Lindsell Train Global Equity

bowlhead99

csgohan4 said:

Thrugelmir said:

csgohan4 said:

kinger101 said:

Just one note to add based on your last post.  Your passive funds probably contain more Tech than they ever have in the past.  Remember that before buying more.

Alot of passive funds have microsoft, Apple e.t.c so that is a good point but usually only a few percent.

If the share price retreats 50% then that few % of a fund results in a sizable drop in overall value. 

but as investment should be long term, one will accept fluctuations, I see that that the mentioned tracker funds have almost recovered to pre covid levels

The vast majority of indexes and therefore their tracker funds are weighted to market capitalisation. Therefore the largest companies they hold have a disproportionate influence on their results.

Amazon, Facebook, Google, Microsoft, Apple, Visa etc which occupy big slots in the S&P500 or a global tracker have businesses which have either done well from the pandemic or at least not done badly while benefiting from a flood of investor cash coming from people exiting airlines, hospitality, oil etc. As a consequence of those big companies with higher weightings all being quite a bit higher than their pre covid February peak, the S&P500 and a FTSE global all cap index are higher than their February peak. However, an equal weight tracker is not.

Those names above plus Alibaba and Tencent in China would each take up about half a trillion to two trillion dollars worth of the fifty trillion dollar market cap in the FTSE All-World. So if they do well, the index will do well. If they are doing very well and other large companies are doing OK (or not doing terribly), due to tax breaks and stimulus efforts etc, you may get a great result from the overall index of companies.

As we see some businesses struggling all around the world, unemployment in some sectors etc, and we know that the tax breaks and stimulus loans need to be paid for somehow, it may be a mistake to take the current high index value as a barometer reading for the prospects of markets. And as we know that companies and sectors rotate in and out of fashion over time and have good years and bad, an index with high allocations to certain individual companies will be vulnerable to negative revaluations of those companies. Albeit, not as vulnerable as a focused fund which took an even higher allocation of them.

Johnnyboy11

It would be fair to say that any US company bias in a global tracker fund would be offset to some degree by said US companies operating across the globe. As an example, I'm sure Apple will have a significant revenue stream from sales in Europe.

coyrls

Thrugelmir said:

csgohan4 said:

kinger101 said:

Just one note to add based on your last post.  Your passive funds probably contain more Tech than they ever have in the past.  Remember that before buying more.

Alot of passive funds have microsoft, Apple e.t.c so that is a good point but usually only a few percent.

If the share price retreats 50% then that few % of a fund results in a sizable drop in overall value. 

Well half the percentage that they make up, so if it's 5% of the index, a 2.5% drop.  I guess it depends on your definition of sizeable.

itwasntme001

csgohan4 said:

itwasntme001 said:

If you invest passively in a globally diversified 100% equities fund, then you are probably looking at something like the Vanguard FTSE All Cap.  This currently has a 60% weighting to the US and a 20% weighting to "technology" - presumably "technology" does not even include names like Amazon which would fall under another category.

To me this is already pretty concentrated quite heavily to one region and perhaps also to one sector.  The difference in diversification between this fund and a managed fund like LT or FS is therefore pretty meaningless.  If the US today starts a long stretch of a bear market, you could find a passive fund such as this pretty dissappointing in terms of performance in 10 years time.  Even if other regions do well, the 60% weighting in US would be a drag.

When selecting a passive fund you are taking no manager risk but you still have a concentrated portfolio - market weighted indices are one way to allocate capital but it does not mean it is necessarily the most optimal way.

Passive trackers are reasonable for purchases in bear markets, when valuations are low and in corrections/crashes.  But I would not like to buy them at current levels.  On the other hand, finding good fund managers on a consistent basis is also not going to be easy.

There really are no easy answers to any of this and thats how it is meant to be.

I agree with you there. Passive or active funds/trackers they will invariably be biased towards US companies and for better or worse that's how it goes at present. Probably why some  people prefer sector investment to reduce this risk, but looking deeper, I'm sure each sector will have a heavy US weighting as well. 

No right or wrong, only in hindsight we can say sadly

but passive funds have in theory a more broader spread of companies and shares in each. Take SMT with a large share in Tesla and the VG FTSE dev ex uk only around 0.8% as an example. Take some of the gains but not hedge heavily to lose more in the long run in case a bear market.

Effectively in theory established passive  funds will be more defensive and lower risk, but will not grow as much as active funds as a payoff. So it depends on your risk appetite.

I am still suffering from new investor syndrome and trying to resist to back today's winners and not be too tempted seeing the gains this year from todays stars. I might invest a smaller proportion of my equities in active global funds, but not more than 25% imo. 

However there will be another bear market and I am hoping to keep some money back to strike when the time is right

There is no rule to say passive funds are less risky than active funds.  No one really knows for sure of course except in hindsight.  However if you look at specific risks, active funds clearly have manager risk whereas passive funds do not.  If you are talking about market risk, which is the risk of day to day moves in the prices of the funds, then that is where it gets a lot more subjective.  FS, despite having a concentrated portfolio of stocks, has suffered smaller draw downs than passive funds historically.  But is 10 years of data enough to make the conclusion that FS is less risky than a passive fund?  It would be naive to make that sort of conclusion.

IMO it makes sense that active funds become more important when markets are optimistic and are showing high valuations, as they currently are.  Conversely, at or near market bottoms, in the midst of bear markets and when valuations are low, you won't go too far wrong by buying a passive fund.

itwasntme001

Passive funds have been very popular in recent years and there certainly has been a lot of "fanboys" during this 10 year period for Vanguard, thinking it is the holy grail of investing given low costs.  A lot of investors seem to also think that past performance is an indicator of future performance and so are expecting 4% returns in real terms.  Perhaps this has dialled down a bit to 3% real, but the point still stands - expectations of strong growth in the years ahead despite many indicators suggesting that lower returns should be expected.  IMO at current levels, I am expecting a lot closer to 0% real returns for passive equity funds over the next 10 years.  I think it will be a rude awakening for when investors realise this in due course.

Thrugelmir

coyrls said:

Thrugelmir said:

csgohan4 said:

kinger101 said:

Just one note to add based on your last post.  Your passive funds probably contain more Tech than they ever have in the past.  Remember that before buying more.

Alot of passive funds have microsoft, Apple e.t.c so that is a good point but usually only a few percent.

If the share price retreats 50% then that few % of a fund results in a sizable drop in overall value. 

Well half the percentage that they make up, so if it's 5% of the index, a 2.5% drop.  I guess it depends on your definition of sizeable.

Was an illustration to make a point. Rather that start a discussion about how Apple's share price has doubled over the past year and whether given a range of metrics and challenges it's justified. Those that buy trackers generally don't care. It's only relative performance that matters.  

itwasntme001

I keep hearing that young people should be invested close to 100% equities.  I am in my 30s and I am reducing my risk.  Never was 100% equities.  At a cost of lost opportunity, I sleep well at night.  I am looking to reduce risk from 60-70% equities down to 50% equities.  Almost all remaining investments in active funds.

This year has been a gift for people who really want to consider portfolio allocation.  Use this time wisely.

Moe_The_Bartender

itwasntme001 said:

I keep hearing that young people should be invested close to 100% equities.  I am in my 30s and I am reducing my risk.  Never was 100% equities.  At a cost of lost opportunity, I sleep well at night.  I am looking to reduce risk from 60-70% equities down to 50% equities.  Almost all remaining investments in active funds.

This year has been a gift for people who really want to consider portfolio allocation.  Use this time wisely.

It's not quite that simple. If you are investing in your 30s for retirement, you should be 100% equities IMO. If your time horizon is much shorter, it would make sense to have a different mix.

itwasntme001

Moe_The_Bartender said:

itwasntme001 said:

I keep hearing that young people should be invested close to 100% equities.  I am in my 30s and I am reducing my risk.  Never was 100% equities.  At a cost of lost opportunity, I sleep well at night.  I am looking to reduce risk from 60-70% equities down to 50% equities.  Almost all remaining investments in active funds.

This year has been a gift for people who really want to consider portfolio allocation.  Use this time wisely.

It's not quite that simple. If you are investing in your 30s for retirement, you should be 100% equities IMO. If your time horizon is much shorter, it would make sense to have a different mix.

It's not quite that simple.  Investing should be about risk reward, irrespective of age.  Valuations matter.  Even with a 20 or 30 year time frame, buying at current levels is by no means  even close to guaranteeing an acceptable risk adjusted return or even return.

At extremes (which we are currently at arguably), one should expect more volatility.  Central banks have so far succeeded in suppressing much of this volatility.  But for how long will this last and at what price?

Sailtheworld

itwasntme001 said:

I keep hearing that young people should be invested close to 100% equities.  I am in my 30s and I am reducing my risk.  Never was 100% equities.  At a cost of lost opportunity, I sleep well at night.  I am looking to reduce risk from 60-70% equities down to 50% equities.  Almost all remaining investments in active funds.

This year has been a gift for people who really want to consider portfolio allocation.  Use this time wisely.

When you're, say, 30 you're already taking a lower risk. You've got decades of earnings ahead and the timeframe to ride out numerous negative events and still come out on top. Choosing 50% equities is choosing lower returns i.e. expensive sleep.