world stock markets, the investments of this fund would be gradually shifted out of less successful companies so that about 60 per cent of the fund would be held in the Ukraine.

To be picky ... investments wouldn't be "gradually shifted" by anyone or anything. What would actually happen is that whatever Ukrainian (say) stock holdings existed at the start would simply grow with that Ukrainian success until they end up comprising 60% of the total fund value.

The same end result as you describe, though.