How many Global Funds or IT's?

talexuser

MarkCarnage wrote: »

Currently it's Alliance, Bankers, Brunner and Edinburgh Worldwide. I also hold Witan which I counted under equity income first time as it is in my SIPP drawdown portfolio, not really an income IT though yield is over 2%.

RIT Capital Partners is kind of halfway house between global IT and wealth preservation fund in my book.

I have all of these across ISA and unwrapped, apart from the Edinburgh on watch/for rebalance as mentioned earlier.

OldBill

bostonerimus wrote: »

If you do hold several global funds or regional funds how do you select the percentage allocations? and how do you rebalance/manage the allocations through market cycles?

Same thought occurred to me, especially since the cap weightings within funds can differ so much.

Lars Kroijer's cap weighting in this video (@2:37):
https://www.youtube.com/watch?v=LwTHLtuToSY

US - 36%
China - 8%
Japan - 7%
HK - 6%
UK - 5%
Rest of world - 38%

is roughly matched by this:

https://www.indexmundi.com/facts/indicators/CM.MKT.LCAP.CD/rankings

However, Investopedia gives these figures:
MSCI All Country World Index (ACWI)
April 2019:

US - 54.41%
Japan - 7.58%
UK - 5.21%
China - 3.6%
France - 3.42%

So Vanguard's FTSE Global All Cap Index Fund - Accumulation, for instance, is "following" the latter set of figures, not Kroijer's.

How to explain this "discrepancy" (if it is one)?

Or am I missing something really obvious?

MarkCarnage

Depends on the criteria for index inclusion.

I don't get bothered about geographical weightings too much, as they are somewhat arbitrary. Firstly, megacap global stocks have revenue and profit streams from many countries. Secondly, and especially in the UK, the listing domicile may have little relation to the sources of revenue or profit.

Time and money can be wasted on excessive 'rebalancing' too. I hold global actively managed vehicles to allow managers to do that for me.

bowlhead99

OldBill wrote: »

Same thought occurred to me, especially since the cap weightings within funds can differ so much.

Lars Kroijer's cap weighting in this video #

is roughly matched by this:

However, Investopedia gives these figures:
MSCI All Country World Index (ACWI)

Vanguard's FTSE Global All Cap Index Fund - Accumulation, for instance, is "following" the latter set of figures, not Kroijer's.

Kroijer and Indexmundi are looking at what share capital exists worldwide (number of shares times value per share).

MSCI and FTSE are creating indices that can be used to build investment products and measure returns made by investors. In doing so what they allocate to a company's equity is driven by the market cap of the financial instruments in free float, subject to certain liquidity requirements at the bottom end.

There are a bunch of companies in China and other countries for example where (a) the share classes are restricted and not generally available to international investors or (b) a lot of the shares are not considered to be in 'free float' but are held tightly by government agencies or founding families. For the purposes of building an investible index product, they are only going to include the market cap of the company that you could actually invest in.

For example in the S&P500 ranking, a tracker fund would hold roughly equal proportions of McDonalds, Citigroup and Walmart. They would each take a little over 0.6% of an S&P500 tracker's portfolio or about 0.32-0.35% of an MSCI AWCI world index's portfolio.

However when you look at their market cap (number of shares that exist multiplied by market price per share), you find that McDonalds and Citi are worth about $160bn each and Walmart is worth as much as the two of them put together, more like $320bn. Half of Walmart is owned by the founding Walton family who are not going to sell a big chunk of their bit to Vanguard or Blackrock or someone else who comes knocking to buy shares to stuff into an index tracker. So their piece is not considered to be in 'free float'.

The same sort of effect can account for companies listed in China only making up 3.5% of MSCI's All Companies World Index while if you went to China and counted up all the companies and asked them how much all the shares of those companies were worth, you would find it was a lot more than the few trillion dollars of market cap ascribed to companies listed on the UK stock exchange, even though the UK-listed companies make up between 4.5 and 6% of the various major global indexes.

The sum total market valuation of Chinese listed companies are probably similar to the sum total market valuation of Japanese listed companies (Japan overtook China again in 2018 but it's reasonably close), even though if you were a trillionaire and popped down to your stockbroker with some special requests, you wouldn't be able to buy as much Chinese stock as you could order Japanese and so the ACWI or FTSE All-World would track a lower value of Chinese companies than it does for Japan.

The more flippant answer from IanManc is that you are using data from different snapshot points in time so you wouldn't expect them to match, which is of course true - but there is a bigger / more nuanced picture behind the scenes, which you can get into when you read the documentation from FTSE Russell, MSCI and others about how they practically construct an index that market participants would find useful.

bowlhead99

IanManc wrote: »

I wasn't being flippant. I was trying to give a helpful answer.

Apologies, I don't think China halved its share of the global market cap while US grabbed an extra 20% market share in the last three years, so I assumed that the comment that it was all due to timing of data capture followed by a smiley was something to be taken in jest .

Really the difference is that FTSE and MSCI have some standardised rules of getting the company-by-company data into their various slots in their index series, suitable for building tracking funds and measuring relative market composition and performance over time; other approaches include using a variety of data sources, which may be a little less 'structured' and may include some double-counting of entities, or be trying to capture something different.

For example the World Bank reported that France had GDP of $2.8 trillion for 2018 and that its domestic listed companies were valued at 85% of GDP, which works out to about $2.4 trillion. This seems consistent with the figure given by the European Central Bank of €2.067m for 'domestic equities and exclusive foreign listings' in France. The World Bank data for the UK says that domestic listed companies had a value of 64% of our $2.85 trillion GDP which is about $1.8 tn. So on those figures France has a third more stock market value.

But we know that the UK market has a trillion more market cap than that, because it has loads of non-UK companies that choose to list here; 'market cap of domestic UK companies' is not a question that FTSE or MSCI try to answer. Some of France's domestic companies list overseas, or have significant proportions not in free float, or are under the radar for size or liquidity, so FTSE says only $1.7 trillion of its global all-cap index is taken by companies listed in France, and the UK has a 40-60+% bigger weighting than France depending on which particular FTSE or MSCI index you're looking at.

If you actually tried to go and takeover companies in different parts of the world by simply buying shares on the exchanges as a hostile bidder you would face practical problems. In Italy probably 90% of companies have a dominant shareholder. In both Italy and France they have 'double voting rights' rules whereby someone who has held the shares for two or more years gets twice as many votes per share as someone who hasn't. In China, you have to be a resident, an overseas worker of the Chinese company or a member of qualified foreign institutional investor schemes to buy A-shares. This is still an opening up of the markets compared to what it used to be (when you had to be a Chinese citizen and the qualified institutional schemes had stricter caps/quotas) but there may still be restrictions on repatriating sales proceeds.

So when it comes to spreading your money around into 'the market' there are some quirks to work around. Should you allocate your money regionally based on local market cap, local population, local GDP, or just ignore regions altogether and focus on companies with international businesses which are themselves diversified in assets and revenue sources? Everyone will have a different approach.

MonroeM

Sally57 wrote: »

In my OP I was wondering if my brother holding 4 global IT’s was too many but clearly not.

Surely with Bankers, Brunner, Witan & Alliance Trust there must be quite a bit of crossover or duplication? I’d be very interested in your point of view on this.

MarkCarnage said he holds 7 Global IT's in total (SMT, Monks, Bankers, Brunner, Witan, Edinburgh Worldwide & Alliance Trust) so there must be some duplication (apart from EWI), however Bowlhead seemed to think this was not a problem. However, would the same be said if anybody claimed to hold 7 IA Global OEICS?

bowlhead99

MonroeM wrote: »

MarkCarnage said he holds 7 Global IT's in total (SMT, Monks, Bankers, Brunner, Witan, Edinburgh Worldwide & Alliance Trust) so there must be some duplication (apart from EWI), however Bowlhead seemed to think this was not a problem. However, would the same be said if anybody claimed to hold 7 IA Global OEICS?

What strategies do the particular OEICs you are thinking about, employ? Are the themes and sectors and factors they adopt, sufficiently dissimilar to be worth using more than one or two of them?

I have different holdings in SIPP vs ISA; my parents ISAs differ from each other. So sometimes when you look across a whole portfolio held in multiple accounts, you get more than the bare minimum number of holdings that could be used for one big pot.

ITs do have different features to OEICs (notably gearing policy, dividend policy, ability to trade at discounts or premia to underlying NAV etc) which can provide additional points of differentiation.

Linton

MonroeM wrote: »

MarkCarnage said he holds 7 Global IT's in total (SMT, Monks, Bankers, Brunner, Witan, Edinburgh Worldwide & Alliance Trust) so there must be some duplication (apart from EWI), however Bowlhead seemed to think this was not a problem. However, would the same be said if anybody claimed to hold 7 IA Global OEICS?

IMHO you should be able to justify each fund you hold in terms of something unique and worthwhile it adds to your portfolio. So 7 Global Trackers may be a little difficult to justify whereas 7 global funds based on stock picking skills or different sector focuses would be easier. Though perhaps in the latter case by the time you get to 7 any unique factors would be substantially diluted.

OldMusicGuy

bostonerimus wrote: »

If you do hold several global funds or regional funds how do you select the percentage allocations? and how do you rebalance/manage the allocations through market cycles?

I use McClung's research to guide my overall equity/bond ratio and I use Morningstar X-Ray to assess how close I am to that across my three funds. I typically rebalance every 3 to 6 months or maybe more frequently if there have been significant movements in teh funds that might throw the balance out of whack.

OldBill

Thanks for the replies, guys.

What I take from the above is that all of these figures should be taken with bucket-fulls of salt.

It has been pointed out on other forums that in these types of funds the US-weighting is always a bit heavy (to say the least) & that the China one is low.

I had noticed the time-lag, too, but it still seemed a bit weird that in 3.5 yrs the US economy had managed to snaffle another 20% of the world's share cap, & that one figure for China's portion could be less than half of the other!