Global Small Cap Index, thoughts please

whatstheplan

My first foray into investing is £20k in Vanguard's S&S ISA.  If you've seen my other posts you'll know my overall objectives and goals.

I've already put £10k to work in the LS100 product.  The remaining £10k will be invested this week, within Vanguard's range of funds.  I'm not sure if the following comes under the definition of diversification in a true sense, however rather than simply invest all the remaining £10k in LS100, I've been looking at the following:

Global Small-Cap Index Fund

My rationale is, unless I'm missing it, LS100 has no significant small-cap exposure, so I see the above as a good complimentary investment.  The fund itself although global is weighted towards North America and has a return on equity and earnings growth rate of 8.9% and 9.6% respectively.

In terms of how much I'd invest, I'm thinking £4k i.e. 20% of this overall investment pot.

Can I have your thoughts on my rationale and proposed % allocation?

ColdIron

If you're sold on index trackers it sounds a reasonable plan, some would go for active but this is a simple solution to capture global markets. It's more mid cap than small cap but shouldn't have much crossover with your VLS 100. Now what are you going to do with the other 30% to avoid crossover with these two?

Thrugelmir

You do comprehend what "small" means in a global context? 

whatstheplan

ColdIron said:

If you're sold on index trackers it sounds a reasonable plan, some would go for active but this is a simple solution to capture global markets. It's more mid cap than small cap but shouldn't have much crossover with your VLS 100. Now what are you going to do with the other 30% to avoid crossover with these two?

Thanks.  This becomes slightly more tricky to (fully) achieve when remaining within Vanguard, unless I look at some of the gilt and bond funds, however this wasn't really my intention.  Having said that, and to slightly contradict my original plan, it could make sense to hold a % of my investments in funds that are less volatile but still offer better potential growth than traditional bank accounts.  I'll need to mull this over for a few days, however I think I'll opt for the small-cap now (20%.)

green_man

I think in general small companies is something missing from most of the Global Index trackers, hence it makes sense to add some satellite fund to fill that hole. Most people probably wouldn’t have more than 10% of your overall portfolio in a small company specific fund. I don’t know the above fund but it sounds like it’s quite big small companies?!, in general I like active funds for small companies(who can run with some successes etc) and smaller companies generally than that, YMMV.  

I’ve not looked at the LS100 asset allocation recently, does it include Emerging markets? If not there’s another potential satellite fund idea. 

JohnWinder

Looks ok to me; low cost, widely diversified, tracking decent index(es), then don't mess with it too much.

There is already UK small cap in the LS100, but adding global small cap makes sense to fully diversify across equities. 20% is perhaps a bit more than cap weighting, but a few percent here and there is irrelevant.

I wouldn't be tempted to choose an active small cap fund given their history of performance, but we're all different.

isayhello

whatstheplan said:

My rationale is, unless I'm missing it, LS100 has no significant small-cap exposure, so I see the above as a good complimentary investment.  The fund itself although global is weighted towards North America and has a return on equity and earnings growth rate of 8.9% and 9.6% respectively.

Can I ask where you got those figures? thanks.

whatstheplan

isayhello said:

whatstheplan said:

My rationale is, unless I'm missing it, LS100 has no significant small-cap exposure, so I see the above as a good complimentary investment.  The fund itself although global is weighted towards North America and has a return on equity and earnings growth rate of 8.9% and 9.6% respectively.

Can I ask where you got those figures? thanks.

Morningstar.

whatstheplan

green_man said:

I think in general small companies is something missing from most of the Global Index trackers, hence it makes sense to add some satellite fund to fill that hole. Most people probably wouldn’t have more than 10% of your overall portfolio in a small company specific fund. I don’t know the above fund but it sounds like it’s quite big small companies?!, in general I like active funds for small companies(who can run with some successes etc) and smaller companies generally than that, YMMV.  

I’ve not looked at the LS100 asset allocation recently, does it include Emerging markets? If not there’s another potential satellite fund idea. 

Hi, I didn't mention it in my opening post, however I'm investing a second £20k during 21/22.  Once the total £40k is fully invested my actual exposure to small-cap will be closer to 10% unless I invest more in that area.

Yeah the Vanguard LS100 product includes 9.2% emerging markets.