ISHARES PLC FTSE UK DIVIDEND (IUKD)

eskbanker

dunstonh said:
There is a good rule of thumb.  If you had the money today in cash, would you buy this fund?  If yes, then fair enough. if no, then why are you still in it?

A_T said:

Look at the value of your holding in this fund. If you didn't hold it and instead had the equivalent in cash would you use that cash to buy this fund tomorrow? You now have your answer.

OP has already asked and answered that particular question!

123mat123 said:

If I apply the test "if I didn't own them would I buy them now?" my answer would be a resounding "no".
Maybe I have answered my own question.

carry_on_saving2

bowlhead99 said:

carry_on_saving2 said:

With the UK, the general/normal/market cap weighted indices like the FTSE 100, 250 and All Share already have such high dividend yields (about 4.5% currently for 100 and all share, 3.5% for 250) compared to the general global markets 2.0%-2.5% that if you want to buy UK equity income you already plenty of income in a general UK index fund. The 100 and all share yields are comparable with the FTSE all world high dividend yield index, the global equivalent of your iShares etf.
A less extremely dividend focused alternative night be Vanguard's FTSE UK equity income index fund.

I suppose the problem with going for the FTSE UK Equity Income via Vanguard instead of the FTSE UK Dividend+ Index via iShares, to get slightly less of a dividend focus, is that you actually end up with a more concentrated set of holdings at the top end - the Vanguard one has 45% of its money in its top ten holdings as of the most recent factsheet, while the iShares one only had about 35% on Friday and only about 33% at the end of last month, spreading the other 65-67% across the 'tail' of other holdings. In its approach of backing bigger, dividend-paying companies (rather than companies paying bigger dividends), the concentration of the Vanguard equity income product into just a few large corporates is heavier than for the FTSE-All Share in terms of the proportion of the money allocated to the top 10.

Generally more holdings can give you a more even spread across sectors and business styles, and beyond the top 10 holdings the Vanguard one does give exposure to a greater number of companies. On the face of it, more healthcare exposure (4.8% vs 1.6%)  sounds welcome, though when the iShares fund already has 15% allocated to raw materials, it's probably unnecessary to also increase that sector allocation by a third to 20% with the Vanguard product.

However when you look at the drivers of the sector allocation some of the differences are intuitive but others make a bit less sense, e.g. :

- The Vanguard fund has twice as much allocated to HSBC Holdings than the iShares fund, which is intuitive given HSBC have cancelled all dividends for this year so it wouldn't make sense for it to be in the top ten of a 'Dividend plus' fund. It's main reason for being in the Vanguard Equity Income fund top ten is simply that it exists and is large and it used to pay a dividend last year, while the iShares fund includes it at a much lower weight. 

-  If we look at healthcare, the iShares fund only has one holding, Glaxo, which gets a 1.6% allocation. The Vanguard fund has 4.8%, three times as much in the sector, so you might think it a bit more diversified at a glance. However, that extra sector allocation doesn't come from having more healthcare companies. They still have only one healthcare company, Glaxo, and simply invest three times as much into it. So while the iShares fund has 50 holdings with a little under a fiftieth of its money in Glaxo, the Vanguard fund has 100+ holdings with a little under a twentieth in Glaxo - a far bigger bet on Glaxo than just giving it a fiftieth or even a hundredth of the fund. 

While some people swear by using indexes to get a 'market' asset allocation with no scope for a human to mess it up with judgement calls, the idea of slavishly following the index for passive exposure to an 'income tilted' or 'extra dividend tilted' UK portfolio is a bit flawed given that two fund management companies have such different ways of allocating the money through the indexes that FTSE offer.

carry_on_saving2 said:

There's not much love for UK equity in the forum, so don't be swayed too much by the responses you'll get here. 

Generally I think there is not too much hate for UK equity either. The lack of love is just the fact that if you are a fan of investing through indexes, the FTSE 100 or All-share (whether a dividend-concentrated variant or not) is going to give you a relatively high allocation to a relatively small number of industries with a skew to certain sectors, due to the historic type of companies that dominate the top end of the UK stockmarket capitalisation,  while other sectors are conspicuous by their absence.   

The FTSE250 has fewer of the slow moving leviathans and a more even spread of exposure across other underlying sectors (due in part to having a bunch of investment trusts in there), as well as greater focus on the domestic market.  So if someone was looking for companies facing the UK economy - rather than simply UK-headquartered multinationals of the type that dominate the FTSE100 or All-Share and can already be found as part of a more diverse sectoral balance within other global indexes - then perhaps FTSE250 is a more useful product for OP to consider. 

Still, if they 'find it hard to see any good news on the UK horizon' and expect 'very probably a weaker pound in the future', a UK focused-index such as the 250 wouldn't align with their strategy. But the rationale to hold it would be, the mindset of people who don't expect a brilliant outcome is contributing to the lower prices that their shares currently command, therefore the shares might already be at a fair price, and no need to avoid them.

(welcome back, btw)

I wouldn't use the Vanguard one for that reason, it's basically the FTSE 100 shuffled and concentrated more on the big dividend payers. However I would prefer it to the iShares one because VFUKEI has an element of market cap weighting because IUKD is a pure dividend yield focus (ofc if that's what you want go for it, I just think that kind of yield is pushing the risk level, same as junk bonds).
Agree re: your point about two fund houses having such different approaches, you're basically trying to be activeand passive and I don't think that blurred line works. I think a clearer and more explicit focus on either would serve most better in the long run.
I think your para on the UK is an example of what I would call '"not much love for the UK". I keep emotive phrasing out of investment thinking (sectors that dominate, slow moving leviathan's - plenty of those everywhere not just here and it does ignore the fact these industries are going through rapid change that tech and healthcare arguably aren't having to).
Your point about the FTSE and exchange rates - this is a myth, there is no correlation and longer term index growth aligns very closely with nominal GDP growth. The UK is currently a slight net importer so the "overseas earnings" argument is cancelled out by the imports. Goes back to "yes the stock market is part.of the economy".
I like the FTSE 250. There is a myth, which I don't believe that "smaller companies grow faster just because they are small". I know there are studies for and against (all, and only with the benefit of hindsight). But I think the core advantages are the great diversity of companies (recruitment, public transport, infrastructure, food and beverages, specialist insurers, aerospace and defence, electronics/industrial components, the investment industry, real estate etc. Just go give some example) and the rate of acquisitions which I calculate adds 2-3% to the return most years (market cap lags price index growth by that much). There's an argument that over time all the "best" companies will be acquired (Inmarsat, Dairy Crest etc.) but I disagree, I don't believe the UK is going to stop creating new great businesses anytime soon and one advantage of the 250 index is looking at historic additions and deletions more names are pulled up or dropped down from the 100 or small cap indices than IPO straight into the 250, and IPOs dilute investors return and tend to be overpriced. Whereas in most markets the price index return lags nominal GDP growth because of that capital dilution effect, which has been much less pronounced in the UK both over the very long term and in recent decades (almost negligible), the 250 has it the other way round. So there's another advantage of UK equity.
So if you assume the UK GDP can achieve 2% CPI + 2% real growth, assume extra earnings growth due to size or lower dividend payout ratio is cancelled out by capital dilution/turnover transaction costs etc. you add to that the average FTSE 250 dividend yield of say 3%, and the lower end of that acquisition rate so 2%, and you assume the 250 can at least maintain its current valuation, an 8% total return is realistic. The optimistic end of that scale is 4+3+3=10% total, or 8% real. The 250 has achieved 11% since 1985 with average 3% CPI so an 8% real return is feasible. Compare that with valuation based global equity returns expectations around 5% nominal from Vanguard's mid year economic outlook and other sources. fundamentally I don't believe the UK is going to stop creating great new businesses that private bidders and foreign competitors want to buy, and the 250 index appears to be the poaching ground.

I could make a PhD out of this!

hadn't you booked some annual leave from this job?

Addendum re: UK pessimism. It's often the same people who won't invest their money here who complain the most about the "way the country's going". it's a trend that started in the 80s with the magic phrase "globalisation", the only evidence behind it is that the global market will almost always be less volatile and risky than any one country's market (but the modern globalised world is less than a century old, British capitalism is several centuries old).

Prism

Its possible to get a decent return from UK equities but you may need to be more selective than a standard FTSE 100 tracker or a high dividend fund. Rather than a -40% return I would suggest a flat to small positive return on UK equities would be a good result so far this year. I would sit around waiting for IUKD to recover.

bowlhead99

carry_on_saving2 said:

bowlhead99 said:
So if someone was looking for companies facing the UK economy - rather than simply UK-headquartered multinationals of the type that dominate the FTSE100 or All-Share and can already be found as part of a more diverse sectoral balance within other global indexes - then perhaps FTSE250 is a more useful product for OP to consider.  

Still, if they 'find it hard to see any good news on the UK horizon' and expect 'very probably a weaker pound in the future', a UK focused-index such as the 250 wouldn't align with their strategy. But the rationale to hold it would be, the mindset of people who don't expect a brilliant outcome is contributing to the lower prices that their shares currently command, therefore the shares might already be at a fair price, and no need to avoid them.

Your point about the FTSE and exchange rates - this is a myth, there is no correlation and longer term index growth aligns very closely with nominal GDP growth. The UK is currently a slight net importer so the "overseas earnings" argument is cancelled out by the imports. Goes back to "yes the stock market is part.of the economy".

I don't quite follow what you are saying about 'my point about the FTSE and the exchange rates', that I am propogating a myth. 

I had been pointing out that the FTSE250 as contrasted with the 100 or all-share has greater focus on UK-facing businesses (rather than multinational giants that happen to be listed here but might just as well be listed on any other major global stockmarket) and so if you wanted to have UK exposure in your portfolio it could make sense to use that sort of midcap index, rather than a high income/ high dividend fund which would have those heavy weights to certain industries that feature in the All-Share (e.g. oil& gas, materials etc).

However, I suggested that because one of the reasons OP was thinking of dumping their UK fund was that they, 'expect very probably a weaker pound' as their personal judgement call on where the economy and markets are going, it wouldn't suit their market view to move into the more 'UK facing' FTSE250 fund, as the FTSE250 has less exposure to non-sterling revenues and profits than the main index - where constituent companies such as BP, Shell, Rio, BHP, BAT, AZN, GSK etc accounting for huge chunks of the index value make the vast proportion of their hundreds of billions of dollars of collective revenues from overseas.

A weaker pound does not help Shell sell more barrels of oil or BHP sell more iron ore, but it does mean the profits of their overseas endeavours and dollar-denominated sales are worth more when translated to pounds. Whereas a smaller UK-focused business with a lower proportion of its revenue from overseas and fewer assets overseas would not get that same boost (perhaps being a slight net importer as you say, and incurring higher costs of what it imports while getting a bit more for its exports, generally being a wash and not getting the same level of benefit as a Shell, Rio, Diageo, GSK etc with 90+% of their revenues outside the UK.  So, it wouldn't be intuitive for the OP to buy a FTSE250 fund as a solution to the inadequacies of a more highly concentrated dividend+ or high equity income fund, if what they were fearing was (as mentioned in their opening to the thread) a decline in GBP strength.

I think your para on the UK is an example of what I would call '"not much love for the UK". I keep emotive phrasing out of investment thinking (sectors that dominate, slow moving leviathan's - plenty of those everywhere not just here

I don't think it's emotive phrasing to say that something dominates when it makes up a large proportion of it.  If I were rolling hundreds of dice I might expect to get a 'bit of everything' come up, as many ones as twos and fours and sixes etc.  However, if I go and put an extra dot on nearly all of the ones to turn them into twos, and then do the exercise again while having someone tabulate the results, the dominant number will be "2", and you won't be getting many "1" results.   

In the same way, if only 7.5% of global stock market capitalisation is oil,gas,chemicals,materials but a bunch of those multinational companies happen to list their stock in the UK, the return of an investment in the FTSE is somewhat 'dominated' by how giant oil, gas, chemical and materials companies perform because they make up over 16% of our index despite doing most of their business elsewhere.  If a percent or two of the world index is vehicle & parts manufacturers but we don't have any at all in our FTSE350, and 24% of the world index is tech and communications companies but only 3% of the FTSE All-Share is tech and communications companies, then it is fair to say that an investment in the mix of companies that happen to be available in the UK will have quite a different character from what you would have got by investing in the 'average' of what was available around the world.  It's not supposed to be 'emotive' to rile people up in patriotism or anti-patriotism, it's an attempt to be descriptive or use analogy so that people can better relate to it.

The UK index having (for example) a more than double weight to oil & materials compared to the global all-cap index, while missing 90% of the weight of tech and communications and 100% of the weight of car manufacturers etc is something that makes people say that the FTSE All-Share isn't a very good index to hold in isolation.  Whereas something like a North American All-Cap index (because it is a large part of the global market)  has much closer to global weights. It is a few percent heavier in tech and comms, but quite similar to a global allocation in things like the oil and materials, banking and finance, industrials and utilities and other supersectors.  So it's understandable why some US investors may invest more 'at home' without much FOMO, while the UK investor can't really do that if he wants to take his exposure through an indexing strategy because the London stockmarket capitalisation is very heavy in some industries and very light in others.

I characterised the type of company or industry that 'dominates' the FTSE100 as a 'leviathan' because one could draw a parallel between something like a BAT (tobacco), Shell or BP (big oil) HSBC (bank) , Unilever (consumer staples), BHP or Rio (mining/minerals), GSK / AZeneca (big pharma) and a big steamship or ocean liner or seamonster in terms of their ability to change course on a sixpence.  They are big industrial juggernauts and while they do adapt to challenges in their industries as they evolve, it is going to be more evolution than revolution. One could be forgiven for thinking that their business model makes them appear more 'plodders' than the type of companies that may feature at the top end of some other indexes like the Tencents or Alibabas or  Googles or Amazons or Facebooks etc.  This is not to say they will not have their 'day in the sun' in terms of periods where they have a strong share price and income total return compared to other industries.  But I don't think it's 'emotive' to draw attention to what some of their characteristics may mean for the potential return as an investor.

AnotherJoe

123mat123 said:

What are the communal experts views on this fund. I have held it for many years in ISA, and it has produced good dividends, but the price crashed in March, and being solely UK based, it hasn't recovered much since. I find it hard to see any good news on the UK horizon and very probably a weaker pound in the future.
If I apply the test "if I didn't own them would I buy them now?" my answer would be a resounding "no".
Maybe I have answered my own question. 
I have taken a sizeable hit (-40%) on them so reluctant to crystalise the loss as it possibly may be a recovery play, and on the whole I don't sell funds unless I see a very good reason to...
Should I dump them for a global tracker.

As I said in a post few weeks ago, the 1980's called and wants its investment strategy back. 

Don't fall for the sunk cost fallacy or the "selling  means you made a  loss but if you don't sell you didn't", fallacy. IMHO it's not crystallising  if you are switching,  You made the loss whether you sell or not. . You have a bunch of dogs. Get out. 

Buy SMT. 

carry_on_saving2

bowlhead99 said:

carry_on_saving2 said:

bowlhead99 said:
So if someone was looking for companies facing the UK economy - rather than simply UK-headquartered multinationals of the type that dominate the FTSE100 or All-Share and can already be found as part of a more diverse sectoral balance within other global indexes - then perhaps FTSE250 is a more useful product for OP to consider.  

Still, if they 'find it hard to see any good news on the UK horizon' and expect 'very probably a weaker pound in the future', a UK focused-index such as the 250 wouldn't align with their strategy. But the rationale to hold it would be, the mindset of people who don't expect a brilliant outcome is contributing to the lower prices that their shares currently command, therefore the shares might already be at a fair price, and no need to avoid them.

Your point about the FTSE and exchange rates - this is a myth, there is no correlation and longer term index growth aligns very closely with nominal GDP growth. The UK is currently a slight net importer so the "overseas earnings" argument is cancelled out by the imports. Goes back to "yes the stock market is part.of the economy".

I don't quite follow what you are saying about 'my point about the FTSE and the exchange rates', that I am propogating a myth. 

I had been pointing out that the FTSE250 as contrasted with the 100 or all-share has greater focus on UK-facing businesses (rather than multinational giants that happen to be listed here but might just as well be listed on any other major global stockmarket) and so if you wanted to have UK exposure in your portfolio it could make sense to use that sort of midcap index, rather than a high income/ high dividend fund which would have those heavy weights to certain industries that feature in the All-Share (e.g. oil& gas, materials etc).

However, I suggested that because one of the reasons OP was thinking of dumping their UK fund was that they, 'expect very probably a weaker pound' as their personal judgement call on where the economy and markets are going, it wouldn't suit their market view to move into the more 'UK facing' FTSE250 fund, as the FTSE250 has less exposure to non-sterling revenues and profits than the main index - where constituent companies such as BP, Shell, Rio, BHP, BAT, AZN, GSK etc accounting for huge chunks of the index value make the vast proportion of their hundreds of billions of dollars of collective revenues from overseas.

A weaker pound does not help Shell sell more barrels of oil or BHP sell more iron ore, but it does mean the profits of their overseas endeavours and dollar-denominated sales are worth more when translated to pounds. Whereas a smaller UK-focused business with a lower proportion of its revenue from overseas and fewer assets overseas would not get that same boost (perhaps being a slight net importer as you say, and incurring higher costs of what it imports while getting a bit more for its exports, generally being a wash and not getting the same level of benefit as a Shell, Rio, Diageo, GSK etc with 90+% of their revenues outside the UK.  So, it wouldn't be intuitive for the OP to buy a FTSE250 fund as a solution to the inadequacies of a more highly concentrated dividend+ or high equity income fund, if what they were fearing was (as mentioned in their opening to the thread) a decline in GBP strength.

I think your para on the UK is an example of what I would call '"not much love for the UK". I keep emotive phrasing out of investment thinking (sectors that dominate, slow moving leviathan's - plenty of those everywhere not just here

I don't think it's emotive phrasing to say that something dominates when it makes up a large proportion of it.  If I were rolling hundreds of dice I might expect to get a 'bit of everything' come up, as many ones as twos and fours and sixes etc.  However, if I go and put an extra dot on nearly all of the ones to turn them into twos, and then do the exercise again while having someone tabulate the results, the dominant number will be "2", and you won't be getting many "1" results.   

In the same way, if only 7.5% of global stock market capitalisation is oil,gas,chemicals,materials but a bunch of those multinational companies happen to list their stock in the UK, the return of an investment in the FTSE is somewhat 'dominated' by how giant oil, gas, chemical and materials companies perform because they make up over 16% of our index despite doing most of their business elsewhere.  If a percent or two of the world index is vehicle & parts manufacturers but we don't have any at all in our FTSE350, and 24% of the world index is tech and communications companies but only 3% of the FTSE All-Share is tech and communications companies, then it is fair to say that an investment in the mix of companies that happen to be available in the UK will have quite a different character from what you would have got by investing in the 'average' of what was available around the world.  It's not supposed to be 'emotive' to rile people up in patriotism or anti-patriotism, it's an attempt to be descriptive or use analogy so that people can better relate to it.

The UK index having (for example) a more than double weight to oil & materials compared to the global all-cap index, while missing 90% of the weight of tech and communications and 100% of the weight of car manufacturers etc is something that makes people say that the FTSE All-Share isn't a very good index to hold in isolation.  Whereas something like a North American All-Cap index (because it is a large part of the global market)  has much closer to global weights. It is a few percent heavier in tech and comms, but quite similar to a global allocation in things like the oil and materials, banking and finance, industrials and utilities and other supersectors.  So it's understandable why some US investors may invest more 'at home' without much FOMO, while the UK investor can't really do that if he wants to take his exposure through an indexing strategy because the London stockmarket capitalisation is very heavy in some industries and very light in others.

I characterised the type of company or industry that 'dominates' the FTSE100 as a 'leviathan' because one could draw a parallel between something like a BAT (tobacco), Shell or BP (big oil) HSBC (bank) , Unilever (consumer staples), BHP or Rio (mining/minerals), GSK / AZeneca (big pharma) and a big steamship or ocean liner or seamonster in terms of their ability to change course on a sixpence.  They are big industrial juggernauts and while they do adapt to challenges in their industries as they evolve, it is going to be more evolution than revolution. One could be forgiven for thinking that their business model makes them appear more 'plodders' than the type of companies that may feature at the top end of some other indexes like the Tencents or Alibabas or  Googles or Amazons or Facebooks etc.  This is not to say they will not have their 'day in the sun' in terms of periods where they have a strong share price and income total return compared to other industries.  But I don't think it's 'emotive' to draw attention to what some of their characteristics may mean for the potential return as an investor.

re: FTSE and exchange rates, the myth that the big FTSE Indies (100, AS) go up when the £ goes down, or that the return is correlated with the £ exchange rates - you didn't explicitly say it as you have before but you're getting at it in your earlier post and you explicitly said it this new one.The effect is cancelled out by the UK being a bet importer. There is no correlation between any FTSE indices and £. I'm not accusing you of propagating a myth, it's not all about you, I'm saying that the myth is false.

If the decision is between the 250, 100 and global market, then it is not a valid argument to disparage the UK indices because of a high proportion of global earnings and the resulting additional currency risk, when global markets have perhaps 95% or more currency risk (I would assume that as the UK has about a 4-5% weighting in the global market, even though around 25-30% of that weight will be domestic revenues, a fair few percent of global revenues will be into the Uk). It is a valid argument that the 250 is superior in the regard of a UK investor seeking equity with less currency risk

Agree re: domestic UK exposure from 250.

Re: emotive language - it's semantics, I apply Arkham's Razor but your language is still emotive and long-winded.

For sufficiently large markets the sector make up isn't as material to the return as for extreme markets (the borderline is subjective, I would characterise finland and ireland as very concentrated, I think the UK is fine). I am a pure indexer, I do not believe in picking and choosing sectors. I do not see any UK index sector make ups as "bad" (apart from the growing number of investments trusts in the 250). Regardless, index growth is capped by the GDP of the economy it is in, that is true for essentially all markets and you can confirm with readily available data. I'm sure given your level of knowledge you are familiar with rerating and that corporate earnings can fluctuate as a % of GFP over time.

re: the FOMO para, this again assumes that there is something wrong with the UK market that US investors aren't missing out on. As #3 or #4 in the global cap weighting i don't see it as reasonable to declare the UK as having a heavily different sector make up and by implication everything below. Your argument relies on tech outperformance, which it has done recently but a lot of tech is very capital intensive and fails and there is a myth that "tech has higher returns just because it is tech". I don't believe any sector is capable of sustained indefinite significantly superior performance, even if I did, I wouldn't pretend to know how to pick which and when. Your argument about UK co's being worse is self reliant on your own judgement.

I'm unclear what you're actually saying in the last para - drawing attention to the potential differences in returns between companies an industries seems like a moot non-point. Sounds like something I've heard in an IFA sales pitch.

Also there was an earlier post on which you made a number of false arguments that the reason for FTSE 100 underperformance relative to the S&P 500 over the past 20 calendar years (but any date range of at least a decade will do, this is not a time dependant phenomenon) were:

"a) the mix of companies making up the S&P index grew their earnings by 5.3% annualised (181% over two decades) while the 'old economy' companies in the FTSE 100 only grew their earnings by 3.6% annualised (103% over two decades); and

b) companies with higher sustainable rates of profit growth are more attractive, so that the price people are willing to pay for a given level of earnings is higher for the S&P index (dominated by Microsoft and Apple and Google and Amazon and Facebook etc) at 23x earnings, than it is for the FTSE (dominated by oil, banking, big pharma, tobacco) at 16.5x earnings

there is also a (c) where sterling has devalued over time such that for a UK investor, the returns from S&P relative to FTSE have been better than might have been presumed from (a) and (b) alone, though this is something that could reverse so we should not pay such attention to (c)."

re: c of course we aren't here to speculate on currency movements.

re: a. This is misleading. The data from 1/1/00-1/1/20 are that the S&P 500 index grew 4.25%, total return 6.06%, negative speculation -0.77% (pe fell from 29.04-24.88), total investment return 6.88%  = (1.0606/(1-0.0077)). The FTSE 100 index grew 0.424%, total return 4.02%, negative speculation -3.03% (pe fell 30.45-16.45) (all numbers geometrically annualised averages), total investment return was 7.27%. That is to say, the returns generated by the companies in the FTSE 100 index over that period were a greater than the returns generated by the companies in the S&P 500. This is readily available data (though any IFAs may have premium access to the higher quality datasets).

re: b, misleading and wrong. The FTSE 100s PE at the start of the period was higher than the S&Ps therefore to argue "US is better and attracts higher valuations" is incorrect. Further, the argument is invalid because companies maintaining a higher valuation does not affect shareholder return. If such companies were able to attract growing valuations (i.e. the PE grew as they grew, a double multiplier) then your argument would be valid, but any company that does that will soon find itself swallowing up all the available capital. What happened between the FTSE 100 and S&P 500s was that the latter's PE fell by less, more than explaining the performance gap.

Therefore, the FTSE 100's capital and total returns being below the S&P 500s for that period can be explained entirely by speculation or rerating. It was nothing to do with the companies in the index and everything to with a change in investor attitudes. In summary, the US has not been significantly outperforming the UK for a long time.

Xbigman

I'm a fan of dividend paying shares, whilst many on here aren't. I'd never buy IUKD. Dividend yields can be an indicator of hidden value but just as often they are an indicator of weakness. It takes careful research to find the value ones and I for one am not always successful.  IUKD is a mechanical approach that buys equal amounts of value and weakness. In good times it will slightly outperform the market but in bad times it drops like a stone. As a recovery play it might be worth buying now but I'd want to know how it will rebalance before jumping in. Will it sell all its dividend cutters for current dividend payers? That would kill any chance of it being a recovery play and would lock in its losses. 

In short - Avoid


Darren

bowlhead99

carry_on_saving2 said::
re: FTSE and exchange rates, the myth that the big FTSE Indies (100, AS) go up when the £ goes down, or that the return is correlated with the £ exchange rates - you didn't explicitly say it as you have before but you're getting at it in your earlier post and you explicitly said it this new one.The effect is cancelled out by the UK being a bet importer. There is no correlation between any FTSE indices and £. I'm not accusing you of propagating a myth, it's not all about you, I'm saying that the myth is false.

The OP is talking about a fear of GBP currency weakening and how it leads them to want to get rid of their UK holdings, presuming that it will be better to have overseas holdings, because those foreign-denominated assets will then be worth more pounds if they are correct in their expectation that pounds weaken (meaning that a pound buys fewer foreign assets and a foreign asset is worth more pounds).

My initial response to the OP in the first reply on the thread was that they do not need to dump a UK dividend equity index fund for fear of GBP weakness, because actually a lot of the companies in their fund have a large proportion of their revenues coming mostly or exclusively from foreign countries - I named a bunch of them as examples which sit towards the top end of the weighting of their iShares fund.  So if the pound is worth fewer dollars, all the dollar revenue that Evraz, Ferrexpo and BHP etc earn within that index is going to be worth a lot more pounds.  So it's not rational for the OP to drop their 'UK' fund like a hot potato because they fear sterling weakness, when actually their fund is getting huge amounts of income in currencies that will be worth more pounds to them, if sterling weakness happens.  

The follow up point, after explaining why the FTSE250 index is a decent one, was that due to the fact that FTSE100 gets 75% of its revenue in foreign currency and FTSE250 only gets 50% of its revenue in foreign currency, if you were certain that GBP would weaken, it would be rational to prefer the index getting all that lovely dollar revenue from selling oil and iron ore and cigarettes internationally (the FTSE100), to the index that holds domestic revenue producers such as Capita or WhSmith or Wetherspoons or Travis Perkins etc (the FTSE250).  If you feared a forthcoming weakening of sterling, it wouldn't make sense to be indifferent between a high proportion of foreign currency profits and international assets and a greater proportion of sterling profits and local assets, because the one with high foreign currency assets and profits would typically become relatively more valuable as measured in pounds, in a relatively short space of time.

>If the decision is between the 250, 100 and global market, then it is not a valid argument to disparage the UK indices because of a high proportion of global earnings 

Don't worry, I'm not 'disparaging the UK indices because of a high proportion of global earnings'.

Re: emotive language - it's semantics, I apply Arkham's Razor

Arkham being the asylum for the criminally insane in the Batman comics . If you've been spending time there, it explains a lot. Perhaps you mean Occam.

but your language is still emotive and long-winded.

If you stay up 'til 2am to post a more-than-1000 word response, including going back to a comment I made on your previous misguided remarks from more than two months ago on a different sub-forum, pasting it here without context and trying to do some extra maths on it in case it is somehow useful to the OP of this thread, you are probably not doing much better than me in the avoidance of 'long winded' posts.

I am a pure indexer, I do not believe in picking and choosing sectors. I do not see any UK index sector make ups as "bad" (apart from the growing number of investments trusts in the 250). 

A 'pure' passive indexer would believe in the market's efficient allocation of capital and just plonk your money into the market based on the total of what equity capital and fixed income investment are out there available for investment.  It seems that you're not a very 'pure' indexer because you don't follow that way of allocating your capital, you prefer to make judgements about the relative usefulness to your portfolio of (e.g.) a UK-listed equities index versus non-UK listed equities indexes, or the type or mix of equities that appear in FTSE250 vs FTSE100. A purer indexer would accept 5:95 UK:ex-UK in a global index, or an 80:20 split of FTSE100:FTSE250 within the UK All-Share, while instead you use your judgement for a preferred mix of characteristics that the companies in the different indexes hold; which is a pick and a choice.

Regardless, index growth is capped by the GDP of the economy it is in, that is true for essentially all markets

A feature of some indexes is that companies represented in the index simply reflect what companies sought a listing on a particular stock exchange.  So for example BHP Biliton and Rio Tinto are in the FTSE100 but headquartered in Melbourne with $80-90bn of annual revenues that doesn't represent UK production or GDP. In the iShares dividend+ fund held by OP, over 15% of the fund was made up of those two plus Evraz and Ferrexpo. Evraz, which is 30% owned by Abramovich has a HQ in London but its main subsidiaries are in Russia or other mineral rich countries. Ferrexpo is headquartered in Baar, Switzerland and mines its ore in Ukraine. What you see on a stock exchange doesn't tie directly to GDP growth capacity, given that much of the GDP goes through private companies or represents public sector activity etc.

Also there was an earlier post on which you made a number of false arguments
...re: a. This is misleading.
...re: b, misleading and wrong.

The 'earlier post' was a conversation ten weeks ago on the Pensions/ Retirement board.
I appreciate there have been a lot of your usernames thrown under the bridge since then and you may want to get some closure by snipping my response from there - without the context to which I was replying - and bring it onto a different part of the forum and attempt to rehash the discussion until people agree with you, but if I'm honest it seems like that would be a bit tiresome.

My comments on that other thread were a direct response to a post which said that 'the only reason' the S&P did better included the fact that the UK market's P/E fell more and the  "S&P 500 earnings growth was 5.3%, somehow ahead of GDP" 

In 2000, 15% of the FTSE100 was BT and Vodafone with some huge P/E ratios in the dotcom era. The valuations were stretched. The P/E ratios for the companies that now make up much of the FTSE (tobacco, oil, big pharma, consumer staples) do not seem terribly inappropriately low now at 16.5x. As the FTSE p/e ratio reduced over time to a lower level than it was in 2000 for a range of different reasons, the S&P's p/e ratio also fell, but not as much because the top end of the S&P contains some higher growth companies than the top end of the FTSE. 

The S&P P/E ratio of over 20x is higher than the London market, as the big players such as MSFT, GOOG, FB, AMZN etc are considered to have better market growth prospects than the oilers and tobacco firms ; investors will be willing to pay more times the current year profits to buy the share, if the future year profits are going to grow to some bigger numbers. UK's BAT is a large company and profitable, but its £10bn of operating profit isn't threatening to go through the roof at any moment as smoking isn't really a growth sector.

As the two indexes have different company types in them, there is no particular reason for the UK index (missing some high-growth sectors that appear in the world index) to 'revert to mean' any time soon and push up its P/E while the S&P drops its P/E, the 'speculation return' as you call it moving in opposite directions for a given level of profit. I get that a company can't grow to infinity, but investors think that it is worth paying the higher multiples because a large firm in the tech space will potentially experience greater growth in the size of the market for its services than a UK retail bank or tobacco firm could over the next couple of decades, giving it better capacity to grow profits. Having paid the higher multiple, if the profits do hit the forecasts the multiple will have been justified and the multiple doesn't necessarily need to drop - until we hit the limit of what amount of value can exist on the earth or beyond; could be a while coming.

carry_on_saving2

Arkham/Occam typo/spoonerism
You're just going round in circles. There is *no* correlation between £ and the FTSE indices. I know that 3/4 of FTSE 100 and 1/2 of FTSE 250 revenues and by extension earnings are exports, however a substantial proportion of their costs are also overseas, the net effect is negligible. Regardless, their growth is still linked to GDP. In any market, corporate revenues and earnings will always be more international than the GDP average (about 30% of UK GDP is imports and exports) because all other components will always be more domestic (gov spending, capital formation, labour and consumption). Corporate revenues are the part of GDP that does the trading.

I know that, and the common explanations for how/why, the S&P 500 has been attracting a higher valuation in recent years. Whether that will prove justified or not remains to be seen. I am sceptical. Again your argument is self-reliant on common perceptions about tech having high growth potential and the sectors the UK is relatively overweight in being dead money walking/value traps/done/finished. Ultimately many of these companies are actually media and consumer goods/services providers.

Your last para indicates you have not understood. In order for the US' recent run of higher returns to sustain, almost an extra 3% of either earnings growth and/or relative speculation is needed. If we assume that both indices will revert to their historical average valuations within the foreseeable future (there is a separate argument about demographics and capital supply) then more than an extra 3% earnings growth is needed. So you either need to believe that US is structurally a faster growing economy, a higher inflation economy, or corporate profits will expand faster as a higher % of GDP than for the UK. I do not see why any of these events should happen. I know this is getting quite mathsy but this is how capital markets work, this is where stock market returns come from.

Sailtheworld

A_T said:

Look at the value of your holding in this fund. If you didn't hold it and instead had the equivalent in cash would you use that cash to buy this fund tomorrow? You now have your answer.

It's an answer - unfortunately it's an answer to a different question. Also, if you've just lost a chunk of money on a fund there's an inherent bias in place if you ask yourself if you'd buy it again today - the OP wishes he'd never heard of IUKD so he's hardly likely to contemplate buying again. Selling something just because you wouldn't buy it again today is music to the ears of platform providers who probably first thought of this rule of thumb.

If we're looking for different questions to answer a better one might be; 'I obviously made a mistake buying this fund when I did so, apart from the law of averages, what makes me thinks I'm any better informed when it comes to selling?'

My wife has some IUKD in her SIPP. It's a small part of the portfolio and a tiny part of our overall net worth - wouldn't buy any more but really not worth the effort of selling to then think about what to buy with the cash.

Of course, if it's a big part of the portfolio then might be worth the headspace to sell & buy something else but that's to solve the diversification problem rather than taking a view on future performance.