Wealth Preservation vs Multi Asset Funds

bostonerimus

JohnWinder wrote: »

I find it a challenge to decide if I’d prefer HSBC Global Strategy Cautious fund or a VLS. How do you evaluate a fund like HSBC’s, sensibly? I’m looking at you, Lint.
It mostly uses index trackers; so far so good.
Are its indices any good? One of them is a Russell1000 I think; Tim Hale in the first edition of his book didn’t favour one of the Russell indices if I remember correctly.
It mostly uses HSBC’s own indices; that saves paying SP or MSCI to use one of their indices, but how have the comparable HSBC indices performed?
It uses an ishares ETF; would you be paying the ishares ETF management fee and then the HSBC fund’s fee on top?
It buys government funds bonds directly rather than via a fund; that saves on a licence fee to use someone’s index, and returns are perhaps similar. But it’s less transparent than an index regarding how they choose their buys and sells.
Index funds are accountable: did they track the index closely - if so you get just what you paid for (market returns). Are the active elements of HSBC’s fund accountable, against what standard?

As long as you stick to well run respectable funds with good track records it really doesn't matter what you buy as long as you have an asset allocation that is appropriate for your circumstances. There are lots of different investing styles on here; indexers, those that like active funds, those that do mixtures, some with 3 or 4 funds and some with 20. As long as you set reasonable goals and manage your portfolio sensibly you will be ok. HSBC vs Vanguard might mean different end points, but a good plan will succeed with either. So worry more about your strategy and not the tactics of exactly which fund you deploy. It might be fun to fund navel gaze, but really it's not the most important thing in personal finance.

cfw1994

JohnWinder wrote: »

Linton, have you put up two straw men in two posts, requiring them be knocked down.
Frstly, I can’t see anyone has even hinted that VLS40 would have done as well as a global equity index; and I didn’t intend to claim index trackers are optimal for everyone in all circumstances, although come to think of it……..
But I do think it’s a bit more of a gamble to be a stock picker than an index tracker, and think it’s only fair to point that out so folk know what they’re up against, and to have the idea knocked down if it’s erroneous. Go for it.

We can’t possibly know what the objectives of the average investors are unless most express them as ‘track some indices’. Do people really write their financial objectives like that?
I imagined they’d write: have enough assets by 2040 to retire on a king’s ransom; or, have enough low volatility assets to afford tertiary education for six years in 2028. The strategy might be to invest in global equities, or buy index linked gilts, or whatever, but they’re not an objective. The fund managers have objectives like ‘match the index’ or ‘beat it by 2%/year’.

And you likely think that too, because you’ve written ‘what matters is achieving your objectives at an acceptable risk’. If your objective was ‘tracking the index’, there’d be almost no risk, because Blackrock, Fidelity, Vangard et al reliably pull it off every year.

I am personally quite a strong believer in the Lars Kroijer approach: that realistically, over time (eg >5 years, I would say), there is relatively little chance of finding the fund manager who can consistently beat the market, and actually that global trackers are a decent way to invest.

Doesn’t mean I slavishly only invest in global trackers....but a decent chunk.
Working in tech, I quite like the returns that can deliver, for a bit of a gamble. Eggs and baskets

bowlhead99

JohnWinder wrote: »

I find it a challenge to decide if I’d prefer HSBC Global Strategy Cautious fund or a VLS. How do you evaluate a fund like HSBC’s, sensibly? I’m looking at you, Lint.

Apologies for being Lint-free but hopefully the answers will be of use.

It mostly uses index trackers; so far so good.
Are its indices any good? One of them is a Russell1000 I think; Tim Hale in the first edition of his book didn’t favour one of the Russell indices if I remember correctly.

Russell 1000 is the largest 1000 US companies weighted by float-adjusted market capital. It is cheaper (if less comprehensive) to use the S&P500 which is weighted the same way and so makes up a massive proportion of the 1000. At present, the US exposure for the Global Strategy range is obtained via S&P500 trackers.

Perhaps Hale's comment related to the Russell 2000 (the smallcap index, containing the next 2000 companies by size after the first 1000). As US smallcap has been quite well correlated to US largecap (albeit more risk, more reward), you are not getting much diversification benefit - so when constructing a broad portfolio to meet your risk target, it may not be necessary to use a smallcap index with a huge number of holdings which is inherently less efficient to run and thereby more expensive than the highly liquid 500 index.

It mostly uses HSBC’s own indices; that saves paying SP or MSCI to use one of their indices, but how have the comparable HSBC indices performed?

You may misunderstand how this works. S&P and MSCI don't offer index funds. They are data producers rather than investment fund managers. Investment fund managers such as HSBC or Blackrock's iShares offer index-tracking investment fund products. The 'HSBC American Index Fund' is an investment fund product which tracks the S&P's 500 index. The HSBC Global Strategy fund series has the HSBC American Index fund as one of its holdings.

HSBC_American_Index's_fund_strategy wrote:

The strategy is to use a replication approach to track the S&P’s 500 Index. This means that the Fund will seek to invest in all of the companies
that make up the index and in the same or very similar proportions in which they are included in the index. From time to time, the Fund’s investment composition may differ from the index in order to manage the Fund’s transaction costs, to maintain
the Fund’s characteristics during different market environments and differing levels of asset availability or where there are investment restrictions...
... At all times the Fund will seek to track the performance of the index

So, you know how you are getting your exposure.

It uses an ishares ETF; would you be paying the ishares ETF management fee and then the HSBC fund’s fee on top?

Yes, because neither iShares nor HSBC are going to work for free when you invest in one through the other. However, the HSBC fund's published Ongoing Charges Figure for the relevant share class includes the impact of charges in the funds in which it invests, so you don't need to do the maths yourself.

It buys government bonds directly rather than via a fund; that saves on a licence fee to use someone’s index, and returns are perhaps similar. But it’s less transparent than an index regarding how they choose their buys and sells.

The global strategy funds each target a particular range of ongoing annualised volatility.

If they invest the fund's money in an index fund they have to take whatever mix of assets that delivers e.g. whatever the proportion of long dated government bonds (e.g. maturing in 2050) vs short dated bonds (e.g. maturing in 2020) in existence happens to be. The price of long dated bonds will be highly sensitive to interest rate changes. There can be sensible reasons for an investment manager running a volatility-targeted fund to construct their own mix of UK and other government bonds rather than track a market mix of whatever bonds happen to exist through the thick and thin of whatever happens to markets.

HSBC have access to lots of data and already licence indexes from providers to use within their fund products. The avoidance of a 'licence fee' to obtain the market data about the constituents of a published government bond index from time to time is unlikely to be the reason for HSBC deciding not to use one. More likely that (a) their UK investors don't want to base their portfolio on buying every gilt or overseas government bond that exists worldwide; and (b) in controlling costs generally they don't want to be paying a third party fund manager to construct a fund for them into which they would then put a portion of the Global Strategy Funds' assets.

So they can just use their internal expertise to buy bonds directly in an appropriate mix. "...saves on a licence fee" is a total red herring.

Index funds are accountable: did they track the index closely - if so you get just what you paid for (market returns). Are the active elements of HSBC’s fund accountable, against what standard?

You can see what the results are and hold them to account by deciding to invest or not to invest, using whatever standards you like.

For each of the 5 portfolios in the Global Strategy series, HSBC will decide how they should allocate the portfolio between home and abroad, how much currency hedging to adopt, and what asset classes, in order to stay within the bounds of an acceptable published risk profile. To control costs they largely use passive holdings with some direct government bonds and the occasional active corporate bond fund (depending on the product chosen).

This risk/volatility profiled approach is a different approach from the 'performance focused' approach of VLS which merely delivers the performance of x% indexed equities (75% non-UK) and y% of certain bond indexes.

jamei305

coastline wrote: »

Changing the mix. If the market was down 20% in the period quoted late 2018-early 2019 why not buy more equities.? Flexible funds have this mix of bonds and equities. Usually periods of such a correction present buying opportunities. In the case quoted the path of VLS and PAT are pretty similar looking at the chart.

CGT has been 120% equities before (by borrowing to hold more equities than they had the cash to buy) at a time when they thought there was an extraordinary buying opportunity. If you read the reports from these kind of fund managers you will see what they think about the current situation and why they haven't loaded up on equities during a market correction when their principle aim is preserving capital.

JohnWinder

You're all over this, thanks, Lint-free (may I call you Lint-free?).
I had thought SP and MSCI et al created indices so people had a summary figure to follow market movements; these indices made from a partially secret recipe of which and when to add/remove certain financial instruments (stocks, bonds etc) to a list which reflects the relevant market. I thought Vanguard paid SP et al so they could use their index in putting together their managed funds.
If HSBC wants to offer an index fund, because the customers are flocking to passive investing, I thought HSBC would either pay SP to use one of their indices as Vanguard does, or HSBC could create their own index which would similarly reflect the fortunes of a particular market - hence no licence fees. We live and learn.
Russell2000 and Hale rings another bell.
I hadn't thought of HSBC as a volatility focused, rather than returns focused fund, but it makes sense. If a matching VLS fund can return more but with more volatility, then I guess you pay your money and take your choice of (hopefully) more stable value or (hopefully) more returns. That would be easy if either could guarantee their volatility (HSBC) or returns (VLS), you would then just have to accept the resultant returns (with HSBC) or volatility (with VLS). But as they can't, is a Sharpe ratio or some single value measure which combines historical returns and volatility useful, to hint at the funds' future behaviours? Then choose the fund with the better Sharpe ratio and which has achieved your hoped for volatility or returns?
By funds being accountable, I meant going beyond walking with your money. Yes, I can see what the results are, but what standard should I judge them against. I don't think simple returns is adequate, because there could be a fund with great returns for the last 10 years (during an equity bull and bond bull), but have taken crazy-level risks to achieve this; risks that only manifest in a few years after I buy in.
For this reason (I don't know what standard is sensible) I find VLS appealing because there is a clear standard to hold them to: matching their indices, which makes me accountable for having chosen those indices. But with HSBC having some active components, what's a suitable standard taking risk into account? Perhaps it matters little, since not much of it is active.

firestone

JohnWinder wrote: »

You're all over this, thanks, Lint-free (may I call you Lint-free?).
I had thought SP and MSCI et al created indices so people had a summary figure to follow market movements; these indices made from a partially secret recipe of which and when to add/remove certain financial instruments (stocks, bonds etc) to a list which reflects the relevant market. I thought Vanguard paid SP et al so they could use their index in putting together their managed funds.
If HSBC wants to offer an index fund, because the customers are flocking to passive investing, I thought HSBC would either pay SP to use one of their indices as Vanguard does, or HSBC could create their own index which would similarly reflect the fortunes of a particular market - hence no licence fees. We live and learn.
Russell2000 and Hale rings another bell.
I hadn't thought of HSBC as a volatility focused, rather than returns focused fund, but it makes sense. If a matching VLS fund can return more but with more volatility, then I guess you pay your money and take your choice of (hopefully) more stable value or (hopefully) more returns. That would be easy if either could guarantee their volatility (HSBC) or returns (VLS), you would then just have to accept the resultant returns (with HSBC) or volatility (with VLS). But as they can't, is a Sharpe ratio or some single value measure which combines historical returns and volatility useful, to hint at the funds' future behaviours? Then choose the fund with the better Sharpe ratio and which has achieved your hoped for volatility or returns?
By funds being accountable, I meant going beyond walking with your money. Yes, I can see what the results are, but what standard should I judge them against. I don't think simple returns is adequate, because there could be a fund with great returns for the last 10 years (during an equity bull and bond bull), but have taken crazy-level risks to achieve this; risks that only manifest in a few years after I buy in.
For this reason (I don't know what standard is sensible) I find VLS appealing because there is a clear standard to hold them to: matching their indices, which makes me accountable for having chosen those indices. But with HSBC having some active components, what's a suitable standard taking risk into account? Perhaps it matters little, since not much of it is active.

while it can be said that VLS is not really active,there still could be in the time that you hold small active changes made.In an article in the Telegraph a few years back they did mention they have a so called Strategic asset allocation committee that meets periodically to decide on weightings etc.So while not hands on there is still a bit of steering going on

Sally57

Does anybody know if there is an ETF equivalent for a global multi asset fund (such as VLS or HSBC funds)?

ColdIron

ETFs typically track an index so by definition almost none will be multi-asset

jamei305

Sally57 wrote: »

Does anybody know if there is an ETF equivalent for a global multi asset fund (such as VLS or HSBC funds)?

iShares do a series e.g. iShares Core Conservative Allocation ETF which also comes in Aggressive and Moderate versions.

tin586

Sally57 wrote: »

Does anybody know if there is an ETF equivalent for a global multi asset fund (such as VLS or HSBC funds)?

You could try constructing your own.

https://pensioncraft.com/how-to-build-two-stock-portfolio/