All World Trackers - High Risk? - I Don't Think So

JohnWinder

pip895 said:

My concern with world trackers is that they are more than 50% invested in a single country - any one else consider this an issue?

Yes, definitely. But what are we to do about it? We can eschew that fund and choose one that is ex-USA. If it was that easy to beat a global index fund then the active fund managers, probably better trained than us and certainly better resourced for research, would be able to beat a global index beyond about 3 years. The evidence indicates they can't.

What to do? Dial down your holdings of riskier assets until you get comfortable with the financial world the way it is, maybe.

Welcome any suggestion you might have.

JohnWinder

dunstonh said:

  Plus, you can largely eliminate 80% of managed funds without much effort.

Just roughly, how many would we be left to choose from with the remaining 20%?

'Sharesight tracks the price and distribution information for over 12,000 mutual funds in the United Kingdom,'

And what is the approach of the folk who do eliminate 80% with little effort?

JohnWinder

Linton said:

Over the past 10 years the weighted average UK fund outperformed the relevent S&P Index  in 5 out of the 8 sectors for which data is available.
See https://www.spglobal.com/spdji/en/documents/spiva/spiva-europe-mid-year-2020.pdf?force_download=true page 12.

I wish I could untangle this in my head. Punters choose which fund or funds to invest with. Do they need to choose all of the funds in each sector, with a weighting relevant to the funds' sizes, in order to get the benefit of 5 out of the 8 sector funds outperforming the relevant index.

That the majority of active funds evaluated underperformed the relevant index beyond about 3 years is the relevant bit for those trying to choose a fund, surely?

Thrugelmir

JohnWinder said:

Linton said:

Over the past 10 years the weighted average UK fund outperformed the relevent S&P Index  in 5 out of the 8 sectors for which data is available.
See https://www.spglobal.com/spdji/en/documents/spiva/spiva-europe-mid-year-2020.pdf?force_download=true page 12.

That the majority of active funds evaluated underperformed the relevant index beyond about 3 years is the relevant bit for those trying to choose a fund, surely?

MSCI alone have 220,000 indexes. Times have moved on. Investing is no longer restricted to narrow geographical ranges. 

Malthusian

pip895 said:

My concern with world trackers is that they are more than 50% invested in a single country - any one else consider this an issue?

Yes, but if and when the US starts to underperform, a global tracker will dump the US and start to invest more in other areas, as US shares shrink and non-US shows grow and the US stockmarket ceases to make up a 50%+ proportion of global market cap.

Of course this will underperform compared to someone who underweights the US in advance. But there is no evidence that anyone can consistently outperform the market by predicting exactly when mammoth markets like the US will become less mammoth.

The US stockmarket is that big because the companies in it sell goods all over the world. If the Asia Pacific and Latin American economies start to catch up with the US, the people in them will buy more iPhones and more Microsoft services. They will also of course also buy more Samsungs and Alibaba, but nonetheless that's part of the reason the US stockmarket isn't entirely correlated with the US economy.

Linton

Malthusian said:

pip895 said:

My concern with world trackers is that they are more than 50% invested in a single country - any one else consider this an issue?

Yes, but if and when the US starts to underperform, a global tracker will dump the US and start to invest more in other areas, as US shares shrink and non-US shows grow and the US stockmarket ceases to make up a 50%+ proportion of global market cap.

Of course this will underperform compared to someone who underweights the US in advance. But there is no evidence that anyone can consistently outperform the market by predicting exactly when mammoth markets like the US will become less mammoth.

The US stockmarket is that big because the companies in it sell goods all over the world. If the Asia Pacific and Latin American economies start to catch up with the US, the people in them will buy more iPhones and more Microsoft services. They will also of course also buy more Samsungs and Alibaba, but nonetheless that's part of the reason the US stockmarket isn't entirely correlated with the US economy.

The primary issue with 60% US is risk not performance.  But the implication of 60% US is 40% elsewhere.  Having 40% US 60% elsewhere means 33% less US but 50% more in the places that will gain when/if the US becomes less dominant.   I dont see any predictions that the US will become more dominant.

Thrugelmir

Linton said:

Malthusian said:

pip895 said:

My concern with world trackers is that they are more than 50% invested in a single country - any one else consider this an issue?

Yes, but if and when the US starts to underperform, a global tracker will dump the US and start to invest more in other areas, as US shares shrink and non-US shows grow and the US stockmarket ceases to make up a 50%+ proportion of global market cap.

Of course this will underperform compared to someone who underweights the US in advance. But there is no evidence that anyone can consistently outperform the market by predicting exactly when mammoth markets like the US will become less mammoth.

The US stockmarket is that big because the companies in it sell goods all over the world. If the Asia Pacific and Latin American economies start to catch up with the US, the people in them will buy more iPhones and more Microsoft services. They will also of course also buy more Samsungs and Alibaba, but nonetheless that's part of the reason the US stockmarket isn't entirely correlated with the US economy.

The primary issue with 60% US is risk not performance.  But the implication of 60% US is 40% elsewhere.  Having 40% US 60% elsewhere means 33% less US but 50% more in the places that will gain when/if the US becomes less dominant.   I dont see any predictions that the US will become more dominant.

The US does not account for 60% of global activity either. That's simply the methodology used to compile the index. The US is in decline in terms of share of GDP, already beneath 20%. 

MaxiRobriguez

Whilst I'm underweight the US, don't forget "the stock market isn't the economy".

Thrugelmir

MaxiRobriguez said:

Whilst I'm underweight the US, don't forget "the stock market isn't the economy".

In some regards seems far removed at the current time. 

JohnWinder

Linton said:

The primary issue with 60% US is risk not performance. ...  I dont see any predictions that the US will become more dominant.

Not sure what we're to take from that observation, but I'm losing faith in predictions:

' It also makes all 67 economists wrong, as this chart of the benchmark yield shows:' That was a prediction of interest rates, a whopping six months into the future. 2014.

https://www.marketwatch.com/story/yes-100-of-economists-were-dead-wrong-about-yields-2014-10-21

'The average forecast for the end of June was 3.39% on the ten-year. As you can see in the chart below, not one of them came close to where rates currently are.'  2019.

https://theirrelevantinvestor.com/2019/06/12/more-art-than-science/