vvfusi or vmid..?

C_Mababejive

Im just having a bit of a review. I gt the AJB shares mag regularly via email and its an interesting read though i dont dabble in individual shares any more. I think one of the recent articles was about the eventual recovery of the UK stock market which of course has had a dip of around 20% and is slowly limping back . The article suggested that FTSE250 investments might be a good place to be to capture the bst of the recovery. Obviously VVFUSI encapsulates the FTSE250 also though the weightings will be different? I wonder if readers have any thoughts on this? 

Another_Saver

Yes
Generally don't make investment decisions because of what you read in a magazine (i.e. advertising), or because someone says "this will do well". Market timing rarely works.

Vanguard FTSE UK all share index fund tracks the FTSE all share which is about 80% FTSE 100, 17% FTSE 250 and 3% FTSE small cap. So generally the 100 and all share behave very similarly just because of how much of the all share is taken up by the 100.
If you get both indices up on a trustnet chart you'll see they behave very similarly, but since inception the 250 has been less correlated with the 100, than the 100 has been correlated with the wider global market. This makes sense since the 250 is much more domestically oriented and the 100 is full of big multinationals, 3/4 of 100 earnings come overseas, compared to 1/2 of 250 earnings.
The 250 has performed very well. 1985-2000 it kept up with the 100, and since 2000 has beaten the 100 by a very comfortable margin. Whether this will continue in future is debatable (I think it can, and will probably at least keep up with the 100).
The UK equity market in general is currently on sale at much better value than the wider global market, particularly the US which is firmly in dot com bubble territory. Historically, this tends to indicate relatively higher future returns, however others argue that the UK is a value trap that will never recover and is full of dinosaur companies in dying industries like oil & gas, mining, banks and big pharma (also Brexit and being hit bad by Covid on the health and economic fronts doesn't help).
Whereas the FTSE 250 is much less concentrated and more diverse - the biggest 10 companies make up 10.5% of the 250, the biggest 10 in the 100 make up 40.3%. The 100's biggest sectors are consumer goods and services 27%, industrial 16.5%, financials 16%, healthcare 13%, miners 9%, 8% oil and gas, 6.5% telecoms/utilities. The 250 though has a big weighting to investment trusts (20.7% equity ITs, 9.8% real estate, 6.1% infrastructure), the management charges on these have reduced the return since inception by 0.2%, I expect about 0.3%-0.4% in future. After investment trusts, industrials make up 20.4%, consumer 17.2%, financials 12.5% (insurers and the investment industry, almost no banks), healthcare 4.3%, quite different to the 250 index (these figures are based on my own manual review of all 350 companies based on MIDD and VMID data as of 30/9/20, many companies such as Experian or Homeserve are harder to define and different index providers and investment companies categorise them differently).

bowlhead99

C_Mababejive said:

Im just having a bit of a review. I gt the AJB shares mag regularly via email and its an interesting read though i dont dabble in individual shares any more. I think one of the recent articles was about the eventual recovery of the UK stock market which of course has had a dip of around 20% and is slowly limping back . The article suggested that FTSE250 investments might be a good place to be to capture the bst of the recovery. Obviously VVFUSI encapsulates the FTSE250 also though the weightings will be different? I wonder if readers have any thoughts on this? 

The weightings are a lot different - you can see from FTSE's factsheet (https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=MCX&IsManual=false ) that the FTSE250 is only about 17% of the All-Share (FTSE100 makes up about 80% of it while smallcap is 3%), and if you look at the chart on that factsheet you can see that the All-Share tracked very closely above the FTSE 100 for the last decade - because most of it is the FTSE100 - while the 250 and smallcap can have quite different performances and have done better. 

A lot of the FTSE100 (which is a lot of the All-Share) is big multinationals with almost a third of the value in the All-Share coming from just the top ten companies in it (Astra Zeneca, Glaxo, HSBC, BAT, Diageo, BP, BHP, etc) none of which get the majority of their profits from the UK. This doesn't mean they wouldn't benefit from a general 'recovery' of sentiment but they are not a barometer of the financial health of the country.   If you're thinking it's the UK in particular whose recovery will be strong, there are relatively few 'UK focused' businesses in the upper parts of the FTSE All-Share weightings - and many of those larger businesses like BAT, Unilever, etc are not the sort of high-growth companies that particularly boom when markets return to bouyancy because people don't get super excited about tobacco and consumer staples. 

The FTSE250 is perhaps more representative of 'UK plc' so if you feel the UK economy getting back on its feet (or general improvement of sentiment towards UK-based businesses) is what you want to capture in your investment returns, you may prefer to use that than the quite different exposure of the All-Share. There are still a bunch of international businesses in it of course, and about a quarter of the 250's market cap is investment trusts so you get exposure to a broad diversity of company types and global investments.

I think the 250 is more interesting to invest in than the 100 or All-Share (which is mostly the 100), but in a couple of years when people all over the world are going back out on the booze and oil is >$50 a barrel etc you would expect Diageo and Shell and BP to have better share prices than they do today and the All-Share may be expected to be higher than its current 3300. 

So you will still be able to 'capture' a recovery by using the All-Share, but by doing that your money won't be heavily weighted to the same types of smaller or mid-size companies that the article's authors were thinking of, which is why they suggested the 250 rather than the all-share with its lower skew to industrials and investment trusts and higher skew to oil and materials and big pharma companies.

Another_Saver

And don't forget kids...
2.9% capital concentration since inception 🥳

Prism

Another_Saver said:

The 250 though has a big weighting to investment trusts (20.7% equity ITs, 9.8% real estate, 6.1% infrastructure), the management charges on these have reduced the return since inception by 0.2%, I expect about 0.3%-0.4% in future. 

I do like the FTSE 250 in general. I am not sure that the big chunk of investment trusts has been a bad thing for it's performance as many of those have had very good returns over the years. Anyway it may be possible to get a fund that excludes them?

aroominyork

For small/mid cap I would look at active funds. Many of them significantly outperform the 250 index and with lower volatility (measured by FE scores)

Another_Saver

Prism said:

Another_Saver said:

The 250 though has a big weighting to investment trusts (20.7% equity ITs, 9.8% real estate, 6.1% infrastructure), the management charges on these have reduced the return since inception by 0.2%, I expect about 0.3%-0.4% in future. 

I do like the FTSE 250 in general. I am not sure that the big chunk of investment trusts has been a bad thing for it's performance as many of those have had very good returns over the years. Anyway it may be possible to get a fund that excludes them?

Fsince inception no, over the past 10 years yes the investment trusts have held up slightly better.
L&G UK mid cap tracks the 250 without the equity and infrastructure funds but keeps real estate, however the additional fund charges cancel out the savings on the excluded fund's fees. The trust's also help keep the volatility down.

aroominyork

Trusts are more volatile, not less. Gearing magnifies changes up and down, thus increasing volatility, and premiums/discounts also add volatility. 

bowlhead99

Another_Saver said:

And don't forget kids...
2.9% capital concentration since inception 🥳

Whatever it's done since inception, the top ten constituents of the FTSE250 now make up about 10% of its market cap (spread about a percent each) while the top ten of the All-Share take a much bigger portion of that index with first place in the All-Share being almost 3x the weighting of 10th place. So although the All-Share has more stocks, it's arguably less 'diversified' in terms of concentrating the risk and reward into a few key stocks despite having exposure to a larger number of them. So my vote would be for the 250 as a long term investment, especially given OP's likely to have reasonable exposure to large multinational oil and gas giants, big pharma and banks etc within his global trackers.

C_Mababejive said:
....the eventual recovery of the UK stock market which of course has had a dip of around 20% and is slowly limping back...

In terms of "recovery play", the 250 has already recovered proportionally more from the March lows than the All-Share, but that's partially because it fell over 40% from peak to trough while the All-Share 'only' fell 35%, just like it fell further than the All-Share over the course of 2018; it has the potential to be a more volatile index.  The capital value of the 250 is now down about 18% YTD while the All-Share is down about 20% but has paid a bit more in dividends. 

Another_Saver

aroominyork said:

Trusts are more volatile, not less. Gearing magnifies changes up and down, thus increasing volatility, and premiums/discounts also add volatility. 

Since inception the 250 has been very slightly less volatile than the 250 ex the trusts. If you took out the trusts as a group I would expect the volatility to be greater than both the 250 and 250 ex IT indices, but I suspect the different behaviour and correlation (there a word from my maths degree days but I've forgotten it) makes the 250 overall less volatile than the 250 ex ITs.
But the difference is tiny really.

DireEmblem

Is there an equal weighted FTSE all share out there just as a thought?