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FTSE Global All Cap vs Dev. World Ex-UK - UK/EM to blame?

bogleboogle
Posts: 80 Forumite

Over the past 5 years, the Global All Cap fund has grown by approx. 30% and the Dev. World Ex-UK fund has grown by just over 63%! (YTD GAC is up 0.7% and Dev. World Ex-UK is up 4%.)
What accounts for this massive difference? From what I see on Vanguard, the two funds appear to be relatively similar in terms of their holdings except that the Dev. World Ex-UK has no UK or EM exposure. Is this the reason for the latter's massive outperformance vis-a-vis the GAC over the past 5 years (specifically, that UK/EM have underperformed significantly over the past 5 years)?
What accounts for this massive difference? From what I see on Vanguard, the two funds appear to be relatively similar in terms of their holdings except that the Dev. World Ex-UK has no UK or EM exposure. Is this the reason for the latter's massive outperformance vis-a-vis the GAC over the past 5 years (specifically, that UK/EM have underperformed significantly over the past 5 years)?
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Comments
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You are using bad data.
Vanguard FTSE Global All Cap
Firstly, Vanguard's Global All Cap fund has not been available for 5 years.
You mentioned the fund "has grown by approx 30%", but (a) that is an inception to date figure not a five years figure and (b) if you're saying it's only 30% from inception to June it means you are looking at the share price of the Income class and presuming that every time you got a dividend, you threw it in the bin rather than reinvested it, or perhaps you are looking at some other end date than the most recent published 30 June figures on the Vanguard site.
Its total return performance (accumulation class or income class assuming divs reinvested) in GBP since inception to June 2020 is 35.67% (scroll down to Price & Performance / Past Performance , then click Display:cumulative figures, at https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/price-performance?intcmpgn=equityglobal_ftseglobalallcapindexfund_fund_link). But that return isn't a full 5 years as it hasn't existed that long. The table shows the comparative for the underlying FTSE index which has been available for 5 years, is 73.5% in GBP.
FTSE's own factsheet for the Global All Cap index is at (https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=GEISLMS&IsManual=false) and shows 38.1% for the 5 years to June 2020, but that's in USD. A dollar went from being worth 63.6p on 30 June 2015 to to 80.8p on 30 June 2020. (https://www.xe.com/currencytables/?from=USD&date=2015-06-30 )
So $100 becoming worth $138.1 using that index is a 38.1% return in dollars, but equates to £63.60 becoming worth £111.58, more like a 75% return in GBP due to dollar strengthening/sterling weakening. The ~75% is not quite the same as the 73.5% mentioned by Vanguard in their cumulative 5 year figures as my currency conversion is simple and takes no account of timing of reinvested dividends, will be off by rounding etc
Vanguard FTSE Developed World ex-U.K. Equity Index Fund
You say over the past 5 years this has grown 'just over 63%', but Vanguard's own factsheet says 84% (versus 85% for the index, difference being fees and tracking error).
(Price & Performance tab, scroll down to Past Performance and Display:cumulative on the table, or scroll down to 'Past Performance of a lump-sum investment' and click 5 years on the chart) at https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-developed-world-ex-uk-equity-index-fund-gbp-acc/price-performance?intcmpgn=equityglobal_ftsedevelopedworldexukequityindexfund_fund_link )
Comparison
So the real disparity between global all cap (including emerging markets, global smallcap and UK) and developed world ex UK (not including those areas) is around 10% over the 5 year period (roughly 75% plays 85%) rather than in your figures 30% plays 63%. In this particular period, emerging markets fared worse than developed, smallcap fared worse than large and UK fared worse than ex-UK.
You can see that by looking at the sheet on the FTSE Russell factsheet I linked above, which shows 5 yr figures (dollars) for Global All Cap at 38% and FTSE All World at 40%, but Global Small Cap only 22% and Mid Cap only 26% (Large Cap was better, at 43%)
Also you can look at FTSE's own factsheet for the Developed index at https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=AWD&IsManual=false which helpfully shows (again in dollars) in the 5 year column that while overall Developed was 43%, the all-world was only 40% because it blends Developed with a relatively smaller amount of Emerging, and Emerging only had 15.5%. Remember these figures for both are in USD so the differences will be greater after you have done a GBP conversion.
So:
- if you use a product which includes smaller companies, emerging markets, and UK stock-exchange listed companies (all quite sensible things to do) and all of those areas happen to underperform developed large cap ex-UK companies (over a time when sterling weakens), you will get a worse return;
- but they are only knocking off about 10% from the 85% available, rather than your initial conclusion that they had halved the return (knocking 63%+ down to 30%)
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One reason to split your risks according to what your comfortable with. I won't put Small caps and EM into my main index tracker fund, I will do separately at 5 and 10% respectively. But whether it is a good time to buy would be debatable.
Sure your buying at a good price, but you may suffer initial losses as the drop continues, but again depends on how passive/active you want to be
I am still unsure whether to include some UK equities in my portfolio, some people on here say you should, some not so. The monevator portfolio has some UK equities I can see but at a small percentage
Bowlhead, can you shed some light on whether a UK investor should have some UK equities as one of their individual funds?"It is prudent when shopping for something important, not to limit yourself to Pound land/Estate Agents"
G_M/ Bowlhead99 RIP0 -
csgohan4 said:One reason to split your risks according to what your comfortable with. I won't put Small caps and EM into my main index tracker fund, I will do separately at 5 and 10% respectively. But whether it is a good time to buy would be debatable.
If you are doing most of your investment by indexing there is no harm in including smallcaps and EMs into the 'main' tracker fund because they are each ~$5 trillion of investible market capitalisation and so you could have them as part of the main index you are using, with a 'naturally' reasonably small allocation and then you would only need to add a separate fund to the extent that wasn't felt enough. However:
- some would say that using a market-cap weighted index to allocate among small company opportunities (which necessarily puts more money into the least-small company) is not a great way to take exposure if smallcap is what you want; both EMs and smallcaps may be presumbed to have less-efficient markets making passive index investing a less-obvious choice.
- even if you do use indexes to allocate among the companies in (e.g.) EM, there is a difference to your outcome if you just hold the EM allocation within some larger index (so that as EM companies like Tencent and Samsung and Taiwan Semiconductor grow, they become a larger part of the total index and EM in total becomes a larger part of the total index) versus holding EM as a separate fund (so that Tencent or Samsung or Taiwan becomes a larger portion of the EM fund, but the EM fund does not have to take more of your portfolio because you can control the weight of emerging vs developed to a ratio you prefer. There is a potential diversification / rebalance benefit if you hold them as two constituents and rebalance periodically rather than allowing the proportions to naturally ebb and flow, but you would have to decide from time to time what you want that ratio to be, perhaps based on your view of how correlated the returns may be with the developed markets and the extent to which they are more volatile.
I can't see why a UK investor making financial investments would not want to have some money invested in the actual economy where he lives. I don't know any competent investor on here who says you should not allocate some money to your domestic market. If the price of goods and services are going up at Tescos or WHSmiths or Greggs or Wagamamas or National Grid, it makes sense to own shares of those companies rather than presuming that Walmart or JP Morgan Chase or Consolidated Edison will be the best home for your money.I am still unsure whether to include some UK equities in my portfolio, some people on here say you should, some not so. The monevator portfolio has some UK equities I can see but at a small percentageBowlhead, can you shed some light on whether a UK investor should have some UK equities as one of their individual funds?
To have 99% of your investments be on foreign markets 'just in case the UK economy doesn't do very well' seems a poor reason without much rationale. If you have incoming pounds from a day job, and perhaps a UK property to live in, you may think that you already have 'exposure' to the UK economy but you should consider matching some of your assets with your future expenses and liabilities - even if a large proportion of what you buy in retirement will inevitably have an international cost component, it will also have a UK component.
And one reason is that your friends and neighbours will also have UK assets in their investments and pensions because that's 'normal'. When you retire and go out to buy a loaf of bread, your pounds will compete with your neigbours' pounds to compete for how much we should all pay for bread. If you are gambling that your retirement fund will do better invested in Korea or Mexico than it does in the UK, you may get lucky - or you may have considerably fewer pounds available compared to the people who held shares in JD Sports and Taylor Wimpey and Fevertree or Sainsbury etc and can afford the bread that the average person investing his pension contributions in a mix of assets (including UK) can afford.
There are some here who note (as often as they can) that the FTSE 100 or All-Share is perhaps a poor choice of investment for 'domestic bias' because it doesn't do a great job of capturing the UK economy (highly weighted to global giants like Shell and Astrazeneca and HSBC) and also that is highly weighted to particular industries. So they will moan about cheap global mixed asset funds using the UK index to get UK exposure (e.g. AnotherJoe is always warning people off LifeStrategy as he thinks that's a bad way of getting an artificial UK bias) He is not particularly wrong in saying that, but it shouldn't put you off the idea of having a proportion of your money invested in UK listed companies - there is more than a trillion pounds of investible market capitalisation right on your doorstep. If you were allocating only in accordance with indexes (for cost control) you might prefer to use the FTSE250 - which still has weightings issues but is giving you more real domestic exposure and skipping the global megacaps which you will find all over the world anyway.
There are also some on here who say the UK is a basket case full stop and you are much better off just investing in USA where 'returns are better'. Mostly they are younger or more naive and have not been through many economic cycles and if you try to explain that they are too blinkered by recent performance or that an index is not the only way to go, they will tell you to shut up you boring 'boomer'. Such investors will probably point to the US personal finance blogs or social media such as Reddit where everyone tells you to get an S&P500 fund because Warren Buffet said so.
However, I think on balance, this board doesn't tell you to avoid investing in UK businesses or UK listed companies - beware of vocal minorities.
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Then would a reasonable 10% separate EM fund and 5% for domestic and 5% global small caps split, although I suspect the answer will be 'it depends'. Assuming 70% equities and 30% bonds."It is prudent when shopping for something important, not to limit yourself to Pound land/Estate Agents"
G_M/ Bowlhead99 RIP0 -
I think the jist of Bowlheads argument is that to have a 'home bias' is normal and sensible, which means a UK weighting somewhat in excess of 5%.
That % only approx represents the financial capitalisation of the UK in global terms , so to have a home bias ( if you want one ) you need more than that . The aforementioned Life Strategy funds are around 25% UK ( both in equities and fixed interest ) and I would hazard a guess that most mainstream pension funds are even higher than that. Also if you had an IFA designed portfolio for the average person, it would probably have a significant home bias, as that is the norm , rightly or wrongly.2 -
csgohan4 said:One reason to split your risks according to what your comfortable with. I won't put Small caps and EM into my main index tracker fund, I will do separately at 5 and 10% respectively. But whether it is a good time to buy would be debatable.
Sure your buying at a good price, but you may suffer initial losses as the drop continues, but again depends on how passive/active you want to be
I am still unsure whether to include some UK equities in my portfolio, some people on here say you should, some not so. The monevator portfolio has some UK equities I can see but at a small percentage
Bowlhead, can you shed some light on whether a UK investor should have some UK equities as one of their individual funds?What drop? None of my SIPPs , ISA, share accounts have dropped this year. One is exactly back to where it was on Jan 1 everything else is up.Note, when you say "UK equities" you need to understand what that means.For example, Unilever is a UK equity. Less than 10% of its income comes from the UK (maybe only 5%, its hard to find exactly). Recently there was a proposal to move its HQ to the Netherlands, this didnt happen, but had it, then immediately it would have stopped being a "UK" equity even though nothing about it other than the location of its HQ building would have changed.Unless you are very specific with your UK equities, its almost impossible to have ones whose main revenue is from the UK and due to the way indexes are constructed you simply end up with a random selection of global companies (like BP, Shell, Unilever etc) , which in the case of the UK is skewed towards three industries, oil, finance, pharma. Until recently number one "UK" equity was Royal Dutch Shell, LOL.So, if you have a global fund, unless its an excluding UK fund, then what you will end up with is double counting, since your global fund will have some Shell and some BP and some Astra Zeneca etc, and so will your UK fund.So, do you really want an extra helping of literally a random selection of some companies?Why not just go for a global fund that includes the UK and have one of every company, not two of some ?Better and "truer" (is that a word) diversification would be to have a small companies investment or two rather than a fake UK one.All those investment managers recommending "home bias" seem to have missed the globalisation of the world economy over the last 20-30 years especially since the advent of the internet* which has simply negated the rationale behind home bias.* who'd have thought 30 years ago that some of the biggest retailers in the UK would be American companies for example, some even without shops?0 -
bowlhead99 said:You are using bad data.
Vanguard FTSE Global All Cap
Firstly, Vanguard's Global All Cap fund has not been available for 5 years.
You mentioned the fund "has grown by approx 30%", but (a) that is an inception to date figure not a five years figure and (b) if you're saying it's only 30% from inception to June it means you are looking at the share price of the Income class and presuming that every time you got a dividend, you threw it in the bin rather than reinvested it, or perhaps you are looking at some other end date than the most recent published 30 June figures on the Vanguard site.
Its total return performance (accumulation class or income class assuming divs reinvested) in GBP since inception to June 2020 is 35.67% (scroll down to Price & Performance / Past Performance , then click Display:cumulative figures, at https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/price-performance?intcmpgn=equityglobal_ftseglobalallcapindexfund_fund_link). But that return isn't a full 5 years as it hasn't existed that long. The table shows the comparative for the underlying FTSE index which has been available for 5 years, is 73.5% in GBP.
FTSE's own factsheet for the Global All Cap index is at (https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=GEISLMS&IsManual=false) and shows 38.1% for the 5 years to June 2020, but that's in USD. A dollar went from being worth 63.6p on 30 June 2015 to to 80.8p on 30 June 2020. (https://www.xe.com/currencytables/?from=USD&date=2015-06-30 )
So $100 becoming worth $138.1 using that index is a 38.1% return in dollars, but equates to £63.60 becoming worth £111.58, more like a 75% return in GBP due to dollar strengthening/sterling weakening. The ~75% is not quite the same as the 73.5% mentioned by Vanguard in their cumulative 5 year figures as my currency conversion is simple and takes no account of timing of reinvested dividends, will be off by rounding etc
Vanguard FTSE Developed World ex-U.K. Equity Index Fund
You say over the past 5 years this has grown 'just over 63%', but Vanguard's own factsheet says 84% (versus 85% for the index, difference being fees and tracking error).
(Price & Performance tab, scroll down to Past Performance and Display:cumulative on the table, or scroll down to 'Past Performance of a lump-sum investment' and click 5 years on the chart) at https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-developed-world-ex-uk-equity-index-fund-gbp-acc/price-performance?intcmpgn=equityglobal_ftsedevelopedworldexukequityindexfund_fund_link )
Comparison
So the real disparity between global all cap (including emerging markets, global smallcap and UK) and developed world ex UK (not including those areas) is around 10% over the 5 year period (roughly 75% plays 85%) rather than in your figures 30% plays 63%. In this particular period, emerging markets fared worse than developed, smallcap fared worse than large and UK fared worse than ex-UK.
You can see that by looking at the sheet on the FTSE Russell factsheet I linked above, which shows 5 yr figures (dollars) for Global All Cap at 38% and FTSE All World at 40%, but Global Small Cap only 22% and Mid Cap only 26% (Large Cap was better, at 43%)
Also you can look at FTSE's own factsheet for the Developed index at https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=AWD&IsManual=false which helpfully shows (again in dollars) in the 5 year column that while overall Developed was 43%, the all-world was only 40% because it blends Developed with a relatively smaller amount of Emerging, and Emerging only had 15.5%. Remember these figures for both are in USD so the differences will be greater after you have done a GBP conversion.
So:
- if you use a product which includes smaller companies, emerging markets, and UK stock-exchange listed companies (all quite sensible things to do) and all of those areas happen to underperform developed large cap ex-UK companies (over a time when sterling weakens), you will get a worse return;
- but they are only knocking off about 10% from the 85% available, rather than your initial conclusion that they had halved the return (knocking 63%+ down to 30%)
I was looking at Bloomberg and that's where I got my numbers from (NB. the GAC fund is not an option there, so the closest option was GAC ex-Canada, which I figured would be substantially similar):
So basically the issue is the currency conversion? I didn't know it could have such a huge impact. I will definitely have to be more careful with this kind of data in future, thank you.0 -
Albermarle said:I think the jist of Bowlheads argument is that to have a 'home bias' is normal and sensible, which means a UK weighting somewhat in excess of 5%.1
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AnotherJoe said:csgohan4 said:One reason to split your risks according to what your comfortable with. I won't put Small caps and EM into my main index tracker fund, I will do separately at 5 and 10% respectively. But whether it is a good time to buy would be debatable.
Sure your buying at a good price, but you may suffer initial losses as the drop continues, but again depends on how passive/active you want to be
I am still unsure whether to include some UK equities in my portfolio, some people on here say you should, some not so. The monevator portfolio has some UK equities I can see but at a small percentage
Bowlhead, can you shed some light on whether a UK investor should have some UK equities as one of their individual funds?All those investment managers recommending "home bias" seem to have missed the globalisation of the world economy over the last 20-30 years especially since the advent of the internet* which has simply negated the rationale behind home bias.1 -
eskbanker said:Albermarle said:I think the jist of Bowlheads argument is that to have a 'home bias' is normal and sensible, which means a UK weighting somewhat in excess of 5%.
If csgohan4 is going to spend most of his equities money buying a developed ex-UK fund (eg world ex-UK, emerging markets) as he suggested on another thread, and on that other thread only propose to put 5% into a truly global fund (of which only 5% is UK stockmarket listed, so giving himself less than half a percent UK equities exposure at total portfolio level), he is under-representing the UK. So it would stand out as a funny decision even if you didn't have any views on 'home bias'. If you do have some positive views on home bias, for which there are all sorts of rational arguments, you might prefer to err on the side of a deliberate overweighting to the UK - but if not, then at least use market weight (currently 5 or 6%, but has been 7 or 8% in reasonably recent memory).
Some funds seen around the place have 30%-40% or more allocated to UK, maybe even 50:50 between UK and international, but that is way more than needed if you're investing for the long term IMHO, considering that $50 trillion of global equities are NOT UK listed. However, to say that 30-50% is too much and use that as the basis of a kneejerk reaction which sees you reduce to below 5% UK exposure - would be an equally extreme choice for someone who lives and works in the UK.0
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