My proposed portfolio, or keep it simpler?

TelescopicWombat

DireEmblem said:

Why CHRY and not MNTN (I hold both).

I have been looking at Schiehallion PE actually. It's not out of the question for me. I think its because it's very new (not that CHRY has much history yet either).

Moe_The_Bartender

Nebulous2 said:

TelescopicWombat said:

Nebulous2 said:

My one had £10k in fidelity index world fund p acc up 9.77% 
£4k in Janus Henderson Japan opportunities down 1.83%
£2k in Lindsell train UK equity up 7.95% 
£2k in Liontrust UK smaller companies up 5.01% 
£2k still in cash, which hasn't been used. 

The other had £10k in in HSBC FTSE all world up 7.84%
£2k in Fidelity special situations W acc up 4.16%
£2k in Janus Henderson European small cos acc up 1.04
£3k in Jupiter UK mid cap ACC  up 0.45% 
£3k still in cash. 

It's always interesting to see what people plumb for in the end.

The Janus Henderson Japan is an interesting one - why did you go for that one? The Fidelity Index World has Japan as the second largest country in it's holding at 6.79%, but maybe you knew that?

Japan has not done well for a long time. It still has significant manufacturing capacity and some of the supply shortages should work for it. I'm a keen cyclist and Shimano simply cannot meet demand. I thought it was ripe for a move. 

Two reasons. The big increase in pedalling activity during lockdown and the closure of its Malaysian factory under lockdown rules. Shimano is a great company and its only major competitor is loaded with debt and can’t take advantage of the situation.

Alexland

JohnWinder said:

Lyxor Core MSCI World ETF (LCWL) is unhedged for currency, and priced in $US. Is that risk ok for you?

LCWL does have a GBP price although the underlying assets will be priced in whatever their local currency is.

I don't know why you are making a big thing about it being unhedged as most of the tracker funds and ETFs we regularly talk about are unhedged. We rarely talk about hedged trackers such as iShares IWDG which can be useful when the GBP goes exceptionally low but while it's bouncing around 1.40 USD there's no compelling reason to go hedged. In previous crashes being unhedged has reduced the volatility for a UK investor as currency traders flee to safety of USD reducing the relative value of GBP giving similar benefit on the value of overseas investments seen after the Brexit vote.

In terms of LCWL yes the charge is low at 0.12% and we used to hold it but it does tend to have a bigger market spread and lags in performance compared to SWDA which also accumulates at 0.20%. Reasons for this include opportunities from the sheer scale of Blackrock's operations, their advanced asset lending programme, the more favourable witholding tax treatment of overseas dividends in Ireland, etc.

JohnWinder

Not sure I made a big thing of it, by asking is the risk ok. But if so, sorry.

There’s a lot moving parts here to unpick. If it's been raised before and dismissed, then I missed it. But this is the essence of why I raised it, and if I'm mistaken then I'm sure it will be pointed out - not for the first time.

Your domestic share market returns can be similar or quite different from the rest of the world’s for some years, unless you live in USA of which the world mostly is.

Your currency can fall or rise against other currencies ($US most relevantly I suppose) quite a bit over several decades of investing. There’s a widely held view that the effects of currency fluctuations on returns all even out over the long run, so don’t bother hedging for currency. Let’s accept that assumption for the moment, and go on to risk.

If foreign returns are poor while your own currency rises, this exaggerates the poor returns. Similarly, as you pointed out, if your currency falls it enhances the foreign returns. In both cases, when you measure the variation in returns as is done for the most commonly accepted measure of risk, you get a higher value than you would have had the returns been less exaggerated through currency hedging. So, more risk by that measure.

Where does that take us? Same returns, more risk; that simply means: lower risk-adjusted returns (or same returns and more risk if you prefer). That’s one part of the argument in favour of currency hedging: it improves risk adjusted returns - the holy grail of investing.

Now we get a chance to question the assumptions. Do currency fluctuations really even out of the long term, thus having no effect on returns? And while we’re at it, the Japanese currency appreciated against the $US and other major currencies for decades. I’m not suggesting the pound will do that, au contraire; but how long is one’s personal investing horizon, is it long enough? 

And questioning the second assumption: well, currency hedging irons out the fluctuations in foreign returns caused by currency movements, so is there any questioning to be done?

Better to have at least considered these issues before the event, rather than after, usually. There's more to currency hedging that just those matters, which others can raise, but I hope that's clear.

Alexland

JohnWinder said:

Where does that take us? Same returns, more risk; that simply means: lower risk-adjusted returns (or same returns and more risk if you prefer). That’s one part of the argument in favour of currency hedging: it improves risk adjusted returns - the holy grail of investing.

If the great bowlhead99 was still with us he had a good essay on this topic but the counter argument is that hedging is imperfect, costs money each year and there's a good chance that when we eventually get around to spending our investments eg in retirement then a good proportion of our money will be spent on overseas imported goods so by not hedging equities we are preserving our global spending power. The state pension should provide roughly enough stable income to cover most of our UK related spending.

I can only see the point of hedging equities when GBP drops exceptionally low to 'lock in' gains such as when it went down to 1.15 USD early last year which was driven by short term political tension so seemed very unlikely to be the new level. On bonds I can see more beneift to hedging or just buying home bonds as the volatility might matter more (as they might be sold first if you run out of cash while stock markets are down).

Nebulous2

Historically, because of the UKs poor performance we have devalued our way out of trouble. I remember the pound being worth over three dollars. The long term trend has been down for most of my lifetime. 

TelescopicWombat

Deleted_User said:

OK, but the commodities ETF isn't in equities.

Ah-ha - well spotted!

So my portfolio is more diversified than first thought!  Only kidding - it's only a 5% allocation anyway 

TelescopicWombat

Alexland said:

LCWL does have a GBP price although the underlying assets will be priced in whatever their local currency is.

I don't know why you are making a big thing about it being unhedged as most of the tracker funds and ETFs we regularly talk about are unhedged. We rarely talk about hedged trackers such as iShares IWDG which can be useful when the GBP goes exceptionally low but while it's bouncing around 1.40 USD there's no compelling reason to go hedged. In previous crashes being unhedged has reduced the volatility for a UK investor as currency traders flee to safety of USD reducing the relative value of GBP giving similar benefit on the value of overseas investments seen after the Brexit vote.

In terms of LCWL yes the charge is low at 0.12% and we used to hold it but it does tend to have a bigger market spread and lags in performance compared to SWDA which also accumulates at 0.20%. Reasons for this include opportunities from the sheer scale of Blackrock's operations, their advanced asset lending programme, the more favourable witholding tax treatment of overseas dividends in Ireland, etc.

You're right Alexland about a performance lag for LCWL v SWDA, but HMWO seems to perform even better:

(best performing figure in bold) figures provided by Morningstar.

                  HMWO           VWRP          LCWL          IWDG           SWDA

1 M             4.20                 3.15             4.18              3.01              4.18
3 M             5.36                 4.28             5.33              5.35              5.34
6 M            11.81                9.31             11.71            13.67           11.78
YTD          14.60               12.71            14.47            16.60           14.55

2021          39.29              25.15             39.00               -               39.14
2020            3.16                  -                   2.76               -                 2.88
2019            6.75                  -                   6.23               -                 6.44
2018          11.43                  -                      -                  -                11.15
2017          18.41                  -                      -                  -                18.31

I already hold the HSBC FTSE All World fund elsewhere, so wanted a different provider in the form on an ETF. But on these figures, HMWO is a compelling-looking proposition.

Alexland

I just used SWDA as a comparator to LCWL as they are both accumulating World ETFs. We actually hold more in the distributing VEVE and HMWO than SWDA. Being developed world they are very US heavy so we also hold a separate emerging market fund and UK home bias IT such that overall we are now somewhat underweight on the US compared to an All World allocation, more like VLS100.

JohnWinder

Ferri wrote a reasonable book on asset allocation, which is by way of introduction as his observation about the stages of an index fund investor comes to mind while reading the ins and outs of this thread: born in darkness, finds indexing enlightenment, over-complicates everything, embraces simplicity.