Managed or Tracker fund, which is best?

Linton

Deleted_User wrote: »

I don’t know the exact make-up but looks like there are no bonds? That’s... Unusual for a 54 year old with a 6 year timeline to retirement

Also, some home bias is usually jusified. Do you have any? Vanguard has another good paper on home bias.

At the moment safe bonds, particularly if held in funds, have no advantage over cash as the interest rates are low but they carry greater risk as when the world begins to return to pre-crash normal their value can only drop.



Regarding home bias - yet another US based reference? If so it applies much less, if at all, in the UK. The FTSE100 is to a significant extent priced in $s anyway as it is dominated by global companies whose shares are priced against those of similar companies across the world. There is little nationality-based difference between having shares in say Shell, BP, Exxon, or Total. After the BREXIT vote the FTSE100 rose. The FTSE100 is a poor index because it is unbalanced across the industry sectors, missing out particularly in manufacturing and the lucrative Tech area. So there are plenty of reasons not to go for UK home bias generally.



Where home bias is important is in smaller companies as they do more reflect the national economy and UK Small Companies have provided some of the best investment opportunities anywhere. However one has to be an active fund investor to take real advantage of that market.

[Deleted User]

1% annualized delta is large. Over a 3 year period it’s over 3% cumulative.

beamyup

Linton wrote: »

At the moment safe bonds, particularly if held in funds, have no advantage over cash as the interest rates are low but they carry greater risk as when the world begins to return to pre-crash normal their value can only drop.



Regarding home bias - yet another US based reference? If so it applies much less, if at all, in the UK. The FTSE100 is to a significant extent priced in $s anyway as it is dominated by global companies whose shares are priced against those of similar companies across the world. There is little nationality-based difference between having shares in say Shell, BP, Exxon, or Total. After the BREXIT vote the FTSE100 rose. The FTSE100 is a poor index because it is unbalanced across the industry sectors, missing out particularly in manufacturing and the lucrative Tech area. So there are plenty of reasons not to go for UK home bias generally.



Where home bias is important is in smaller companies as they do more reflect the national economy and UK Small Companies have provided some of the best investment opportunities anywhere. However one has to be an active fund investor to take real advantage of that market.

Thanks - interesting.

For me - I'm OK with the risk/non home bias/lack of bonds i think - as i have other income, savings and also flexibility of when i retire and how gradually i retire. I agree generally that moving to some bonds at my age would be recommended.

[Deleted User]

Linton wrote: »

At the moment safe bonds, particularly if held in funds, have no advantage over cash as the interest rates are low but they carry greater risk as when the world begins to return to pre-crash normal their value can only drop.



Regarding home bias - yet another US based reference? If so it applies much less, if at all, in the UK. The FTSE100 is to a significant extent priced in $s anyway as it is dominated by global companies whose shares are priced against those of similar companies across the world. There is little nationality-based difference between having shares in say Shell, BP, Exxon, or Total. After the BREXIT vote the FTSE100 rose. The FTSE100 is a poor index because it is unbalanced across the industry sectors, missing out particularly in manufacturing and the lucrative Tech area. So there are plenty of reasons not to go for UK home bias generally.



Where home bias is important is in smaller companies as they do more reflect the national economy and UK Small Companies have provided some of the best investment opportunities anywhere. However one has to be an active fund investor to take real advantage of that market.

The authors of the paper are US based. They looked at US, UK, Canada and Australia. The conclusion applies to all of these countries.

Obviously, US is much larger but if anyone thinks that smaller developed markets are somehow fundamentally different in nature, they are kidding themselves. Generally, investors have way too much home bias. Some is justified (and there are good universal reasons for it) but not as much as people tend to have.

https://personal.vanguard.com/pdf/icrrhb.pdf

[Deleted User]

Also, justification for some home bias has nothing to do with trying to eke out alpha. The arguments for some home bias are mostly around risk.

[Deleted User]

At the moment safe bonds, particularly if held in funds, have no advantage over cash as the interest rates are low but they carry greater risk as when the world begins to return to pre-crash normal their value can only drop.

There are different types of bonds. Some do well when interest rates go up. All do ok when interest rates go up as expected (in total return terms, if you have a bond fund, except for short term fluctuations). The actual risk to bonds is UNEXPECTED inflation. That can be devastating. Of course, that applies to cash too.

Linton

Deleted_User wrote: »

Also, justification for some home bias has nothing to do with trying to eke out alpha. The arguments for some home bias are mostly around risk.

If the company you invest in does most of its business overseas and is priced on a global market what risk factors are ameliorated by where its HQ happens to be and where its shares happen to be quoted?

AnotherJoe

Deleted_User wrote: »

I don’t know the exact make-up but looks like there are no bonds? That’s... Unusual for a 54 year old with a 6 year timeline to retirement

Also, some home bias is usually justified. Do you have any? Vanguard has another good paper on home bias.

How though would you get home bias?

beamyup

AnotherJoe wrote: »

How though would you get home bias?

Yeah definitely no home bias in my new portfolio

[Deleted User]

AnotherJoe wrote: »

How though would you get home bias?

By having a separate fund or ETF for UK. If it was me I would put 20% of stock allocation into something like Lyxor Core Morningstar UK NT (DR) UCITS ETF or SPDR FTSE UK All Share UCITS ETF. The former has lower MER, but only large and midsized companies