Tracker fund investment for retirement

Prism

Economic wrote: »

Some facts about performance today:
FTSE250: -1.31%
iShares Core MSCI World UCITS ETF (SWDA.L): +1.49%
Net gain from diversified portfolio: 2.8%
I think that you have chosen the wrong day to put forward the case for being overweight in the UK.

Are you suggesting iShares Core MSCI World UCITS ETF is diversified? Its regionally and sector wise quite the opposite.

A_T

Prism wrote: »

Are you suggesting iShares Core MSCI World UCITS ETF is diversified? Its regionally and sector wise quite the opposite.

You should explain that.

System

Prism wrote: »

Are you suggesting iShares Core MSCI World UCITS ETF is diversified? Its regionally and sector wise quite the opposite.

I am not sure that an ETF with 1,640 holdings can be the opposite of diversified, but I assume that you mean that it does not cover small cap and developing markets. Other iShares ETFs cover developing markets and small cap:
iShares Core MSCI EM IMI UCITS ETF EMIM.L: +3.50% today
iShares MSCI World Small Cap UCITS ETF WLDS.L: +1.44% today
The conclusion is the same that today is a good day to demonstrate the advantages of global diversification.

short_butt_sweet

one day's past performance figures is never a good basis for putting together a portfolio.

Prism

A_T wrote: »

You should explain that.

I mean that its heavily weighted towards large companies (87%), North America (65%), and certain industries (35% across tech and finance). The regional balance doesn't help much with global companies of that weighting - they all move together pretty much as seen by recent weeks. To be diversified different elements need to not be correlated.

Not that I would ever call a porfolio of equites alone particularily diversified (mine certainly isn't - it dropped like a stone last month) I know I wouldn't design one that looked like the world index if I wanted any form of real balance.

Prism

Economic wrote: »

I am not sure that an ETF with 1,640 holdings can be the opposite of diversified, but I assume that you mean that it does not cover small cap and developing markets. Other iShares ETFs cover developing markets and small cap:
iShares Core MSCI EM IMI UCITS ETF EMIM.L: +3.50% today
iShares MSCI World Small Cap UCITS ETF WLDS.L: +1.44% today
The conclusion is the same that today is a good day to demonstrate the advantages of global diversification.

Mainly because of the weighting most of those 1640 are irrelevant and the big ones that aren't all move together. I'm not saying the FTSE 250 is any better but it has about the same distribution and volatility as the MCSI world. Historically over the long term the FTSE 250 has given a far better return than the MCSE world index which is also worth considering.

System

Prism wrote: »

Mainly because of the weighting most of those 1640 are irrelevant and the big ones that aren't all move together. I'm not saying the FTSE 250 is any better but it has about the same distribution and volatility as the MCSI world. Historically over the long term the FTSE 250 has given a far better return than the MCSE world index which is also worth considering.

Most global indices are dominated by the largest companies, the largest countries, and the largest sectors, which is perfectly reasonable, but most importantly it is globally diversified unlike the FTSE250.

Linton

Economic wrote: »

Most global indices are dominated by the largest companies, the largest countries, and the largest sectors, which is perfectly reasonable, but most importantly it is globally diversified unlike the FTSE250.

One wouldnt buy the FTSE250 as a single holding but rather as part of a diversified portfolio, whereas it may be sensible to only hold one individual global fund.


It may be reasonable from the index providers point of view that the indexes are dominated by the largest companies, however it is far from obvious that this is to the benefit of small investors. The problem with global diversification of the largest companies is that they all compete in the same global markets. There is no good reason why say a global US oil company should perform substantially differently to a French or UK one, other than currency movement affecting published share prices. Rather there are good reasons why they should not as their shares are traded and arbitraged across the world. In a global market sector diversification is far more important than geographic dversification for large companies.


Small companies are different in that their performance is likely to be affected more by local conditions - compare the recent performance of UK Small Companies with UK large companies. Also their shares tend to be traded more locally. The result is that small companies inherently provide more diversification than large ones because geographic diversification is an important factor.

System

I agree basically about small cap, but again I would use a global small cap ETF and/or investment trust. There is an article in the FT by Terry Smith on the benefits of adding small cap that includes the following: "Why anyone would want to limit their investment choices to the UK economy is beyond my comprehension, even if they are UK domiciled."
https://www.ft.com/content/bb083f00-a79d-11e8-a1b6-f368d365bf0e

bostonerimus

Once again this discussion has devolved into the finer points of small cap, geographical sectors and portfolio weighting. All this is confusing and probably a barrier to the average investor who just wants to build up a pension pot without worrying too much. So stick to multi-asset funds or a portfolio of a few broadly diversified indexes that covers the major markets and contains equities and bonds.