Transferring out of Defined Benefit pension

Prism

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

It has barely made any difference over the last 5 years whether you include EM, small cap or dont.

How do you know it hasn't?

Because the returns tell me it hasn't

Which returns?  The evidence I see is that large cap US equities have outperformed small caps, EM, all other developed markets for the past 5 years.  So a tracker that has more US large cap will obviously out-perform a tracker with less.

Thats pretty much the point isn't it? Over the last 5 years global developed market funds, all world funds and small caps funds have all pretty much returned the same. So the only difference is the home bias. It was an active decision that hasn't yet worked out. If any other fund had under performed its benchmark and its peers by around 2% per year for 5 years we wouldn't be talking about it. Yet for some reason people want to excuse VLS 100 from poor performance. 

[Deleted User]

dunstonh said:

Various legitimate concepts routinely underperform for a decade or so.

So, recency bias is multiple decades in your view then?

In the 90s US outperformed. In the first decade of this century US underperformed.  In the second one it outperformed.

There was a substantial crowd in 2011/2012 (if you were around), claiming you don’t need US in your portfolio and that the focus should be on the domestic market. US was “dead”.  Funds which had too much S&P 500 underperformed. Value and domestic investment was all the rage.  People modified their portfolios to reflect this - and low quartiles of specific funds which had high US exposure. Heck, financial gurus in the US were telling people to put everything into Europe. 

People who did that lost out. Big time. That is how the recency bias works.  Jumping lanes isnt a good way to get to a destination safely. 

itwasntme001

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

It has barely made any difference over the last 5 years whether you include EM, small cap or dont.

How do you know it hasn't?

Because the returns tell me it hasn't

Which returns?  The evidence I see is that large cap US equities have outperformed small caps, EM, all other developed markets for the past 5 years.  So a tracker that has more US large cap will obviously out-perform a tracker with less.

Thats pretty much the point isn't it? Over the last 5 years global developed market funds, all world funds and small caps funds have all pretty much returned the same. So the only difference is the home bias. It was an active decision that hasn't yet worked out. If any other fund had under performed its benchmark and its peers by around 2% per year for 5 years we wouldn't be talking about it. Yet for some reason people want to excuse VLS 100 from poor performance. 

We are arguing about different things here.  I thought you said EM stocks, small caps etc hasn't made a difference to the out-performance of a pure market cap tracker vs VLS100.  I am saying it has, because VLS100 has under-weighted US large cap by design.  So maybe I am not understanding the point you are making.

VLS100 has been a poor performer over the last 5 years vs a pure global market cap tracker - I completely get that.  But that does not make it a poor choice by in itself.  It is simply a choice one has compared to a whole host of other funds.  No decision is ever going to be 100% passive, even if you choose a pure tracker fund.  Buying a market weight cap index is an ACTIVE choice.

Prism

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

It has barely made any difference over the last 5 years whether you include EM, small cap or dont.

How do you know it hasn't?

Because the returns tell me it hasn't

Which returns?  The evidence I see is that large cap US equities have outperformed small caps, EM, all other developed markets for the past 5 years.  So a tracker that has more US large cap will obviously out-perform a tracker with less.

Thats pretty much the point isn't it? Over the last 5 years global developed market funds, all world funds and small caps funds have all pretty much returned the same. So the only difference is the home bias. It was an active decision that hasn't yet worked out. If any other fund had under performed its benchmark and its peers by around 2% per year for 5 years we wouldn't be talking about it. Yet for some reason people want to excuse VLS 100 from poor performance. 

We are arguing about different things here.  I thought you said EM stocks, small caps etc hasn't made a difference to the out-performance of a pure market cap tracker vs VLS100.  I am saying it has, because VLS100 has under-weighted US large cap by design.  So maybe I am not understanding the point you are making.

VLS100 has been a poor performer over the last 5 years vs a pure global market cap tracker - I completely get that.  But that does not make it a poor choice by in itself.  It is simply a choice one has compared to a whole host of other funds.  No decision is ever going to be 100% passive, even if you choose a pure tracker fund.  Buying a market weight cap index is an ACTIVE choice.

You are right, it doesn't make it a poor choice but neither does it make it a good choice. Just one average fund out of several hundred similar funds. Some are cheaper, some are more expensive. 

I did say that EM and small companies have made no real difference to a standard market cap tracker since the returns have been almost identical over the last 5 years. For all of the talk about US large caps being the place to be, EM has been almost as good and global small caps have returned about the same as global large caps.

[Deleted User]

dunstonh said

You have made it clear that you think it's better to be in a more expensive option that has consistently underperformed most of the funds in its sector.   I don't.    You said to Prism that "1. VLS 100 is not “performing poor”. So, perhaps your concept of what is poor/average/good/bad etc is different.

Full marks for chutzpah. 

Someone who buys a VLS fund through Vanguard’s platform will have total costs around 0.2-0.3%.

What are the total costs your clients are paying? Lets say its 1%. Please tell us again that VLS is a more expensive option.  

Yes, you can have a different fund which is a little bit cheaper than VLS100.  Lets say 0.1% TER. Thats an additional annual cost of around 100 GBP for someone with a 100k investment. A bit irritating, but not a difference maker. Once you get into thousands in annual costs - thats your difference maker.  Of course you would say: “you can’t compare an IFA managed portfolio to a self-managed one”. Then perhaps you shouldn’t count pennies when comparing VLS100 to very different products, which cut out most small and emerging market companies. 

Now... I am not saying “VLS 100 is definitely better than xyz”.  XYZ is a good option too. VLS 100 has certain advantages and disadvantages. Quartiles when comparing vs funds with higher US weighting is not a meaningful criterion for someone who understands the meaning of benchmarking. 

dunstonh

VLS100 has been a poor performer over the last 5 years vs a pure global market cap tracker - I completely get that.  But that does not make it a poor choice by in itself.  It is simply a choice one has compared to a whole host of other funds.  No decision is ever going to be 100% passive, even if you choose a pure tracker fund.  Buying a market weight cap index is an ACTIVE choice.

VLS has only existed since 2011.   VLS only has a static bond/equity ratio.  The underlying spread has changed over the years.  Less frequently than the risk targetted funds certainly but they have made changes.   So, we are limited to the management decisions made in this period as we do not know what management decisions they would have made in other periods.

So, since it's launch, has VLS100 been a top tier performer?  no.  It has given just fractionally above the sector average.
Would any other fund that did not have Vanguard in its name get so much support from certain people? No.
Especially when you consider that some of those people constantly slag off other portfolios that use similar investment strategies (underlying funds with different weightings into countries/regions).    It smacks of double standards.

If the claim is that its only the management decisions that have worked against Vanguard and they should not be criticised for getting it wrong then shouldn't that equally apply to all the other portfolios out there that were UK heavy and/or US light?     Yet the comments here are that portfolios that got the management decisions right in this period are considered bad  and the portfolios that got it wrong are considered bad unless its VLS100.

itwasntme001

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

It has barely made any difference over the last 5 years whether you include EM, small cap or dont.

How do you know it hasn't?

Because the returns tell me it hasn't

Which returns?  The evidence I see is that large cap US equities have outperformed small caps, EM, all other developed markets for the past 5 years.  So a tracker that has more US large cap will obviously out-perform a tracker with less.

Thats pretty much the point isn't it? Over the last 5 years global developed market funds, all world funds and small caps funds have all pretty much returned the same. So the only difference is the home bias. It was an active decision that hasn't yet worked out. If any other fund had under performed its benchmark and its peers by around 2% per year for 5 years we wouldn't be talking about it. Yet for some reason people want to excuse VLS 100 from poor performance. 

We are arguing about different things here.  I thought you said EM stocks, small caps etc hasn't made a difference to the out-performance of a pure market cap tracker vs VLS100.  I am saying it has, because VLS100 has under-weighted US large cap by design.  So maybe I am not understanding the point you are making.

VLS100 has been a poor performer over the last 5 years vs a pure global market cap tracker - I completely get that.  But that does not make it a poor choice by in itself.  It is simply a choice one has compared to a whole host of other funds.  No decision is ever going to be 100% passive, even if you choose a pure tracker fund.  Buying a market weight cap index is an ACTIVE choice.

You are right, it doesn't make it a poor choice but neither does it make it a good choice. Just one average fund out of several hundred similar funds. Some are cheaper, some are more expensive. 

I did say that EM and small companies have made no real difference to a standard market cap tracker since the returns have been almost identical over the last 5 years. For all of the talk about US large caps being the place to be, EM has been almost as good and global small caps have returned about the same as global large caps.

I'm seeing US large caps out-performing EM but not massively so.  Have not checked small caps.  But yes I think VLS100 under-performance has more to do with the home bias than anything else.  Still, doesn't make it a bad choice, we may have UK out-perform the US for the next 10 years.  No one knows.

[Deleted User]

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

It has barely made any difference over the last 5 years whether you include EM, small cap or dont.

How do you know it hasn't?

Because the returns tell me it hasn't

Which returns?  The evidence I see is that large cap US equities have outperformed small caps, EM, all other developed markets for the past 5 years.  So a tracker that has more US large cap will obviously out-perform a tracker with less.

Thats pretty much the point isn't it? Over the last 5 years global developed market funds, all world funds and small caps funds have all pretty much returned the same. So the only difference is the home bias. It was an active decision that hasn't yet worked out. If any other fund had under performed its benchmark and its peers by around 2% per year for 5 years we wouldn't be talking about it. Yet for some reason people want to excuse VLS 100 from poor performance. 

We are arguing about different things here.  I thought you said EM stocks, small caps etc hasn't made a difference to the out-performance of a pure market cap tracker vs VLS100.  I am saying it has, because VLS100 has under-weighted US large cap by design.  So maybe I am not understanding the point you are making.

VLS100 has been a poor performer over the last 5 years vs a pure global market cap tracker - I completely get that.  But that does not make it a poor choice by in itself.  It is simply a choice one has compared to a whole host of other funds.  No decision is ever going to be 100% passive, even if you choose a pure tracker fund.  Buying a market weight cap index is an ACTIVE choice.

You are right, it doesn't make it a poor choice but neither does it make it a good choice. Just one average fund out of several hundred similar funds. Some are cheaper, some are more expensive. 

I did say that EM and small companies have made no real difference to a standard market cap tracker since the returns have been almost identical over the last 5 years. For all of the talk about US large caps being the place to be, EM has been almost as good and global small caps have returned about the same as global large caps.

That’s not accurate. I hold separate ETFs for US total market, Emerging markets and US small cap/value.  The difference between 2010 and 2020, 2015 and 2020 or 2017 and 2020 is quite dramatic. Several times more for s&p500 in each case.  If S&P500 makes up 60 of your “global” fund then you had noticeably higher returns than  EM or small caps. 

And I doubt there are several hundred funds available to UK consumers that have the same level of diversification as VLS100. If diversification is important to you then VLS stands out. 

dunstonh

Full marks for chutzpah. 
Someone who buys a VLS fund through Vanguard’s platform will have total costs around 0.2-0.3%.
What are the total costs your clients are paying? Lets say its 1%. Please tell us again that VLS is a more expensive option.  

Full marks for ignoring facts and trying to deflect.
1 - VLS is 0.22%.    The other alternatives were cheaper.     That makes VLS more expensive. Fact.
2 - If someone uses an adviser then it will be more expensive than using VLS. Fact.    
Yes, you can have a different fund which is a little bit cheaper than VLS100.  Lets say 0.1% TER. Thats an additional annual cost of around 100 GBP for someone with a 100k investment. A bit irritating, but not a difference maker. Once you get into thousands in annual costs - thats your difference maker.  Of course you would say: “you can’t compare an IFA managed portfolio to a self-managed one”. Then perhaps you shouldn’t count pennies when comparing VLS100 to very different products, which cut out most small and emerging market companies. How about comparing VLS to other global equity funds that cost more then?   There is plenty of choice.
And you can compare an IFA managed portfolio with a self managed one.  
And to be honest, our asset allocations have cut out emerging markets completely on some risk levels or reduced them heavily on others for several years now.   (not that I decide the weightings - no IFA should be doing that. its not the skillset of an IFA to do so).
Now... I am not saying “VLS 100 is definitely better than xyz”.  XYZ is a good option too. VLS 100 has certain advantages and disadvantages. Quartiles when comparing vs funds with higher US weighting is not a meaningful criterion for someone who understands the meaning of benchmarking. If you not saying that VLS is better than xyz and that VLS had disadvantages as well as advantages then why are you arguing with people that are saying the exact same thing? - does this go back to the apparent confusion where somehow "not so good" what equated to mean "bad"?
I would agree comparing performance in some sectors is pointless as weightings can make a massive difference on the risk levels.  However, when it comes down to 100% global equity and looking at managed solutions, it is relevant.      It is part of the skill (or luck) of the management team in making their management decisions.

Prism

Deleted_User said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

It has barely made any difference over the last 5 years whether you include EM, small cap or dont.

How do you know it hasn't?

Because the returns tell me it hasn't

Which returns?  The evidence I see is that large cap US equities have outperformed small caps, EM, all other developed markets for the past 5 years.  So a tracker that has more US large cap will obviously out-perform a tracker with less.

Thats pretty much the point isn't it? Over the last 5 years global developed market funds, all world funds and small caps funds have all pretty much returned the same. So the only difference is the home bias. It was an active decision that hasn't yet worked out. If any other fund had under performed its benchmark and its peers by around 2% per year for 5 years we wouldn't be talking about it. Yet for some reason people want to excuse VLS 100 from poor performance. 

We are arguing about different things here.  I thought you said EM stocks, small caps etc hasn't made a difference to the out-performance of a pure market cap tracker vs VLS100.  I am saying it has, because VLS100 has under-weighted US large cap by design.  So maybe I am not understanding the point you are making.

VLS100 has been a poor performer over the last 5 years vs a pure global market cap tracker - I completely get that.  But that does not make it a poor choice by in itself.  It is simply a choice one has compared to a whole host of other funds.  No decision is ever going to be 100% passive, even if you choose a pure tracker fund.  Buying a market weight cap index is an ACTIVE choice.

You are right, it doesn't make it a poor choice but neither does it make it a good choice. Just one average fund out of several hundred similar funds. Some are cheaper, some are more expensive. 

I did say that EM and small companies have made no real difference to a standard market cap tracker since the returns have been almost identical over the last 5 years. For all of the talk about US large caps being the place to be, EM has been almost as good and global small caps have returned about the same as global large caps.

That’s not accurate. I hold separate ETFs for US total market, Emerging markets and US small cap/value.  The difference between 2010 and 2020, 2015 and 2020 or 2017 and 2020 is quite dramatic. Several times more for s&p500 in each case.  If S&P500 makes up 60 of your “global” fund then you had noticeably higher returns than  EM or small caps. 

And I doubt there are several hundred funds available to UK consumers that have the same level of diversification as VLS100. If diversification is important to you then VLS stands out. 

You say its not accurate but then give a different comparison than I did. 5 year returns for global developed world, global all world including emerging markets and global small caps are pretty much the same. Thats all I was saying. Therefore the different is, as you say purely down to the lack of US (or greater UK) allocation.

Edit: probably works best with examples over those 5 years
HSBC FTSE All World - 109.3%
Fidelity Index World - 109.0%
Vanguard Global Small Cap Index - 108.3%