Question about bonds

GeoffTF

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. 

Nope. An aggregate fund is one which includes both corporate and government bonds. So comparing VGOV (gilt/government only) and VGAP (aggregate: gilt/government + corporate) is a bit apples and pears.

VGOV tracks Bloomberg Sterling Gilt Float Adjusted Index. Both VGOV and VAGP have an average quality of AA-. VGOV has only AA-. VAGP holds bonds with a higher credit rating (e.g. US Treasury bonds) and lower credit rating (but still of investment quality).

That’s because VGOV only holds UK gilts and the UK govt is rated AA. VAGP includes AAA rated US Treasuries and BBB corporate bonds.

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. 

Nope. An aggregate fund is one which includes both corporate and government bonds. So comparing VGOV (gilt/government only) and VGAP (aggregate: gilt/government + corporate) is a bit apples and pears.

 VAGP arguably is lower risk overall, because it is not reliant on one creditor.

That suggests the UK government might default. If that happens, we will have bigger problems than a bond fund losing value!

We would have big problems, but that is no reason to make them worse. Here is an article on UK debt defaults:

https://www.bondvigilantes.com/insights/2010/02/what-happened-the-last-time-the-uk-defaulted

I could add uprating index linked gilts by the CPI rather than the RPI. There is certainly an argument for having overseas assets in case your own country gets into serious trouble. I have not advocated VAGP in preference to VGOV (or the vice versa). I am summarising the pros and cons.

eskbanker

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

Thrugelmir

eskbanker said:

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

I only bang the drum to negate the mantra that prevails on social media. Not to promote UK shares per se. VLS60 only has a 15% weighting to UK listed shares. Hardly a disportionate weighting once currency volatility is factored in. Tracking an index positioned for US investors could result in unexpected outcomes. 

I could of course say nothing which negates the entire point of an open forum. The more informed people are as investors the better decisions they'll make in the longer term. 

eskbanker

Thrugelmir said:

eskbanker said:

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

I only bang the drum to negate the mantra that prevails on social media. VLS60 only has a 15% weighting to UK listed shares. Hardly a disportionate weighting once currency volatility is factored in. Tracking an index positioned for US investors could result in unexpected outcomes.

It is disproportionate when compared with unadjusted cap-weighting though!  VLS60 will naturally water down the impact by 40% but even so, its 15% weighting would be about 2.5% without the UK focus chosen by Vanguard.  That's not to say that natural cap-weighting is the right approach though, or that focusing more on the US is necessarily better, or that currency issues should be ignored (these are all separate arguments), but is simply making the factual mathematical point that VLS has a significantly higher proportion of UK-listed stocks than most of its competitors.

Thrugelmir

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

I only bang the drum to negate the mantra that prevails on social media. VLS60 only has a 15% weighting to UK listed shares. Hardly a disportionate weighting once currency volatility is factored in. Tracking an index positioned for US investors could result in unexpected outcomes.

It is disproportionate when compared with unadjusted cap-weighting though!  VLS60 will naturally water down the impact by 40% but even so, its 15% weighting would be about 2.5% without the UK focus chosen by Vanguard.  That's not to say that natural cap-weighting is the right approach though, or that focusing more on the US is necessarily better, or that currency issues should be ignored (these are all separate arguments), but is simply making the factual mathematical point that VLS has a significantly higher proportion of UK-listed stocks than most of its competitors.

Which global passive equity fund operates using an "unadjusted cap-weighting" ?  asked rhetorically as it takes this conversation into a totally different dimension. 

PS. On a total return return basis in GBP there's less than a 1% difference in performance between the SP500 and FTSE100 over the past year. That's why it's best to use facts rather than perceptions. 

eskbanker

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

I only bang the drum to negate the mantra that prevails on social media. VLS60 only has a 15% weighting to UK listed shares. Hardly a disportionate weighting once currency volatility is factored in. Tracking an index positioned for US investors could result in unexpected outcomes.

It is disproportionate when compared with unadjusted cap-weighting though!  VLS60 will naturally water down the impact by 40% but even so, its 15% weighting would be about 2.5% without the UK focus chosen by Vanguard.  That's not to say that natural cap-weighting is the right approach though, or that focusing more on the US is necessarily better, or that currency issues should be ignored (these are all separate arguments), but is simply making the factual mathematical point that VLS has a significantly higher proportion of UK-listed stocks than most of its competitors.

Which global passive equity fund operates using an "unadjusted cap-weighting" ?

I haven't asserted that any of VLS's competitors necessarily operate on that basis, but the point is that most have a UK component much closer to the natural cap-weighting than VLS does.

Picking the first couple at https://monevator.com/passive-fund-of-funds-the-rivals/, the Fidelity equivalent is listed as 3.82% UK in its factsheet, although that's including the bonds as well as the equities:

https://www.fidelity.co.uk/factsheet-data/factsheet/GB00B9C3GS90-fidelity-multi-asset-alloc-growth-w-acc/portfolio

And the HSBC has 0.7% UK out of 59.04% equities:

https://doc.morningstar.com/LatestDoc.aspx?clientid=hsbcuk&key=d18e74ef5518182c&language=0L00000122&sid=F00000OOBL&dt=52

Thrugelmir said:
PS. On a total return return basis in GBP there's less than a 1% difference in performance between the SP500 and FTSE100 over the past year. That's why it's best to use facts rather than perceptions. 

You're still missing the point - I'm not making any assertion that VLS's UK bias is a good thing or a bad thing, just that it exists, so your fact doesn't in any way contradict mine!

GeoffTF

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

I only bang the drum to negate the mantra that prevails on social media. VLS60 only has a 15% weighting to UK listed shares. Hardly a disportionate weighting once currency volatility is factored in. Tracking an index positioned for US investors could result in unexpected outcomes.

That's not to say that natural cap-weighting is the right approach though, or that focusing more on the US is necessarily better, or that currency issues should be ignored (these are all separate arguments), but is simply making the factual mathematical point that VLS has a significantly higher proportion of UK-listed stocks than most of its competitors.

There are lots of articles like this one:

https://www.ftadviser.com/investments/2021/07/08/advised-investors-have-uk-bias-despite-underperformance/

Vanguard's 25% UK / 75% overseas equity allocation is a modest home bias compared with "advised investors". There are rational arguments for some home bias. No withholding tax. Lower valuation than the global market. Reduction in volatility (but the results there depend on the time period examined). On the minus side, a home bias reduces the effective diversification. If your home country goes down the tubes, it is not good to have your investments go down the tubes at the same time.

Thrugelmir

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written. 

I know you bang that drum fairly regularly and do get the point you're making, but in the context of discussions about the geographical composition of VLS, 'UK bias' is essentially just a convenient shorthand for 'significantly higher percentage of UK-listed companies than natural global cap-weighting', but, even allowing for the substantial proportion of UK-listed company revenues being generated from outside the UK, VLS is still more tilted to the UK environment (market/economy/regulation/taxation/geopolitics/etc) than most of its competitors.  It's obviously possible to have a semantic debate about whether that literally constitutes a 'bias' if anyone thinks that would be a useful exercise....

I only bang the drum to negate the mantra that prevails on social media. VLS60 only has a 15% weighting to UK listed shares. Hardly a disportionate weighting once currency volatility is factored in. Tracking an index positioned for US investors could result in unexpected outcomes.

It is disproportionate when compared with unadjusted cap-weighting though!  VLS60 will naturally water down the impact by 40% but even so, its 15% weighting would be about 2.5% without the UK focus chosen by Vanguard.  That's not to say that natural cap-weighting is the right approach though, or that focusing more on the US is necessarily better, or that currency issues should be ignored (these are all separate arguments), but is simply making the factual mathematical point that VLS has a significantly higher proportion of UK-listed stocks than most of its competitors.

Which global passive equity fund operates using an "unadjusted cap-weighting" ?

I haven't asserted that any of VLS's competitors necessarily operate on that basis, but the point is that most have a UK component much closer to the natural cap-weighting than VLS does.

Picking the first couple at https://monevator.com/passive-fund-of-funds-the-rivals/, the Fidelity equivalent is listed as 3.82% UK in its factsheet, although that's including the bonds as well as the equities:

https://www.fidelity.co.uk/factsheet-data/factsheet/GB00B9C3GS90-fidelity-multi-asset-alloc-growth-w-acc/portfolio

And the HSBC has 0.7% UK out of 59.04% equities:

https://doc.morningstar.com/LatestDoc.aspx?clientid=hsbcuk&key=d18e74ef5518182c&language=0L00000122&sid=F00000OOBL&dt=52

Thrugelmir said:
PS. On a total return return basis in GBP there's less than a 1% difference in performance between the SP500 and FTSE100 over the past year. That's why it's best to use facts rather than perceptions. 

You're still missing the point - I'm not making any assertion that VLS's UK bias is a good thing or a bad thing, just that it exists, so your fact doesn't in any way contradict mine!

We are talking at cross purposes. I've no idea what a natural cap weighting is. I'm coming from the perspective that even at a base level indexes are adjusted for differing share classes, liquidity of stock, controlling interests etc etc. The major indexes aren't pure mkt cap plays. They are highly refined. Likewise weightings to countries and regions are risk adjusted to account for political, regulatory , corporate governance factors etc. UK is one of the most highly regarded regulatory markets in the world. That's why foreign companies list here, makes borrowing money easier for example. 

Using your logic when Unilver and Shell had dual stock listings, i.e, UK and the Netherlands. You would have held the stocks as were (in part) European equities.  Now they've relocated back to London. They would no longer be suitable for your portfolio. Despite there being no fundamental change to their business. Other than an office move. Perverse logic to call that a bias and a reason to dismiss holding the stocks as an investor. 

As an aside I started building a holding in both Shell and BP last May. Return currently stands at over 30%. Contrarian investing works. Invest in sectors that everybody else is shunning as it's not fashionable. Mantra's do indeed have their benefits. 

eskbanker

Thrugelmir said:

We are talking at cross purposes. I've no idea what a natural cap weighting is. I'm coming from the perspective that even at a base level indexes are adjusted for differing share classes, liquidity of stock, controlling interests etc etc. The major indexes aren't pure mkt cap plays. They are highly refined. Likewise weightings to countries and regions are risk adjusted to account for political, regulatory , corporate governance factors etc. UK is one of the most highly regarded regulatory markets in the world. That's why foreign companies list here, makes borrowing money easier for example. 

There's obviously always going to be some element of index construction that involves a judgement call, so you could argue that there's no such thing as a 'perfect' global index that is truly reflective of market capitalisation, but that still doesn't deflect from the fundamental fact that the home bias adopted by VLS (and some others, to be fair) is a conscious (and valid) management decision that takes the allocation significantly away from that modelled by the major global equity indices.

Thrugelmir said:
Using your logic when Unilver and Shell had dual stock listings, i.e, UK and the Netherlands. You would have held the stocks as were (in part) European equities.  Now they've relocated back to London. They would no longer be suitable for your portfolio. Despite there being no fundamental change to their business. Other than an office move. Perverse logic to call that a bias and a reason to dismiss holding the stocks as an investor.

I'm not sure what you mean by 'my portfolio' and nobody is dismissing any stocks as such - all I'm saying, repeatedly, is that VLS has a higher proportion of UK-listed stocks than many of its competitors, and am not asserting that this is either good or bad, simply that this can legitimately be described as a 'UK bias'.  I haven't researched the effect of the changes in your example, but would assume that such companies would ultimately retain roughly the same market cap afterwards, and so an investor in, say, FTSE All World or Global All Cap trackers (or of multi-asset funds using equivalent proportions to such indices) wouldn't see any significant difference, whereas a VLS investor would effectively end up holding a bit more of these companies, simply by virtue of that change?

Thrugelmir said:

As an aside I started building a holding in both Shell and BP last May. Return currently stands at over 30%. Contrarian investing works. Invest in sectors that everybody else is shunning as it's not fashionable. Mantra's do indeed have their benefits. 

Great, happy for you, but yes, that's definitely an aside - just to reiterate once more, I'm not advocating any specific investment strategy or favouring one allocation model over another, I'm just highlighting self-evident fact about VLS's allocation being tilted more towards UK-listed companies than many of its competitors!

GeoffTF

Thrugelmir said:
I've no idea what a natural cap weighting is. I'm coming from the perspective that even at a base level indexes are adjusted for differing share classes, liquidity of stock, controlling interests etc etc. The major indexes aren't pure mkt cap plays.

"Market cap weighting" is shorthand for market cap weighting of all the stocks that are available for a huge tracker fund to buy. If they included stocks that the tracker fund could not trade easily, buying that tracker in huge quantity (we are talking $trillions) would distort the market pricing.

Thrugelmir said:
Likewise weightings to countries and regions are risk adjusted to account for political, regulatory , corporate governance factors etc.

No, I do not believe that they do that. You can buy trackers in restricted regions (most people do in practice), but that is your choice.