Does my plan need altering already?

83705628

masonic said:

tcallaghan93 said:

masonic said:

tcallaghan93 said:

Why is this bad investing? How do you define bad? Where's the evidence that it's bad? The FTSE all share yield is ~4.5% currently and it's remarkably resilient, you can more or less rely on those keeping up with inflation regardless of what happens with the price indices. With global equity you're counting on an extra 2% growth ontop of the 2.5% dividend yield, after a decade long well above average earnings run, bubble valuations and the £ at record lows. It hardly adds more risk, and it does balance the imbalance you're talking about in the FTSE 100.

One could define bad in terms of performance or suitability. Some arguments have already been made about how it is bad due to unsuitability. In terms of performance, a FTSE100 tracker has delivered annual total returns of 5.5% over the last 10 years, compared with 8.2% for the FTSE250, 15.5% for the S&P500 and 12.2% for the FTSE World index. So it is quite clear that concentrating your portfolio in companies that happen to be listed on the UK stock exchange can be costly in terms of returns, although such asset allocation is a gamble and can deliver superior results if you happen to pick the right country at the right time. Good investing, however, should as far as possible not be a gamble.

You could argue that you aren't just picking a country, you're intrinsically tied to the fate of the UK economy and so what goes on in the USA, Europe or Asia is irrelevant. This belies the fact that many of the goods and services purchased by the UK consumer are either produced overseas, sold overseas, in competition with those produced by overseas companies or are otherwise priced based on overseas influences, and as bowlhead pointed out, even some of those that were patriotically produced in the UK by a UK brand are made by companies that will have at least some of their costs derived from overseas. I don't believe the UK is going to cut itself off from the rest of the world any time soon (despite some of the rhetoric), so a good investment strategy should seek to capture the major players in the globalised economy.

/
The first bit of your comment is wrong. FTSE 100 performance matched the FTSE 250 until 2000, and only fell behind global because of Brexit speculation. 10 years is too short term to compare countries.

The first bit of my comment is not wrong. Those figures I've stated for the last 10 years are accurate. In fact, it's been in the last 6 years that the FTSE100 performance has fallen away from the world index (as you say, it's underperformed the FTSE250 for closer to 20 years, but the FTSE250 has the benefit of a smaller company risk premium). The below chart shows this quite clearly:

As you suggest, this could be primarily Brexit-related, but the impact is that total returns from the FTSE100 are half those of the FTSE World over 26 years (which is as far as the data goes back in Trustnet). This is the risk of failure to diversify.

tcallaghan93 said:

The UK is already a globally integrated highly trading island global financial centre, the Asian financial crisis cut the UK's dividends by 14% and the GFC that started in the US cut it by 11%. So it's wrong to suggest that global economic/corporate performance does not affect UK equity returns. The only major stock market that is materially insulated from global events is the US so this is true of all countries.
I agree that some glob exposure is probably sensible for a UK investor. Bogle always said US investors don't need any non-US exposure and given the correlation and same performance until the dot-com and then Brexit eras (and the US's much greater capital supply and wider stock market involvement that the UK) I start with that as the default and worked upto about 1/3 of your equity as global being a sensible number, but this idea of being majority global is, I think, unfounded.

On the basis of using diversification to reduce volatility, the sweet spot for UK investors to allocate to non-UK listed stocks seems to be around 50-60% (see https://www.vanguard.com/pdf/ISGGEB.pdf).

/
Global equity started pulling ahead of UK in £ terms leading up to the referendum. It's short term speculation/pricing in the economic impact of Brexit. So no the UK has not underperformed global equity for 26 years, it's time dependant.

The relative underperformance of the FTSE 100 Vs 250 is explained by 3% relative speculation (100's pe fell from 30.5 to 16.5, 250 held at... Was it 20 or 22.5x?From 1/1/00-1/1/20) and 1.8% additional earnings growth on top of the total investment return difference after speculation. I have theorised in another post that a decent chunk of that is due to additional capital inflows from M&A and inward FDI targeting the FTSE 250 more than the 100, but have yet to study this in sufficient detail to cone to a conclusive finding.

50% UK 50% global is the normal sweet spot, j upweight the UK because I think Mr Market's relative valuation of the UK Vs global at present is statistically significant and more extreme than economic fundamentals justify.
The way I balance it is 1/3 FTSE 100, 1/3 FTSE 250 and 1/3 global, but what I actually hold is 6/15 FTSE all share, 4/15 FTSE 250 and 5/15 global.

83705628

Besides UK, US and global returns have been very similar since 1900 anyway.

A_T

tcallaghan93 said:

Besides UK, US and global returns have been very similar since 1900 anyway.

Shame we're not investing in 1900

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A_T said:

tcallaghan93 said:

Besides UK, US and global returns have been very similar since 1900 anyway.

Shame we're not investing in 1900

/
Gotta get into rail mate, it's the future!

masonic

tcallaghan93 said:

masonic said:

tcallaghan93 said:

masonic said:

tcallaghan93 said:

Why is this bad investing? How do you define bad? Where's the evidence that it's bad? The FTSE all share yield is ~4.5% currently and it's remarkably resilient, you can more or less rely on those keeping up with inflation regardless of what happens with the price indices. With global equity you're counting on an extra 2% growth ontop of the 2.5% dividend yield, after a decade long well above average earnings run, bubble valuations and the £ at record lows. It hardly adds more risk, and it does balance the imbalance you're talking about in the FTSE 100.

One could define bad in terms of performance or suitability. Some arguments have already been made about how it is bad due to unsuitability. In terms of performance, a FTSE100 tracker has delivered annual total returns of 5.5% over the last 10 years, compared with 8.2% for the FTSE250, 15.5% for the S&P500 and 12.2% for the FTSE World index. So it is quite clear that concentrating your portfolio in companies that happen to be listed on the UK stock exchange can be costly in terms of returns, although such asset allocation is a gamble and can deliver superior results if you happen to pick the right country at the right time. Good investing, however, should as far as possible not be a gamble.

You could argue that you aren't just picking a country, you're intrinsically tied to the fate of the UK economy and so what goes on in the USA, Europe or Asia is irrelevant. This belies the fact that many of the goods and services purchased by the UK consumer are either produced overseas, sold overseas, in competition with those produced by overseas companies or are otherwise priced based on overseas influences, and as bowlhead pointed out, even some of those that were patriotically produced in the UK by a UK brand are made by companies that will have at least some of their costs derived from overseas. I don't believe the UK is going to cut itself off from the rest of the world any time soon (despite some of the rhetoric), so a good investment strategy should seek to capture the major players in the globalised economy.

/
The first bit of your comment is wrong. FTSE 100 performance matched the FTSE 250 until 2000, and only fell behind global because of Brexit speculation. 10 years is too short term to compare countries.

The first bit of my comment is not wrong. Those figures I've stated for the last 10 years are accurate. In fact, it's been in the last 6 years that the FTSE100 performance has fallen away from the world index (as you say, it's underperformed the FTSE250 for closer to 20 years, but the FTSE250 has the benefit of a smaller company risk premium). The below chart shows this quite clearly:

As you suggest, this could be primarily Brexit-related, but the impact is that total returns from the FTSE100 are half those of the FTSE World over 26 years (which is as far as the data goes back in Trustnet). This is the risk of failure to diversify.

tcallaghan93 said:

The UK is already a globally integrated highly trading island global financial centre, the Asian financial crisis cut the UK's dividends by 14% and the GFC that started in the US cut it by 11%. So it's wrong to suggest that global economic/corporate performance does not affect UK equity returns. The only major stock market that is materially insulated from global events is the US so this is true of all countries.
I agree that some glob exposure is probably sensible for a UK investor. Bogle always said US investors don't need any non-US exposure and given the correlation and same performance until the dot-com and then Brexit eras (and the US's much greater capital supply and wider stock market involvement that the UK) I start with that as the default and worked upto about 1/3 of your equity as global being a sensible number, but this idea of being majority global is, I think, unfounded.

On the basis of using diversification to reduce volatility, the sweet spot for UK investors to allocate to non-UK listed stocks seems to be around 50-60% (see https://www.vanguard.com/pdf/ISGGEB.pdf).

/
Global equity started pulling ahead of UK in £ terms leading up to the referendum. It's short term speculation/pricing in the economic impact of Brexit. So no the UK has not underperformed global equity for 26 years, it's time dependant.

The relative underperformance of the FTSE 100 Vs 250 is explained by 3% relative speculation (100's pe fell from 30.5 to 16.5, 250 held at... Was it 20 or 22.5x?From 1/1/00-1/1/20) and 1.8% additional earnings growth on top of the total investment return difference after speculation. I have theorised in another post that a decent chunk of that is due to additional capital inflows from M&A and inward FDI targeting the FTSE 250 more than the 100, but have yet to study this in sufficient detail to cone to a conclusive finding.

50% UK 50% global is the normal sweet spot, j upweight the UK because I think Mr Market's relative valuation of the UK Vs global at present is statistically significant and more extreme than economic fundamentals justify.
The way I balance it is 1/3 FTSE 100, 1/3 FTSE 250 and 1/3 global, but what I actually hold is 6/15 FTSE all share, 4/15 FTSE 250 and 5/15 global.

The point I was making was not that the UK has not underperformed global equity for 26 years, rather that the impact of the recent underperformance is so great that even someone investing over that longer time period would feel it quite significantly. 26 years could be more than the entire investment horizon of some, so it matters that there is such a difference even over that period of time.

It's certainly an interesting point that there could be a reversion to the mean ahead and that could be used as a justification to tactically allocate more to the UK market. I fear the economic impact of Brexit could remain unknown and priced into markets for some time to come, but perhaps the point of maximum fear is not so far away.

83705628

masonic said:

tcallaghan93 said:

masonic said:

tcallaghan93 said:

masonic said:

tcallaghan93 said:

Why is this bad investing? How do you define bad? Where's the evidence that it's bad? The FTSE all share yield is ~4.5% currently and it's remarkably resilient, you can more or less rely on those keeping up with inflation regardless of what happens with the price indices. With global equity you're counting on an extra 2% growth ontop of the 2.5% dividend yield, after a decade long well above average earnings run, bubble valuations and the £ at record lows. It hardly adds more risk, and it does balance the imbalance you're talking about in the FTSE 100.

One could define bad in terms of performance or suitability. Some arguments have already been made about how it is bad due to unsuitability. In terms of performance, a FTSE100 tracker has delivered annual total returns of 5.5% over the last 10 years, compared with 8.2% for the FTSE250, 15.5% for the S&P500 and 12.2% for the FTSE World index. So it is quite clear that concentrating your portfolio in companies that happen to be listed on the UK stock exchange can be costly in terms of returns, although such asset allocation is a gamble and can deliver superior results if you happen to pick the right country at the right time. Good investing, however, should as far as possible not be a gamble.

You could argue that you aren't just picking a country, you're intrinsically tied to the fate of the UK economy and so what goes on in the USA, Europe or Asia is irrelevant. This belies the fact that many of the goods and services purchased by the UK consumer are either produced overseas, sold overseas, in competition with those produced by overseas companies or are otherwise priced based on overseas influences, and as bowlhead pointed out, even some of those that were patriotically produced in the UK by a UK brand are made by companies that will have at least some of their costs derived from overseas. I don't believe the UK is going to cut itself off from the rest of the world any time soon (despite some of the rhetoric), so a good investment strategy should seek to capture the major players in the globalised economy.

/
The first bit of your comment is wrong. FTSE 100 performance matched the FTSE 250 until 2000, and only fell behind global because of Brexit speculation. 10 years is too short term to compare countries.

The first bit of my comment is not wrong. Those figures I've stated for the last 10 years are accurate. In fact, it's been in the last 6 years that the FTSE100 performance has fallen away from the world index (as you say, it's underperformed the FTSE250 for closer to 20 years, but the FTSE250 has the benefit of a smaller company risk premium). The below chart shows this quite clearly:

As you suggest, this could be primarily Brexit-related, but the impact is that total returns from the FTSE100 are half those of the FTSE World over 26 years (which is as far as the data goes back in Trustnet). This is the risk of failure to diversify.

tcallaghan93 said:

The UK is already a globally integrated highly trading island global financial centre, the Asian financial crisis cut the UK's dividends by 14% and the GFC that started in the US cut it by 11%. So it's wrong to suggest that global economic/corporate performance does not affect UK equity returns. The only major stock market that is materially insulated from global events is the US so this is true of all countries.
I agree that some glob exposure is probably sensible for a UK investor. Bogle always said US investors don't need any non-US exposure and given the correlation and same performance until the dot-com and then Brexit eras (and the US's much greater capital supply and wider stock market involvement that the UK) I start with that as the default and worked upto about 1/3 of your equity as global being a sensible number, but this idea of being majority global is, I think, unfounded.

On the basis of using diversification to reduce volatility, the sweet spot for UK investors to allocate to non-UK listed stocks seems to be around 50-60% (see https://www.vanguard.com/pdf/ISGGEB.pdf).

/
Global equity started pulling ahead of UK in £ terms leading up to the referendum. It's short term speculation/pricing in the economic impact of Brexit. So no the UK has not underperformed global equity for 26 years, it's time dependant.

The relative underperformance of the FTSE 100 Vs 250 is explained by 3% relative speculation (100's pe fell from 30.5 to 16.5, 250 held at... Was it 20 or 22.5x?From 1/1/00-1/1/20) and 1.8% additional earnings growth on top of the total investment return difference after speculation. I have theorised in another post that a decent chunk of that is due to additional capital inflows from M&A and inward FDI targeting the FTSE 250 more than the 100, but have yet to study this in sufficient detail to cone to a conclusive finding.

50% UK 50% global is the normal sweet spot, j upweight the UK because I think Mr Market's relative valuation of the UK Vs global at present is statistically significant and more extreme than economic fundamentals justify.
The way I balance it is 1/3 FTSE 100, 1/3 FTSE 250 and 1/3 global, but what I actually hold is 6/15 FTSE all share, 4/15 FTSE 250 and 5/15 global.

The point I was making was not that the UK has not underperformed global equity for 26 years, rather that the impact of the recent underperformance is so great that even someone investing over that longer time period would feel it quite significantly. 26 years could be more than the entire investment horizon of some, so it matters that there is such a difference even over that period of time.

It's certainly an interesting point that there could be a reversion to the mean ahead and that could be used as a justification to tactically allocate more to the UK market. I fear the economic impact of Brexit could remain unknown and priced into markets for some time to come, but perhaps the point of maximum fear is not so far away.

/
Even if there is no reversion to the mean, the UK and global maintain their valuation gap and the £ remains at current levels, global equity would still need at least 2% more earnings growth to outperform the UK in £. I just don't see a convergence of all of those circumstances as likely.

AdmanPea

That escalated quickly. So I'm good to go, yeah....?

83705628

Basically yeah

83705628

dunstonh said:

The UK is at a high risk of Japanification.   In that scenario you want to avoid banks.  That is a major part of the FTSE100.  Oil is in decline.  Another major part of the FTSE100.     The FTSE100 is far too biased to too few industries/companies.
However, the UK is very good with small and mid cap which, inevitably,  get bought by overseas companies to exploit.  Good for investors even if not good for the UK.   Effectively, the FTSE100 is a bit like the UK in general.  It has the industries of a past era.  There is not a lot to like about UK large cap.

/
I don't know where you get the idea of Japanification from, but I agree with you on UK mid and small cap.  I think that M&A/inward FDI I think explains a decent chunk of the relative outperformance but I have yet to study that in conclusive detail. 

83705628

tcallaghan93 said:

dunstonh said:

The UK is at a high risk of Japanification.   In that scenario you want to avoid banks.  That is a major part of the FTSE100.  Oil is in decline.  Another major part of the FTSE100.     The FTSE100 is far too biased to too few industries/companies.
However, the UK is very good with small and mid cap which, inevitably,  get bought by overseas companies to exploit.  Good for investors even if not good for the UK.   Effectively, the FTSE100 is a bit like the UK in general.  It has the industries of a past era.  There is not a lot to like about UK large cap.

/
I don't know where you get the idea of Japanification from, but I agree with you on UK mid and small cap.  I think that M&A/inward FDI I think explains a decent chunk of the relative outperformance but I have yet to study that in conclusive detail. 

/
Also where does obsession with Japan come from?