Diversification across equities

Dh6

Evening all,

I keep reading that to be invested in a global market cap weighted index fund is not diversified enough. 

I hold HSBC FTSE all world which I believe is a large cap market weighted index fund.

Can anyone recommend an equivalent mid cap and small cap index fund so I can achieve full diversification across my global equities?

Many thanks DH

ChilliBob

The ftse all world will do large and mid caps, as explained here: https://www.bankeronwheels.com/best-international-etfs/

There's the Vanguard small cap fund which is a fairly popular choice.

If you just want to do it with one fund the Vanguard All Cap is also popular, the OCF is higher than the HSBC fund though. 

Albermarle

This is a global mid cap ETF
iShares Edge MSCI World Size Factor UCITS ETF USD (Acc) Key Statistics | IE00BP3QZD73 | Fidelity
Normally for small caps , a managed fund is recommended .
Also be aware in this context some of the 'small caps' are actually pretty big companies .

Dh6

Is a managed small cap fund worth the extra “hassle” or do I just stick to the existing all world fund? Would it affect my returns all that much? 

Also my intention was to be fully passive so to choose an active fund would be to go against my philosophy.

 Thanks DH

underground99

Dh6 said:

Is a managed small cap fund worth the extra “hassle” or do I just stick to the existing all world fund? Would it affect my returns all that much? 

Also my intention was to be fully passive so to choose an active fund would be to go against my philosophy.

 Thanks DH

It's not exactly a 'hassle' to own a fund.

Observation - if you are 'fully passive' you will hold a piece of all investible bonds and equities from around the world in the proportions that they are available on the markets (and be more bonds than equities). If you are fully passive but just for equities you will take whatever equities are out there in the proportions that they are available and so you won't really have any small caps because 95% of the global equity market is not small cap.

You could find a small cap 'tracker' fund (Vanguard do one, for example), but it would be market cap weighted (like the global small cap index it tracks) and so most of the money would be in the companies that are least small, which seems a poor way to invest for a dedicated exposure to small companies.

The small cap index of the UK has given quite a different (and better) result over the last few decades than the large cap index of the UK, or the all-share (which is mostly the large cap). In other regions the difference isn't always so pronounced. It can depend on industry mix and the type of companies that are prospering at a point in time.

Dh6

That’s a very informative post, many thanks. Plenty of food for thought.

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

kind regards DH

Thrugelmir

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

Dh6

Thousands of companies in that index fund unless I’m very much mistaken?

The rise and falls are irrelevant to me at the moment as the earliest I’ll need access to the money will be in 16 years time at the vast majority in 26 years time plus.

 Thanks DH

strawb_shortcake

Thrugelmir said:

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

@Thrugelmir what would be your suggestions for diversifying from a global all cap?
I've made a small investment in this but weighing up options on where I go from here 

virenque

REIT's and China  :-)

Thrugelmir

annabanana82 said:

Thrugelmir said:

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

@Thrugelmir what would be your suggestions for diversifying from a global all cap?
I've made a small investment in this but weighing up options on where I go from here 

Constructing a diverse portfolio is no easy task. Unless you've a reasonable amount of capital to deploy.  Time to add satellite funds and investments is when the solid foundations are laid. If I was starting today from ground zero with the options that now exist . As a cornerstone for my portfolio I'd be looking for a low cost passive multi market / asset diverse option. From one of the reputable investment managers such as Vanguard, Blackrock for example. Alternatively potentially Goldman Sachs, who are soon entering the fray,  with an offering of ready made risk classified portfolios of ETF's for investors.