Diversifying within US index funds

Prism

aroominyork said:

Prism said:

Absolutely. If we take an example over the last 5 years Facebooks revenue has grown from 12Bn to 70Bn, Alphabet from 66Bn to 166Bn while JPMorgan 103Bn to 140Bn and J&J 74Bn to 82Bn.
There is no catching up to be done here for the time being as the recent performance of the FAANGs is mostly in line with the companies performance while pretty much everything else has been drifting along

By 'catching up' I didn't mean the non-FAANGs would make the kind of share price gains the FAANGs have in recent years; I meant the gap might narrow. Companies priced on a forward P/E of 90 have a high bar to clear.

I think Terry Smith and Nick Train, of whom I think you are an avowed acolyte, would be quite happy holding companies increasing their revenues from 103bn to 140bn over five years (though I am happy to be corrected), yet your post reads more like a Baillie Gifford American investor.

I only captured a bit of those gains through an L&G tech tracker at the time, which I sold roughly when Fundsmith bought Facebook but it seems that as they get more mature the big tech just keeps pushing higher while the relative price for at least some of them gets lower. I'm all for a bit of small/mid cap investing but at the moment it seems everything is getting eclipsed by big tech. 

I did have SMT for a year or so too but its a little to much of a rollercoaster for me even though I really admire it

aroominyork

I've charted the three options in the first post and decided on XDWE, the equal weight fund (0.15% OCF). It's outperformed the two Russell funds during recent years and is likely to be steadier in a downturn. Given the size of the US economy, holding companies at $4bn+ at equal weight is far enough down the market cap chain to provide some worthwhile diversification. It will be a straight swap for XDPG, a hedged S&P fund, and my US allocation will then be 17% Fundsmith, 13% Smithson, 48% in a global index fund and 22% XDWE. Let's hope 2020 works out well for Terry!

DairyQueen

aroominyork said:

I've charted the three options in the first post and decided on XDWE, the equal weight fund (0.15% OCF). It's outperformed the two Russell funds during recent years and is likely to be steadier in a downturn. Given the size of the US economy, holding companies at $4bn+ at equal weight is far enough down the market cap chain to provide some worthwhile diversification. It will be a straight swap for XDPG, a hedged S&P fund, and my US allocation will then be 17% Fundsmith, 13% Smithson, 48% in a global index fund and 22% XDWE. Let's hope 2020 works out well for Terry!

Do you mind revealing the %age of your total portfolio allocated to the US? 

aroominyork

Just under 40%.

Thrugelmir

aroominyork said:

Prism said:

Thrugelmir said:

aroominyork said:

a) an equal weight S&P fund, so you are still investing in the top 500 companies but spreading the exposure more evenly (XDWE)

If you are looking at historic data. Then you need to factor in the (5 year ?)  performance of the FAANGS on the indexes. Strip them out and the figures will tell a a rather different story. 

Absolutely. If we take an example over the last 5 years Facebooks revenue has grown from 12Bn to 70Bn, Alphabet from 66Bn to 166Bn while JPMorgan 103Bn to 140Bn and J&J 74Bn to 82Bn.
There is no catching up to be done here for the time being as the recent performance of the FAANGs is mostly in line with the companies performance while pretty much everything else has been drifting along

By 'catching up' I didn't mean the non-FAANGs would make the kind of share price gains the FAANGs have in recent years; I meant the gap might narrow. Companies priced on a forward P/E of 90 have a high bar to clear.

I think Terry Smith and Nick Train, of whom I think you are an avowed acolyte, would be quite happy holding companies increasing their revenues from 103bn to 140bn over five years (though I am happy to be corrected), yet your post reads more like a Baillie Gifford American investor.

Remember the old saying. Revenue is vanity, profit is sanity but cash is always king.  

aroominyork

aroominyork said:

I've charted the three options in the first post and decided on XDWE, the equal weight fund (0.15% OCF). It's outperformed the two Russell funds during recent years and is likely to be steadier in a downturn. Given the size of the US economy, holding companies at $4bn+ at equal weight is far enough down the market cap chain to provide some worthwhile diversification. It will be a straight swap for XDPG, a hedged S&P fund, and my US allocation will then be 17% Fundsmith, 13% Smithson, 48% in a global index fund and 22% XDWE. Let's hope 2020 works out well for Terry!

I've come across this very well written article on equal weighted indices https://www.lynalden.com/equal-weighted-index-funds/