Variance in index fund prices 14 February at 11:04PM edited 15 February at 8:42AM in Savings & Investments 14 replies 471 views

AnotherJoe

Add a third index to the two (one I hold, HMWO) and its the same picture.

So, essentially there's either a major conspiracy going on or the major constituents of these funds outweigh the minor stuff to such an extent that they will inevitably follow a similar path. Bit like the FTSE100 when the activity of say the bottom 20 companies is really irrelevant to what the index does. So you could have Fund A which contains the top 80 of the 100 and 20 something else, say from EM which are minnows compared to the top 20, and another which has just the 100. And the difference would be tiny. I haven't looked but maybe say the top 500 companies in these funds are almost identical in composition and % to each other and encompass perhaps 95% of the overall contribution, so of course they will track each other.

I had a similar experience with a couple of index funds I bought a few years back when i was getting analysis paralysis between two and decided just to go 50/50. After 5 years there was less than 0.5% between them.

Conclusion, dont spend too much time agonising between different world index funds.

masonic

bowlhead99 said:

As a side note if you want to direct link someone else's recent post you can click to their profile, look at their Replies and grab the hyperlink to their reply from there, like this, though it would be handy if you could just say Post #5 above without needing to count them for yourself first 

Nice workaround, I've been missing the ability to link to individual posts. Shame it gets tricky when those posts are older.

aroominyork

AnotherJoe said:

Add a third index to the two (one I hold, HMWO) and its the same picture.

So, essentially there's either a major conspiracy going on or the major constituents of these funds outweigh the minor stuff to such an extent that they will inevitably follow a similar path. Bit like the FTSE100 when the activity of say the bottom 20 companies is really irrelevant to what the index does. So you could have Fund A which contains the top 80 of the 100 and 20 something else, say from EM which are minnows compared to the top 20, and another which has just the 100. And the difference would be tiny. I haven't looked but maybe say the top 500 companies in these funds are almost identical in composition and % to each other and encompass perhaps 95% of the overall contribution, so of course they will track each other.

I had a similar experience with a couple of index funds I bought a few years back when i was getting analysis paralysis between two and decided just to go 50/50. After 5 years there was less than 0.5% between them.

Conclusion, dont spend too much time agonising between different world index funds.

You're conflating two issues. The issue I raised, and where you first mentioned conspiracies, was about similar funds diverging and then converging day-to-day: nothing_to_fear and bowlhead  have explained why that happens (and I will offer odds that tomorrow Fidelity falls at last 0.50% compared to HSBC!). You are now raising a different issue of similar funds (with HMWO looking like an ETF version of Fidelity) performing similarly over the long run. That's a totally different point but I agree with you that trying to dissect minor differences is usually pointless: there's a margin around any of our portfolios within which the long-term performance would barely change. 

Edit: I'm going to withdraw my generous offer of odds on tomorrow's fund prices, given that Friday's divergence looks largely to be a convergence correcting Thursday's divergence.

Thrugelmir

aroominyork said:

Thrugelmir said:

If the individual holdings differ then so will the performance. 

But the holdings only vary by HSBC including EMs and Fidelity being slightly more large cap focused. For the most part the underlying holdings are very similar, and the differences surely are not material enough to explain the fund prices moving in different directions.

The funds track different indices. Therefore will have different holdings and weightings attributed to different stocks. Hardly surprising that there's an element of divergence.