Baillie Gifford American - ouch!!

bostonerimus

If I can put UK exceptionalism in financial management aside for a moment, Powell writes: 'There have been several academic studies in the US — notably by Michael Jensen in 1968, Burton Malkiel in 1995 and by Barras, Scaillet and Wermers in 2010 — which have all found that outperformance is more likely to be due to luck than skill.'

Having lived in the USA for most of my adult life I am well acquainted with with the arrogance and hubris of exceptionalism. It pervades may American discussions because of an inability to question dogma; doing so would puncture the national ego. However, exceptionalism isn't exceptional. At the nation state level it's a consequence of nationalism, but it can be seen in many groups and organizations and can be useful when you want to produce group cohesion. It's mantra is always "ah yes, but we are different".

masonic

ZingPowZing said:

Quite a racy set of investments above. All of them are up in £ terms over the last year though. Too risky for me but, if they appeal, why not just buy the top 10 holdings? 

There are a few reasons why someone might prefer to hold the fund. Firstly. even with a high conviction portfolio like this one, the top 10 holdings account for less than 50% of the fund, and the real drivers of tomorrow's performance may be among the smaller constituents. Cutting away all of the smaller holdings actually makes an already quite racy fund even more concentrated. Secondly, the portfolio will evolve over time and the timing of trades may be material to performance. A private investor may not have access to sufficient information to efficiently copy-trade the portfolio, generally a monthly snapshot of the top 10 holdings plus an occasional peek into the other holdings is the best they will get. Thirdly, there is a time and cost aspect. Maintenance of a basket of shares is going to take more effort than a single fund, it may also cost more depending on spread, forex, trading fees, and the amount of money to be invested.

Linton

bostonerimus said:

If I can put UK exceptionalism in financial management aside for a moment, Powell writes: 'There have been several academic studies in the US — notably by Michael Jensen in 1968, Burton Malkiel in 1995 and by Barras, Scaillet and Wermers in 2010 — which have all found that outperformance is more likely to be due to luck than skill.'

Having lived in the USA for most of my adult life I am well acquainted with with the arrogance and hubris of exceptionalism. It pervades may American discussions because of an inability to question dogma; doing so would puncture the national ego. However, exceptionalism isn't exceptional. At the nation state level it's a consequence of nationalism, but it can be seen in many groups and organizations and can be useful when you want to produce group cohesion. It's mantra is always "ah yes, but we are different".

Yes, but there is the reverse: that is the belief that if some thing is the case in the US it must be the case elewhere.  I met this when i was working - someone visiting from the US head office was convinced the way we were doing things was wrong.  He could quote the Act of Congress that made it illegal.  The fact that Acts of Congress have no bearing on what happens in the UK hadn't quite registered.

bostonerimus

Linton said:

bostonerimus said:

If I can put UK exceptionalism in financial management aside for a moment, Powell writes: 'There have been several academic studies in the US — notably by Michael Jensen in 1968, Burton Malkiel in 1995 and by Barras, Scaillet and Wermers in 2010 — which have all found that outperformance is more likely to be due to luck than skill.'

Having lived in the USA for most of my adult life I am well acquainted with with the arrogance and hubris of exceptionalism. It pervades may American discussions because of an inability to question dogma; doing so would puncture the national ego. However, exceptionalism isn't exceptional. At the nation state level it's a consequence of nationalism, but it can be seen in many groups and organizations and can be useful when you want to produce group cohesion. It's mantra is always "ah yes, but we are different".

Yes, but there is the reverse: that is the belief that if some thing is the case in the US it must be the case elewhere.  I met this when i was working - someone visiting from the US head office was convinced the way we were doing things was wrong.  He could quote the Act of Congress that made it illegal.  The fact that Acts of Congress have no bearing on what happens in the UK hadn't quite registered.

A good point we all need to be aware of dogma and our own biases...of course I'm so aware of those that I always avoid them ;-)

[Deleted User]

masonic said:

ZingPowZing said:

Quite a racy set of investments above. All of them are up in £ terms over the last year though. Too risky for me but, if they appeal, why not just buy the top 10 holdings? 

There are a few reasons why someone might prefer to hold the fund. Firstly. even with a high conviction portfolio like this one, the top 10 holdings account for less than 50% of the fund, and the real drivers of tomorrow's performance may be among the smaller constituents. Cutting away all of the smaller holdings actually makes an already quite racy fund even more concentrated. Secondly, the portfolio will evolve over time and the timing of trades may be material to performance. A private investor may not have access to sufficient information to efficiently copy-trade the portfolio, generally a monthly snapshot of the top 10 holdings plus an occasional peek into the other holdings is the best they will get. Thirdly, there is a time and cost aspect. Maintenance of a basket of shares is going to take more effort than a single fund, it may also cost more depending on spread, forex, trading fees, and the amount of money to be invested.

Yes, masonic.
We'll check in a year. I reckon the 10 stocks above will almost certainly have done better than the fund, without "management." But we'll see.

EdSwippet

Linton said:
... The fact that Acts of Congress have no bearing on what happens in the UK hadn't quite registered.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indications in records of birth or prior residency in the U.S., or the like, and to report the assets and identities of such persons to the U.S. Department of the Treasury.

underground99

EdSwippet said:

Linton said:
... The fact that Acts of Congress have no bearing on what happens in the UK hadn't quite registered.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indications in records of birth or prior residency in the U.S., or the like, and to report the assets and identities of such persons to the U.S. Department of the Treasury.

Though the US wanted global financial institutions to send them data automatically each year, they didn't have the power to demand it from those institutions. So in the end, financial institutions in the UK and most other major global financial centres do not have to follow FATCA as written in the US Code, or report the mentioned assets and identities to the US Treasury. Instead they report data points to their home home country's tax authority and where applicable, the tax authority shares it with the US through a negotiated agreement.

So a UK bank or broker or investment fund for example only files whatever reports UK HMRC tell it to file, in the format that HMRC wants, to support whatever local UK regulations are put in place.

The UK laws and regulations support the UK's commitment to give information to the US to help the US meet its FATCA objectives. But while the US might get shouty about how other countries' businesses must get in line or face the consequences, US does not have the extra-territorial reach to tell a UK or European bank or broker send data to it directly, because UK banks are not subject to US law when carrying out UK and European domestic business.

EdSwippet

underground99 said:
Though the US wanted global financial institutions to send them data automatically each year, they didn't have the power to demand it from those institutions. So in the end, financial institutions in the UK and most other major global financial centres do not have to follow FATCA as written in the US Code, or report the mentioned assets and identities to the US Treasury. Instead they report data points to their home home country's tax authority and where applicable, the tax authority shares it with the US through a negotiated agreement.

So a UK bank or broker or investment fund for example only files whatever reports UK HMRC tell it to file, in the format that HMRC wants, to support whatever local UK regulations are put in place.

The UK laws and regulations support the UK's commitment to give information to the US to help the US meet its FATCA objectives. But while the US might get shouty about how other countries' businesses must get in line or face the consequences, US does not have the extra-territorial reach to tell a UK or European bank or broker send data to it directly, because UK banks are not subject to US law when carrying out UK and European domestic business.

The FATCA law, as written, applies a 30% withholding tax on all payments coming from the US to any non-US bank or financial institution that failed to report the required information directly to the IRS. This is the means by which the US planned to enforce it on non-US banks. Because US markets are pivotal to world trade, this threat absolutely gives the US the power to effectively subject non-US banks to US tax laws.

The subsequent FATCA intergovernmental agreements (IGAs) are something invented out of whole cloth by the US Treasury. They are not part of FATCA or any other US law, but are instead the result of gunboat diplomacy by the US, leveraged using the aforementioned 30% withholding threat. Machtpolitik. They allow UK banks to report US citizen investors, both actual and "suspected", to HMRC, for them to then forward that to the US. This bypasses UK data privacy and protection laws that would otherwise have prevented UK banks from dealing with the IRS directly.

But ... this was much less an "agreement" than it was a workround for the US, and a face-saving exercise for the UK. It was acceded to in order to protect the interests of UK banks, and it puts the interests of those banks over the interests of UK residents and investors. Any benefits of FATCA accrue to the US, but all of its costs have to be borne by non-US countries and investors. It is possible that FATCA data transfer, even under IGAs, may breach GDPR data protection regulations. Meanwhile, FATCA's "reciprocity" is, for most countries, a mirage.

FATCA is extraterritorial, and it is a bad law. The IGAs are lipstick on a pig.

bostonerimus

EdSwippet said:

FATCA is extraterritorial, and it is a bad law. The IGAs are lipstick on a pig.

FATCA is another example of US exceptionalism, as I suppose is the whole US taxation by residency and also citizenship. As a US/UK dual citizen, if I ever move back to the UK I know FATCA will be an issue and I expect to encounter quite a bit of financial friction.

underground99

EdSwippet said:

underground99 said:
Though the US wanted global financial institutions to send them data automatically each year, they didn't have the power to demand it from those institutions. So in the end, financial institutions in the UK and most other major global financial centres do not have to follow FATCA as written in the US Code, or report the mentioned assets and identities to the US Treasury. Instead they report data points to their home home country's tax authority and where applicable, the tax authority shares it with the US through a negotiated agreement.

So a UK bank or broker or investment fund for example only files whatever reports UK HMRC tell it to file, in the format that HMRC wants, to support whatever local UK regulations are put in place.

The UK laws and regulations support the UK's commitment to give information to the US to help the US meet its FATCA objectives. But while the US might get shouty about how other countries' businesses must get in line or face the consequences, US does not have the extra-territorial reach to tell a UK or European bank or broker send data to it directly, because UK banks are not subject to US law when carrying out UK and European domestic business.

The FATCA law, as written, applies a 30% withholding tax on all payments coming from the US to any non-US bank or financial institution that failed to report the required information directly to the IRS. This is the means by which the US planned to enforce it on non-US banks. Because US markets are pivotal to world trade, this threat absolutely gives the US the power to effectively subject non-US banks to US tax laws.

The subsequent FATCA intergovernmental agreements (IGAs) are something invented out of whole cloth by the US Treasury. They are not part of FATCA or any other US law, but are instead the result of gunboat diplomacy by the US, leveraged using the aforementioned 30% withholding threat. Machtpolitik. They allow UK banks to report US citizen investors, both actual and "suspected", to HMRC, for them to then forward that to the US. This bypasses UK data privacy and protection laws that would otherwise have prevented UK banks from dealing with the IRS directly.

But ... this was much less an "agreement" than it was a workround for the US, and a face-saving exercise for the UK. It was acceded to in order to protect the interests of UK banks, and it puts the interests of those banks over the interests of UK residents and investors. Any benefits of FATCA accrue to the US, but all of its costs have to be borne by non-US countries and investors. It is possible that FATCA data transfer, even under IGAs, may breach GDPR data protection regulations. Meanwhile, FATCA's "reciprocity" is, for most countries, a mirage.

FATCA is extraterritorial, and it is a bad law. The IGAs are lipstick on a pig.

Sure, the FATCA law has had effects felt around the world. In the end, the banks and investment firms are having to do more work than they would have had to do without it.

But as there are now 100+ countries signed up to the OECD's Common Reporting Standard for automatic annual data exchange which launched on the back of FATCA, the burden of complying with data provision rules that support FATCA is, relatively speaking, not as big a burden on banks and investment firms as it would have otherwise been if it was the only set of international automatic exchange of information rules they had to follow.

What they have to follow is whatever laws are set locally to implement the inter-government agreements, so there is a whole set of data that gets reported to HMRC for a whole set of accountholders or investors, some of which will go to US under FATCA, some of which will go to France or Germany or Australia under CRS, etc etc. The bank does not directly comply with the FATCA law at all, it complies with whatever rules and guidance notes are put in place by UK govt and HMRC to help collate the information for the US govt. Sure, it's a workaround. But it means that someone doing a 'FATCA-like' report in London is not following a US law, they are following a UK law, and they may be providing different data than what would be provided in Johannesburg or Mongolia, because they are following UK law rather than US law or South African law etc.

The original comment from Linton was simply that his foreign co-worker thought that something was being done wrong because it didn't follow the letter of the US law, and was surprised that actually we don't need to follow US laws when we are operating on the other side of the world. It was a wry observation on how some Americans do not look to understand systems and practices beyond their own borders.

As a counterpoint, you gave the example of FATCA as a US law that we all have to follow even if we are operating outside the US; so my correction was that we do not have to follow US FATCA, we have to follow whatever laws are in place in the territory we are in.  Similar to Linton's colleague from US head office, someone who was expertly versed in US FATCA might come over to the UK with his book of regulations and say your processes don't follow the strict detail of US code section 1471 etc etc; but that is fine, a UK bank or investment firm is not subject to the US code 1471 which contain the US FATCA regulations... instead they are subject to The International Tax Compliance Regulations 2015, a UK ruleset referring to the FATCA inter-government agreement as amended for the various things that end up being less burdensome than following the US's own FATCA regulations that sit on the US's statute books.