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FTSE Global All Cap vs Dev. World Ex-UK - UK/EM to blame?
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One point I am not clear on , is that most of the discussion around home bias revolves around equities. However most peoples investments are not 100% equity , typically more like 50% to 60%. Some of the argument against home bias seems less relevant for fixed income investments, especially gilts, whilst the arguments for home bias still seem to apply.
Maybe the middle ground is to have a higher %UK weighting on the non equity investments than the equity?0 -
Albermarle said:One point I am not clear on , is that most of the discussion around home bias revolves around equities. However most peoples investments are not 100% equity , typically more like 50% to 60%. Some of the argument against home bias seems less relevant for fixed income investments, especially gilts, whilst the arguments for home bias still seem to apply.
Maybe the middle ground is to have a higher %UK weighting on the non equity investments than the equity?
So says one theory, at least.
However, as a broad portfolio can offer diversification, you should not entirely overlook foreign bonds as an asset class - because across the world there is a diversity of available yields (interest rates) and political or economic events which can drive changes in yields and capital values. Diversity of income source is not to be sniffed at, and the only way to access those international fixed income markets is to directly or indirectly participate in them through funds or other holdings; if you don't like the additional exchange rate risk, some funds will allow you to hedge it away relatively cheaply, leaving you with GBP denominated currency risk while still getting paid for credit risk and having a greater diversity of yields than what you would get by only focussing on the UK gilt, investment grade or high yield markets.3 -
@bowlhead99 Hi, I had another question which I thought I'd just ask here instead of creating a new thread if that's okay.
Basically, how does Vanguard calculate return? I ask because I get different numbers for (I) the overall 'performance' % shown when I log in (is this net of costs?), (II) the difference between what I invested and the current value (as a % of what I invested) and (III) the difference between my average buy price and the current price (as a % of my average buy price).
For reference, (I) is currently the highest for me and (III) the lowest. Thank you1 -
For (III) that is probably whatever it says on the tin: if you bought your fund units at £100 each and now they are worth £105 each, they have gone up 5% since you bought them. For a really short period, it's relatively meaningless because it is luck of the draw whenever you happened to buy them. And over a very long period, simply knowing how much they are now compared to what you paid for them is not very useful because they have been growing for years, and you probably bought some here and there along the way and can't really say that your money has all been working for you for an average of x amount of years, to begin to comprehend what sort of return it works out to, per year.
And even if this investment fund X is showing a 5% rise since you bought it, some of the money you put into Vanguard was perhaps not even originally invested in this particular investment fund X because you initially picked something else, and have only recently bought into the fund X after selling your shares in fund Y...
I don't have a Vanguard account, but probably the (I) is some sort of an annualised performance figure.
So for example if you have been invested two years and originally put £1000 in the account and currently have £1210 of value, 21% growth, they can work out that on an annualised basis that's like getting 10% a year (i.e. after one year £1000 would grow 10% to become £1100, and after the second year the £1100 would have grown another 10% to become £1210.
However if you didn't put all the money in on day one but have only been dripping in at about £40 a month, then it's a much better annualised performance for those total contributions of £1000 to now be worth £1210, because a lot of the money hasn't even been in the account for very long at all so it must have been growing faster, and the rate will be higher than 10% a year.
Alternatively, perhaps you put £1000 in the account when you opened it 6 months ago and it's now worth £1050. The account has grown 5% in value but has done it in only half a year. Simplistically if that annualised growth rate continues, the £1050 will grow another 5% to £1102.50 over the next six months, and after the full year it will have given you 10.25% return. So they could tell you that you seem to be earning a return at a rate of 10.25% a year, but it is relatively meaningless because it relies on them extrapolating to what might happen in the future, and just because the account grew over the last 6 months it might not over the next.
So an annualised performance measure is more useful for converting long term multi-year performance down to an average annualised compound return, instead of going the other way from just a few months and seeing how much you'd have after a year if it could keep up that rate of return.
As a basic summary - for some purposes it is more meaningful to know 'how much profit has this particular holding made for me', while for other purposes it is useful to know what my average annual return has been on the whole account based on when i made my contributions to the Vanguard account. If the money has not been at work in the Vanguard account for very long, the annualised return they display may not bear much relation to the difference between cost per share and current value per share.
The caveat to the above is that I don't have a Vanguard account so perhaps they work out (I) differently in terms of whether and how they annualise it for the account as a whole.1 -
Vanguard do show you your money weighted rate of return and you can adjust it by time period.
I'm so glad I found this thread 😍0 -
UK exposure can't really just be looked at as a % of investments IMO.
Someone with a UK passport, house, mortgage, job, workplace pension, state pension entitlement etc. already has a huge bias towards the UK. This context should at least be considered.
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Albermarle said:One point I am not clear on , is that most of the discussion around home bias revolves around equities. However most peoples investments are not 100% equity , typically more like 50% to 60%. Some of the argument against home bias seems less relevant for fixed income investments, especially gilts, whilst the arguments for home bias still seem to apply.
Maybe the middle ground is to have a higher %UK weighting on the non equity investments than the equity?
I had written this but not posted it for some reason.With equities it's understandable why people would want to have a global bias, even if it may be diversification for the sake of diversification.with bonds there is no reason to go global other than yield, net of the hedging, Forex and likely additional fund costs. A higher yield for the same or a better credit profile, or a better credit profile for a lower yield, are also valid reasons.for example there is no point holding European or Japanese bonds and I think a lot of that can be explained by demographics.pre-COVID, Vanguard's US gov bond fund's ytm was ~2% for a while,~1.7% net of costs, comfortably better than other developed government bonds with much less volatility than gilts given the lower duration, and worthwhile compared with easy access savings accountsthat said, the UK DMO's policy of maintaining a longer maturity debt profile than other advanced economies does mean gilts swing up more in a stock crash, and that's plain to see in the performance historyIf a global bond fund has a higher yield, i would argue that currently most all of the difference is the weight of us bonds in the fundthe same applies to corporate bonds.in VUKIGB a majority of the holdings are issued by non-UK entities (but i yield the point about globalisation), but in £, so you get ample global exposure through that fund anyway but without the currency risk.VUSIGC is mostly US and a higher yield, slightly worse credit profile but still acceptable, and holds bonds of another advanced economy with strong financial institutions to oversee recoveries in case of defaulti stick with a 50:50 balance between the two, at least until things change, that yields 1.6-1.7% currently after fees but before any defaults. I yield the point that yes, it is debatable if the extra ~0.5% is worth the credit risk over 1.15% with NS&I with 0 volatility or credit risk.this is an interesting time because until bond yields started going stupidly low, us treasury yields were above the s&p 500's dividend yield. the same was true of uk gilts until I think 2011, and this held true for both countries since not long after the war (us data on multpl.com, uk data in barclays equity gilts study)the long-term norm for most of that time was to demand a premium from bonds to not buy stocks, now investors are effectively demanding a premium from stocks to forgo the safety of bonds0 -
Unless the FTSE 100/250 gets some decent sized tech companies (there are lots of smaller ones) then I don't think there is any chance of it keeping up with the global markets. The S&P has done almost nothing without its big tech companies either but that is disguised by those same companies. Most of the EM growth is down to a few large tech companies. Some of them are pricey using traditional measures buts thats because they mostly choose to make very little profit.
On a happier note, those big global tech companies are some of the largest employers in the UK and create plenty of work. And we can just as easily buy shares in those companies as UK ones. So although its a shame, we can still all benefit to some extent. Only thing we are missing are some nice big tax bills.0 -
Prism said:Unless the FTSE 100/250 gets some decent sized tech companies (there are lots of smaller ones) then I don't think there is any chance of it keeping up with the global markets. The S&P has done almost nothing without its big tech companies either but that is disguised by those same companies. Most of the EM growth is down to a few large tech companies. Some of them are pricey using traditional measures buts thats because they mostly choose to make very little profit.
On a happier note, those big global tech companies are some of the largest employers in the UK and create plenty of work. And we can just as easily buy shares in those companies as UK ones. So although its a shame, we can still all benefit to some extent. Only thing we are missing are some nice big tax bills.
So you think tech will do well "just because"?
If that's true then why did the FTSE 250 outperform the US since the dot com boom?0 -
tcallaghan93 said:Prism said:Unless the FTSE 100/250 gets some decent sized tech companies (there are lots of smaller ones) then I don't think there is any chance of it keeping up with the global markets. The S&P has done almost nothing without its big tech companies either but that is disguised by those same companies. Most of the EM growth is down to a few large tech companies. Some of them are pricey using traditional measures buts thats because they mostly choose to make very little profit.
On a happier note, those big global tech companies are some of the largest employers in the UK and create plenty of work. And we can just as easily buy shares in those companies as UK ones. So although its a shame, we can still all benefit to some extent. Only thing we are missing are some nice big tax bills.
So you think tech will do well "just because"?
If that's true then why did the FTSE 250 outperform the US since the dot com boom?
Anyway, since this having an unfounded opinion seems like fun (I don't normal engage in such predictions of the future) I would predict that my active funds which only invest in pretty much three sectors; healthcare equipment, software and consumer staples will easily outperform every other major world index over the next 10 years or so.0
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