Vanguard Global All Cap vs HSBC All World Index: some questions

caper7

Researching my first proper go at a stocks and shares Isa. 
Will be using I Web, and thanks to this forum am highly likely to be choosing Vanguard Lifestrategy 60%.
However, talk of just sticking it all in an All World Index tracker also appeals. 
Am now researching that with a view to doing half LS60 and half Global tracker.
I understand they aren't the same, but feel I have the cash to provide the balance. 

So, from everything I've read, I like the Vanguard FTSE Global All Cap Index Acc.
From Tim Hale's Smarter Investing, I learnt to try and own everything. This has 6878 holdings. 
I think this means great diversification. It also has small caps, surely today's small cap could be tomorrow's large cap?
The strategy seems to fit with what I've been reading.

However, HSBC's FTSE All World Index C Acc performs better for cheaper.
It goes higher in peaks and doesn't seem to fall as much in troughs. 
Why? 
This is what I'd like to try to understand. 

Is it that because it has far fewer holdings it has a greater proportion of the top large caps. Those top holdings are mainly Apple, Amazon etc tech stuff that seem to keep surging ahead and weather storms successfully?

You're supposed to pick a strategy and stick to it, the Vanguard one seems to fit Tim Hale's strategy better, so I shouldn't get distracted by HSBC, slow and steady wins the race? But it seems silly to ignore better results and less bad falls for cheaper? Is there such a thing as too much diversification?
Any thoughts? 

On a practical note, where would I find tracking error numbers for these funds? 
Also, can only find transaction costs for the HSBC one. 
Finally, HSBC has an ocf of 13% on IWeb and Morningstar but 19% on Hargreaves L. Which is correct?

Apologies for yet another long post, feel free to ignore me... 

Another_Saver

caper7 said:

Researching my first proper go at a stocks and shares Isa. 
Will be using I Web, and thanks to this forum am highly likely to be choosing Vanguard Lifestrategy 60%.
However, talk of just sticking it all in an All World Index tracker also appeals. 
Am now researching that with a view to doing half LS60 and half Global tracker.
I understand they aren't the same, but feel I have the cash to provide the balance. 

So, from everything I've read, I like the Vanguard FTSE Global All Cap Index Acc.
From Tim Hale's Smarter Investing, I learnt to try and own everything. This has 6878 holdings. 
I think this means great diversification. It also has small caps, surely today's small cap could be tomorrow's large cap?
Perhaps. There are historic studies that suggest smaller companies tend to outperform over the very long term, bit that hasn't been true lately, particularly during Covid. Also since the HSBC fund only owns 3100 co's, vanguard has to pay stock brokers for buying and selling twice as many which can easily offset the additional returns. And the HSBC fund is bigger so has economies of scale.

The strategy seems to fit with what I've been reading.

However, HSBC's FTSE All World Index C Acc performs better for cheaper.
It goes higher in peaks and doesn't seem to fall as much in troughs. 
Why? 
Compare the two funds on trustnet, them add Vanguard Global Small Cap. That should give you your answer.

This is what I'd like to try to understand. 

Is it that because it has far fewer holdings it has a greater proportion of the top large caps. Those top holdings are mainly Apple, Amazon etc tech stuff that seem to keep surging ahead and weather storms successfully?
I think it's just the small caps and the slight extra cost.

You're supposed to pick a strategy and stick to it, the Vanguard one seems to fit Tim Hale's strategy better, so I shouldn't get distracted by HSBC, slow and steady wins the race? But it seems silly to ignore better results and less bad falls for cheaper? Is there such a thing as too much diversification?
Any thoughts? 
Both of these funds should behave extremely similarly, and it's doubtful that either will have a long term edge over the other. Personally I like to have as complete and full a portfolio as possible, hence I own vanguard FTSE global all cap for the global part of my portfolio (I also own VHYL but that's another story). However, by owning the biggest 3100 in the world it's not like you're missing out on the next Tesla, the HSBC fund will just pick it up a little later in its growth story than the all cap fund.

On a practical note, where would I find tracking error numbers for these funds? 
Google the fund name followed by factsheet, KIID, or annual report it shouldn't be too hard to find. For vanguard the latest data is a -0.39% tracking error (https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview?intcmpgn=equityglobal_ftseglobalallcapindexfund_fund_link, click on annual report, go to page 52). I believe this includes the ocf and transaction costs.

Also, can only find transaction costs for the HSBC one. 
Finally, HSBC has an ocf of 13% on IWeb and Morningstar but 19% on Hargreaves L. Which is correct?

@Alexland?

Apologies for yet another long post, feel free to ignore me... 

By the time I've typed this @Alexlandwill be here to provide their bounty of knowledge about HSBC FTSE all world.

caper7

Sorry if I'm being stupid, but I don't really get the graph. 
The small caps seem to do better for the first few years, yet do not help the Vanguard All Cap outperform HSBC. Did trading costs eat away all the advantage? 
Then the last few years the small caps do worse and do drag Vanguard down. 
Hold on, think I might be figuring this out as I type... 
The gains get wiped out by costs? 
The losses are even worse given costs? 
Is that it? 

Even more confused by the cumulative performance numbers under the graph, they seem to say the opposite of what the graph says? Small caps recently doing better? 

Another_Saver

caper7 said:

Sorry if I'm being stupid, but I don't really get the graph. 
The small caps seem to do better for the first few years, yet do not help the Vanguard All Cap outperform HSBC. Did trading costs eat away all the advantage? 
Then the last few years the small caps do worse and do drag Vanguard down. 
Hold on, think I might be figuring this out as I type... 
The gains get wiped out by costs? 
The losses are even worse given costs?

Is that it? 
This is possible and yes you have understood correctly.
Even more confused by the cumulative performance numbers under the graph, they seem to say the opposite of what the graph says? Small caps recently doing better? 

You're absolutely right and to be honest I can't answer all these questions but I can try.

Firstly, the HSBC fund is older and bigger then the vanguard fund. The chart goes back to when the vanguard fund started, when it was much smaller. That may explain why the vanguard fund has been less smooth.
Secondly, I think it's be possible that some of these funds have given a price for today before I pulled that chart, some may still be on last Friday's price.
If small caps do better than the HSBC fund over a period, it should drag up the vanguard fund over the HSBC fund, and vice versa. That doesn't always seem to be true in the data though 🤷‍♂️

Linton

Some random  points...
1) differences in charges of a fraction of a % will only make very marginal differences in performance figures over the sort of time periods for which it is easy to get graphs.  Work out the maths.  Deciding whether to go for Index A or Index B could have a much larger effect

2) You can get a very different picture of what is happening by choosing your start date carefully.  At one extreme try the graphs over the past 6 months.  The graph only goes back about 5 years because the Vanguard All Cap fund has only been around that long.  To make a sensible comparison you probably need to go back 15 years to cover a range of different economic situations.

3) People who are really interested in Small Companies would probably use geography specific active funds.  However I suggest you dont go there at this stage.  Just accept what your chosen fund does for you.

4) In recent years relative small and large cap pricing has been seriously affected by the out performance of the large US Tech Companies.  Were you to ignore those, or investors go off them, the picture again would be very different.  Investment sectors like the FTSE100 or large mature companies which do not have significant tech holdings have performed relatively poorly

5) Re OCF differences.... Each year (or perhaps more frequently) the fund manager simply adds up his costs and divides by the fund size giving the %. It will vary depending on what the fund has been doing.  So the precise published % charge isnt something inherent to the fund, it is simply a calculated value dependent on what happened in the past. Also various data sources may pick up the basic data like charges at different times and only update it occasionally.

Whatever has happened over the past 5 years could be very different to what happens in the next 5. It's a mistake to base your investments on what has provided recent good performance.  Focus more, like you seem to be doing, on getting a sensible overall strategy and then keep to it.  I share your like for investing in everything though I focus more about the % allocations.

Given where you are in your investment experience I suggest you simply buy the Vanguard Global All Cap fund and dont worry about the details. Or, for educational purposes you could split between the Vanguard and HSBC funds. Living with the continuously varying performance of a real portfolio is very different to looking at historical graphs.

Alexland

Another_Saver said:

By the time I've typed this @Alexlandwill be here to provide their bounty of knowledge about HSBC FTSE all world.

Hello it's me and what joy we seem to be talking about one of my favourite funds. However the Vanguard Global All Cap is also a good fund so it's a nice problem to have picking between two good global tracker funds.
I wouldn't read too much into the historic performance data as that's mostly down to how the different assets have responded to recent economic circumstances. HSBC reduced their OCF to 0.13% but not all the information sources (even on HSBC's own website) have updated yet. So if picking between them you have to ask yourself if it's really worth paying a higher charge on Vanguard when it's not clear which would be better in future types of economic circumstances.
I am far more concerned that we are considering all, half or none in VLS60 too which suggests we haven't really decided what level of volatility to take? Something like VLS60 might only drop 25%+ in a bad crash but a global equity tracker might drop 50%+. Getting this right is far more important. Holding multiple funds on iWeb is more expensive with additional trades to purchase and rebalance. If you are looking for something half between a 60% balanced multi asset fund and a 100% tracker then how about just going for something at around 80% such as either VLS80 or HSBC Global Strategy Dynamic which are also good funds?

Another_Saver

Alexland said:

Another_Saver said:

By the time I've typed this @Alexlandwill be here to provide their bounty of knowledge about HSBC FTSE all world.

Hello it's me and what joy we seem to be talking about one of my favourite funds. However the Vanguard Global All Cap is also a good fund so it's a nice problem to have picking between two good global tracker funds.
I wouldn't read too much into the historic performance data as that's mostly down to how the different assets have responded to recent economic circumstances. HSBC reduced their OCF to 0.13% but not all the information sources (even on HSBC's own website) have updated yet. So if picking between them you have to ask yourself if it's really worth paying a higher charge on Vanguard when it's not clear which would be better in future types of economic circumstances.
I am far more concerned that we are considering all, half or none in VLS60 too which suggests we haven't really decided what level of volatility to take? Something like VLS60 might only drop 25%+ in a bad crash but a global equity tracker might drop 50%+. Getting this right is far more important. Holding multiple funds on iWeb is more expensive with additional trades to purchase and rebalance. If you are looking for something half between a 60% balanced multi asset fund and a 100% tracker then how about just going for something at around 80% such as either VLS80 or HSBC Global Strategy Dynamic which are also good funds?

This must be the longest you've ever taken to answer to post about this fund... Ever

Alexland

Another_Saver said:

This must be the longest you've ever taken to answer to post about this fund... Ever

Yeah getting young kids to bed can be unpredictable and exhausting.