Is the equity region allocation landscape changing.......?

Linton

Prism said:

...

You can track sector indices almost as easily as region indices. For example you could build a portfolio that has 50% allocation to tech, 30% health, 10% finance and 10% energy if you felt that was better than regional allocations.

Yes, up to a point.  However what about industrials, consumer goods and some of the other less glamorous sectors? Tech is a useful sector where there are a large number of funds available. Health is more difficult because it is comprised of 2 very different areas.  There is the pharmaceutical industry which is more like tech and the care side which isnt. Mining funds tend to be more interested in precious metals than say bauxite or limestone.

So I find it easiest to base my investments on geographic funds and then use sector specific ones to adjust the allocations.  Vice versa would be much more difficult.

MaxiRobriguez

I expect the US to be disproportionately negatively impacted by COVID but the the US indices will generally fare OK because of a dominance by a handful of companies that operate globally and won't be impacted by lack of footfall. 

Meanwhile UK equities will probably find it harder to outperform given a mixed bag of banking, oil and retail all of which will suffer more from another 12 months of COVID inflicted risk.

Strangely it might the Chinese markets which perform the best over the next 12-24 months.

Prism

Linton said:

Prism said:

...

You can track sector indices almost as easily as region indices. For example you could build a portfolio that has 50% allocation to tech, 30% health, 10% finance and 10% energy if you felt that was better than regional allocations.

Yes, up to a point.  However what about industrials, consumer goods and some of the other less glamorous sectors? Tech is a useful sector where there are a large number of funds available. Health is more difficult because it is comprised of 2 very different areas.  There is the pharmaceutical industry which is more like tech and the care side which isnt. Mining funds tend to be more interested in precious metals than say bauxite or limestone.

So I find it easiest to base my investments on geographic funds and then use sector specific ones to adjust the allocations.  Vice versa would be much more difficult.

Its a bit easier in the ETF world where you can get ETFs in just about anything. Consumer staples, disc, tech, communications, precious metals, industrial metals, bio tech etc etc.
Requires a pretty care free approach to regions though and you won't get anywhere close using active funds - except for maybe tech, healthcare and finance.

AnotherJoe

Linton said:

AnotherJoe said:

I believe attempting to diversify geographically doesn't work, the global economy is too interconnected and well, global..

Suppose you invested in S Korea, Samsung, well who buys their phones, USA and Europe?  Or Chinese manufacturing, much of that is consumed in Europe and USA .

You'd have to get to the level of perhaps a Chinese company that made noodles only eaten in china.

Better to focus on areas you think will do better in future, a few i'd throw out as ideas, pick your own, non fossil fuel energy, healthcare, tech, biotech, internet. But you might go for banking or pharma or whatever.

I dont really get your argument.  Surely Samsung in South Korea gets the profits from sales in the US so if you did not invest in South Korea you would lose out. If you only invested in Chinese mobile phone companies Trump's trade war could hit you seriously. One reason for diversifying globally is to ensure you get a slice of all the profits that are available no matter where they are made.

The OP was looking to get out of / reduce one geography. My point was, its all interconnected. So  for example, OP thinks "I'll reduce USA because its overdone and economy will fall so I'll invest in Asia instead". But if that happens, USA economy falters, the consumers in USA who buy Samsung phones will stop, and so Samsung in S Korea's profits will fall. So moving to S Korea instead of USA didnt help.

Sailtheworld said:

Linton said:

carpy said:

....
why is it that the FTSE100 in particular is not a good index to track/invest given we are generally a successful economy and in the worlds top 10?

Then there is systemic problem that has occured to me, but perhaps I havent fully thought it through.....

How do companies leave the FTSE100?  They are successful and get taken over so dont matter any more, they go bust and their investors lose out.   A few slide into the FTSE250 leaving their investors in much the same position as when they entered the FSE100.  Many of the rest just sit there - not bad enough to go bust or just too big to fail and continue to struggle on life support, but really only existing because no-one else wants to buy them.

Compare this with the FTSE250 where the best companies leave for the FTSE100 and so there is a steady rise of good companies up the rankings.

That goes for all indices. The reason the FTSE100 is a poor place to focus one's capital is because it's a massive concentration of risk.

Its a massive concentration of risk because, almost as happenstance, its focussed in a very few industries as well as very few companies. Finance, Pharma, fossil fuels. Its not the UK aspect thats the issue, those companies are global. They could chnage their domicile almost over night and change from a "UK" company to, say a "Dutch" one with absolutely no difference to their trading or income.

AnotherJoe

carpy said:

i was meaning more in which indices to track/invest rather than individual stock picking

There are indices for company sectors (to a very specific degree if you want) in the same way there are indices for geographies and countries. Samsung was just an example of how a company HQ'd  in one geography is still affected by changes in another.

Sailtheworld

AnotherJoe said:

Linton said:

AnotherJoe said:

I believe attempting to diversify geographically doesn't work, the global economy is too interconnected and well, global..

Suppose you invested in S Korea, Samsung, well who buys their phones, USA and Europe?  Or Chinese manufacturing, much of that is consumed in Europe and USA .

You'd have to get to the level of perhaps a Chinese company that made noodles only eaten in china.

Better to focus on areas you think will do better in future, a few i'd throw out as ideas, pick your own, non fossil fuel energy, healthcare, tech, biotech, internet. But you might go for banking or pharma or whatever.

I dont really get your argument.  Surely Samsung in South Korea gets the profits from sales in the US so if you did not invest in South Korea you would lose out. If you only invested in Chinese mobile phone companies Trump's trade war could hit you seriously. One reason for diversifying globally is to ensure you get a slice of all the profits that are available no matter where they are made.

The OP was looking to get out of / reduce one geography. My point was, its all interconnected. So  for example, OP thinks "I'll reduce USA because its overdone and economy will fall so I'll invest in Asia instead". But if that happens, USA economy falters, the consumers in USA who buy Samsung phones will stop, and so Samsung in S Korea's profits will fall. So moving to S Korea instead of USA didnt help.

Sailtheworld said:

Linton said:

carpy said:

....
why is it that the FTSE100 in particular is not a good index to track/invest given we are generally a successful economy and in the worlds top 10?

Then there is systemic problem that has occured to me, but perhaps I havent fully thought it through.....

How do companies leave the FTSE100?  They are successful and get taken over so dont matter any more, they go bust and their investors lose out.   A few slide into the FTSE250 leaving their investors in much the same position as when they entered the FSE100.  Many of the rest just sit there - not bad enough to go bust or just too big to fail and continue to struggle on life support, but really only existing because no-one else wants to buy them.

Compare this with the FTSE250 where the best companies leave for the FTSE100 and so there is a steady rise of good companies up the rankings.

That goes for all indices. The reason the FTSE100 is a poor place to focus one's capital is because it's a massive concentration of risk.

Its a massive concentration of risk because, almost as happenstance, its focussed in a very few industries as well as very few companies. Finance, Pharma, fossil fuels. Its not the UK aspect thats the issue, those companies are global. They could chnage their domicile almost over night and change from a "UK" company to, say a "Dutch" one with absolutely no difference to their trading or income.

That's what I meant. Not a bad thing if you like miners etc. but a bit of a disaster if you're either looking for diversity or exposure to the UK economy.

UK investors sleepwalk into a home bias more than most. That in itself is a big concentration of risk; I know the index has changed over the years but it doesn't seem that long ago a FTSE100 focused fund seemed like a safe way of building a retirement fund. 100 companies where the world equity markets allocate 5% of capital but the average Brit much closer to 100%.

I used to take it a bit further and invest 100% in high yield shares and, to add diversity, would occasionally add a FTSE250 company and would really push it to get around 10 shares in my portfolio. I don't know how I got away with it.

Malthusian

Sailtheworld said:

I used to take it a bit further and invest 100% in high yield shares and, to add diversity, would occasionally add a FTSE250 company and would really push it to get around 10 shares in my portfolio. I don't know how I got away with it.

10 FTSE 100 shares would have been a well diversified portfolio a century and a half ago.

I'm not going to do the maths unless a university gives me a grant, but if you picked ten FTSE 100 shares at random and invested in those for the long term, you would probably have to be fairly unlucky to lose your shirt or even be worse off than cash. That's how you got away with it.

However a far larger number of people would get unlucky (e.g. by picking a few HBOSes or Marconis) than people who invested in a FTSE 100 tracker, who would outnumber the number of people who got unlucky by investing in a global tracker (i.e. nobody). And none of those people would be receiving any expected return in exchange for the higher risk.