S&P 500 - sensible or silly?

fred246

You set up a regular investment with Halifax Share Trading but they take it off your debit card.

AnotherJoe

FloraandFauna said:

Albemarle, if you're saying that the UK 25% is 'largely' non-UK anyway, then is my entire question a bit pointless? As in, I'm not overweighted for the UK, because a lot of it is in fact elsewhere? I am, in fact, overweighted for dinosaur sectors? 

Yep, thats the issue.

AnotherJoe

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

FloraandFauna

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

... and... I've just seen something in the papers this morning about how the (small) rise in sterling against the dollar has caused the FTSE to fall - cracking timing to illustrate everyone's teach-in 

Thrugelmir

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

There's more to the LSE than the FTSE 100. Likewise UK companies will hedge currency exposure internally. 

Sailtheworld

Thrugelmir said:

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

There's more to the LSE than the FTSE 100. Likewise UK companies will hedge currency exposure internally. 

Holding assets in foreign currencies adds another dimension to consider but UK companies can just hedge currency?

It doesn't work like that. You buy an asset and you're exposed to the underlying currency. Hedging just delays any currency change and, as most hedging is nothing more than holding a couple of months currency, the delay is short.

Another_Saver

Sailtheworld said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? 

No, not really. You're going to be exposed to currency movements whatever you do. Being 100% in Sterling offers zero protection because you'd be concentrating risk in a single currency. Sterling falls by 20% then you may well have the same number of pound notes in your pocket but they're all worth 20% less.

Investing globally gives you some currency diversification. Overall that's probably more of a positive than a negative.

If the OP intends to remain in the UK then this isn't an issue. "Currency diversification" isn't a good thing it's just another unknowable risk. Over the (very) long-run though currency movements tend to become negligible between developed markets.

Filo25 said:

FTSE 100 investing doesn't even necessarily hedge the currency impact significantly as most of the companies are large mulitnationals with significant non Sterling earnings outside the UK.

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

This is a false myth. It is obviously wrong because GDP includes trade, those companies will also have a similar proportion of their costs overseas. There is no correllation between the FTSE 100 and Sterling. Unfortunately this myth seems so widespread even serious commentators utter it without question.

NottinghamKnight said:

There's no direct correlation between size and performance, indeed the consensus view has been (excepting recent months over covid) that smaller companies will perform better because they have more room to grow. 

Except that ovber the (very) long-run they cant be true otherwise small caps would take over the entire market cap (already been covered above, and Kroijer is a great resource)

Sailtheworld said:

Thrugelmir said:

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

There's more to the LSE than the FTSE 100. Likewise UK companies will hedge currency exposure internally. 

Holding assets in foreign currencies adds another dimension to consider but UK companies can just hedge currency?

It doesn't work like that. You buy an asset and you're exposed to the underlying currency. Hedging just delays any currency change and, as most hedging is nothing more than holding a couple of months currency, the delay is short.

I'm not clear what Sailtheworld means by this but this is not how hedging works. Hedging allows an investor to buy an asset in a different currency as if it were denominated in the investor's home currency, that's it.

AnotherJoe said:

FloraandFauna said:

Albemarle, if you're saying that the UK 25% is 'largely' non-UK anyway, then is my entire question a bit pointless? As in, I'm not overweighted for the UK, because a lot of it is in fact elsewhere? I am, in fact, overweighted for dinosaur sectors? 

Yep, thats the issue.

Which is an opinion. To provide a counter opinion, it tends to be the sectors and companies people berate or yawn about or talk about as "mature/done/finished/over/in decline/peaked" etc. (to paraphrase Buffett) that do better than whatever's "hot/new economy/the future" (I know Another Joe likes Tesla, I bought 4 pre-split at an average of £200, and I'm down to my last 3 post-split now, £3.6k profit crystallised and 0 regrets) through bubbles such as the one the US market at least is going through now. So it's important to recognise that for everyone in the market who has an opinion is buying on that basis i.e. Another Joe saying Tesla is great and buying more of it, there's another me saying the price has gone insane and is selling it.

NottinghamKnight

Except that ovber the (very) long-run they cant be true otherwise small caps would take over the entire market cap (already been covered above, and Kroijer is a great resource)
Which is what happens, the FAANGs are one obvious example, Kodak and many other formerly large caps demonstrating the other side of the equation.

bowlhead99

Another_Saver said:

Filo25 said:

FTSE 100 investing doesn't even necessarily hedge the currency impact significantly as most of the companies are large mulitnationals with significant non Sterling earnings outside the UK.

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

This is a false myth. It is obviously wrong because GDP includes trade, those companies will also have a similar proportion of their costs overseas. There is no correllation between the FTSE 100 and Sterling. Unfortunately this myth seems so widespread even serious commentators utter it without question.

It's not 'obviously wrong'.  If a company gets most of its revenues from overseas and has most of its costs overseas, the difference between those two metrics (the profits) are mostly made overseas. If it's a company with substantial overseas operations (e.g. BP, RDSB, Rio, BHP, etc etc) it's likely to also have most of its assets overseas and most of its liabilities overseas, resulting in most of its net assets overseas.

As company valuation will be assessed on a combination of its likely ongoing future profits and its net assets value, it's not at all a 'false myth' that if the foreign assets, liabilities, revenues and costs are in non-GBP, resulting in its profits and net assets being substantially denominated in non-GBP... and then non-GBPs become worth more pounds, due to a weakening of sterling...  then the GBP valuation of the FTSE100 company will go higher. Literally it is worth more pounds than it was worth when the non-GBP assets and profits were worth fewer pounds.

Welcome back, btw.

Another_Saver

bowlhead99 said:

Another_Saver said:

Filo25 said:

FTSE 100 investing doesn't even necessarily hedge the currency impact significantly as most of the companies are large mulitnationals with significant non Sterling earnings outside the UK.

AnotherJoe said:

Thrugelmir said:

FloraandFauna said:

Uh-oh. Currency volatility? Is that a problem? I mean an immediate problem? If I'm not going to use this for about 12 years, then the conversion rate then would be relevant, but do you mean...

Passing no judgement on whether currency movements will have any impact on your portfolio. Merely pointing out that holding assets in foreign currencies adds another dimension to consider. Not just market prices to consider when allocating funds. Over time you may find swings too unpalatable to bear. 

Thats inescapable because holding FTSE100 companies still exposes you to foreign currencies since most get most of their income from non Sterling sources. This is why often, when there's some bad UK economic / Brexit news and the Pound falls, the FTSE100 rises.

This is a false myth. It is obviously wrong because GDP includes trade, those companies will also have a similar proportion of their costs overseas. There is no correllation between the FTSE 100 and Sterling. Unfortunately this myth seems so widespread even serious commentators utter it without question.

It's not 'obviously wrong'.  If a company gets most of its revenues from overseas and has most of its costs overseas, the difference between those two metrics (the profits) are mostly made overseas. If it's a company with substantial overseas operations (e.g. BP, RDSB, Rio, BHP, etc etc) it's likely to also have most of its assets overseas and most of its liabilities overseas, resulting in most of its net assets overseas.

As company valuation will be assessed on a combination of its likely ongoing future profits and its net assets value, it's not at all a 'false myth' that if the foreign assets, liabilities, revenues and costs are in non-GBP, resulting in its profits and net assets being substantially denominated in non-GBP... and then non-GBPs become worth more pounds, due to a weakening of sterling...  then the GBP valuation of the FTSE100 company will go higher. Literally it is worth more pounds than it was worth when the non-GBP assets and profits were worth fewer pounds.

Welcome back, btw.

?
There is no data or research to substantiate this assertion.

Over the long-run, corporate earnings, dividends and stock prices follow nominal GDP growth plus/minus speculation, capital dilution, expansion/contraction as a share of GDP, and longer term structural changes such as tighter spreads, more efficient markets, high frequency trading, ridiculous rises in management rewards taking up a higher % of profits etc. (Can't post links, search Earnings Growth: The Two Percent Dilution William J. Bernstein and Robert D. Arnott 2003).
GDP includes net trade, just because trade is 30% of GDP and 75% of FTSE 100 earnings (because larger corporations tend to be the part of the economy that does most of the trading) does not make possible equities behaving differently to gross domestic product indefinitely. Any exception has to be an exception.
This is how capital markets work, I know that it is a common and strongly held misconception and it can be hard to let go off, it took me a while to get it too.
I'm sure there was an article in the CFA journal about this but I can't seem to find it.
I noticed you also subscribe to the idea that lower dividend payout ratios makes companies grow faster - this is also wrong (on aggregate) obviously by intuition and it has been proven wrong based on historical data. Nominal GDP growth is a cap on corporate earnings growth, the marginal utility of retaining more earnings must tend to 0 as the marginal efficiency of the additional capital deployed tends to 0 (doi/abs/10.2469/faj.v62.n3.4157?src=recsys&).

You sound like an investment salesperson.