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

83705628

Prism said:

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?

You are allowed to make unsupported opinions about the future comparative growth of countries - why can't I about sectors? So yes, just because I think tech will continue to do well. The answer to your question is of course because there was a ridiculous tech bubble at the start of that time period so tech has underperformed almost everything from that date. I don't think the current conditions are similar.
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.

/
Last 10 years definitely, next 10 years, who knows 🤷‍♂️

83705628

tcallaghan93 said:

Prism said:

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?

You are allowed to make unsupported opinions about the future comparative growth of countries - why can't I about sectors? So yes, just because I think tech will continue to do well. The answer to your question is of course because there was a ridiculous tech bubble at the start of that time period so tech has underperformed almost everything from that date. I don't think the current conditions are similar.
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.

/
Last 10 years definitely, next 10 years, who knows 🤷‍♂️

/
Also Im not comparing countries.

Prism

tcallaghan93 said:

tcallaghan93 said:

Prism said:

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?

You are allowed to make unsupported opinions about the future comparative growth of countries - why can't I about sectors? So yes, just because I think tech will continue to do well. The answer to your question is of course because there was a ridiculous tech bubble at the start of that time period so tech has underperformed almost everything from that date. I don't think the current conditions are similar.
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.

/
Last 10 years definitely, next 10 years, who knows 🤷‍♂️

/
Also Im not comparing countries.

Well your chart did show a comparison of two UK indexes vs US in addition to the tech index. Besides, home bias seems to be the topic of the week

bogleboogle

@bowlhead99
You mentioned the Ftse GAC grew by 38.1% in USD over the past 5 years, but because the USD grew from 0.636 to 0.808 vs the GBP, the returns in GBP over that same time period = 73.5%. However, if the USD had fallen from 0.808 to 0.636 instead, what would the returns in GBP have been?
I'm asking because it seems that this is a huge secondary risk that those invested in a USD-denominated fund are exposed to and which I failed to account for until now. Investing in GBP-denominated fund would remove the exposure to this XR risk and if the point of passive investing is to remove risk as far as possible, this calls into question my preference for the GAC...
Thank you  

83705628

Prism said:

tcallaghan93 said:

tcallaghan93 said:

Prism said:

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?

You are allowed to make unsupported opinions about the future comparative growth of countries - why can't I about sectors? So yes, just because I think tech will continue to do well. The answer to your question is of course because there was a ridiculous tech bubble at the start of that time period so tech has underperformed almost everything from that date. I don't think the current conditions are similar.
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.

/
Last 10 years definitely, next 10 years, who knows 🤷‍♂️

/
Also Im not comparing countries.

Well your chart did show a comparison of two UK indexes vs US in addition to the tech index. Besides, home bias seems to be the topic of the week

/
Firstly, I never said what the previous reply alleges I said that I should automatically allocate capital based solely on valuation regardless of any other factors like concentration, politics, currency risk etc.

"You are allowed to make unsupported opinions about the future comparative growth of countries"
I didn't. I assumed similar growth rates for UK/UK/global economies, and correspondingly similar corporate earnings growth.

Those dara I used onlygo back to 1994 unfortunately.

bowlhead99

bogleboogle said:

@bowlhead99
You mentioned the Ftse GAC grew by 38.1% in USD over the past 5 years, but because the USD grew from 0.636 to 0.808 vs the GBP, the returns in GBP over that same time period = 73.5%. However, if the USD had fallen from 0.808 to 0.636 instead, what would the returns in GBP have been?
I'm asking because it seems that this is a huge secondary risk that those invested in a USD-denominated fund are exposed to and which I failed to account for until now. Investing in GBP-denominated fund would remove the exposure to this XR risk and if the point of passive investing is to remove risk as far as possible, this calls into question my preference for the GAC...
Thank you  

As an example, we noted that sterling weakened so that when $100 became $138, the dollars went from being worth £0.64 to £0.81, so your £64 became £112, which is a nice 75% uplift and better than the Americans saw. If it had been the other way around with the same figures, $100 of starting assets would have been £81 and not £64, and $138 of ending assets at 0.64 would have been £88 instead of £112. So you only made £7 on a £81 investment, which is under 10% and you wouldn't have liked the return compared to what the Americans were boasting that they'd received.

But you are perhaps misunderstanding it.

The Global All-Cap is a measure of the market capitalisations of the companies around the world, and FTSE choose to measure it in dollars.  If you are a UK investor looking to allocate your capital globally, you can't avoid being exposed to exchange rate fluctuations even if it what you pick to invest in is a 'GBP denominated fund' because the underlying companies around the world which you would sensibly be invested in will not have all their assets and profits in GBP - for example Microsoft's business earns them dollars, Nintendo in Japanese Yen, Samsung in Korean Won, BMW in Euro, Nestle in Swiss Franc, etc. 

But actually all of those companies are selling all around the world, so Microsoft will not only be making its profits in dollars - it will be making some profits in pounds from UK customers and yen from Japanese customers and euro and won from Europe and Korean clients as well as its dollars from Americans.  And BMW will be making some profits in pounds and dollars and yen and won as well as its euros, and Samsung will be making some profits in pounds and dollars and yen and euros as well as its won, etc etc etc.    Whether someone chooses to draw up the 'index' of what those companies are all collectively worth, in dollars, or in pounds, or in yen -  the companies are still worth the exact same, even though the index will have moved up or down by a different percentage for the year, depending on from whose perspective you're measuring. The currencies are just a way of keeping score. 

If dollars had weakened, then the index change  (measured in dollars) would have been larger, because the same amount of yen and pounds and euros sitting as owned asset values or being earned by the companies in the US, or the companies in Japan, or Europe, or Korea, or all of those places, would have been a greater amount of dollars (because dollars have weakened and are not worth so much).

So maybe instead of $100 measured by the Global AllCap index  becoming $138 after five years, it might have become $200 instead, showing a 100% return instead of a 38% return.  However, dollars are weak and are not worth much, so $200 of weak dollars converted to pounds is not necessarily going to give you any more money than $138 of strong dollars, all things being equal. Ultimately, just because an index is published in dollars, you don't need to worry a whole lot about dollar strength for its own sake (which doesn't change the underlying worth of the overall basket of international assets) you need to worry about the relative strength or weakness of pounds, versus [the weighted average currency of all the underlying economic activity in the world that the index is measuring]. 

Investing in a global fund that publishes its prices in pounds or euros instead of dollars won't avoid any currency risk, because the risk is coming from the fact that you chose to take some exposure in Microsoft, and that company is earning USD and Euro and Won and Yen and Swiss francs and Swedish kronor and Thai baht and Chinese RMB and Aussie dollars and Brazilian reals and Swiss Francs etc etc. The currency its share price happens to be published in, or the currency an index it belongs to is published in, is nothing to do with your return. 

If pounds strengthen, overseas assets and profits will be worth fewer pounds. Of course, you might choose to avoid investing in Microsoft altogether if you don't want exposure to all those currencies in which it earns its profits, in which case you would not invest in the global all-cap at all, which would help you avoid all the profits made by Sony or Nestle or Tencent etc. You could just invest in UK companies that don't have any overseas sales. But that wouldn't really be a very 'safe' way of investing, because UK companies without any overseas profits are few and far between and would only be a very niche subset of global investment opportunities.