Return expectations - Global Equity, next decade

Alexland

Nebulous2 said:

Anyway to cut a long story short - global trackers have out performed my own active choices by quite a bit.

Active managers with recent high returns are like sirens with sweet enchanting music luring you to shipwreck yourself. Star managers from recent years such as Lindsell Train, Fundsmith and BG are looking a less attractive now the market has moved away from their style bias and some of their 3 year fund returns are already lagging a global tracker. Sure some of the big companies in a tracker may shrink in size over time but then with diversification you probably already own many of those that will replace them as the next generation mega caps.

Thrugelmir

coyrls said:

Thrugelmir said:

ChilliBob said:

The forecasts do seem to be quite different to the conventional financial modelling you see from IFAs, or other sites where you talk about assuming x% per year when cash flow forecasting and stuff.

Probably as the ground rules have only recently started to change. One investment article I read recently described the coming era as the "Great Reset".  There's far too many uncertainties to start to forecast with any degree of accuracy. The one thing that stock markets hate is uncertainty. Uncertainty increases volatility.  Hence why I've said on a few occasions recently active investment management is likely to prevail. There's no longer a one size fits all. An abundance of cheap money in peoples pockets driving all stocks upwards to crazy valuations will progressively fade away. Fundamentals will again matter. Cash generation. Balance Sheet Strength. Etc, etc. Going to be sizable winners and losers. 

I understand the context in which you've used the term "Great Reset" but I'd be cautious about using it in any context, given that it’s a term widely used by conspiracy theorists (https://www.bbc.co.uk/news/blogs-trending-57532368) , of which I am sure you are not one.

Was the title of the article/report. Which was generated by a respectable source. No particular drama just a reasoned perspective.  I've no time for social media in general. 

Thrugelmir

ChilliBob said:

See that's the thing, a year ago people were warning about the US valuations, so, you decided to reduce the weight of them... To your detriment, I foujd myself doing the same - both then and now. Half heartily back then - I chose some Majedie fund with a lower US exposure, and a bunch of UK small caps. The Majedie has been a bit of a flop. I did consider a European and Asian tracker this morning to compliment the global but I didn't do anything in the end! 

Might as well hold a multi asset fund and let the investment managers progressively rotate the exposure as they think fit.  There's been a negative mantra towards the UK markets for a long time. Over the past 3 months you'd be in positive territory with UK exposure while US markets have turned negative. Shifts don't have to be seismic.  Soon there'll be threads pronouncing the benefits of holding UK shares again. Much of the best return on offer will already have been taken. 

Steve182

Thrugelmir said:

ChilliBob said:

See that's the thing, a year ago people were warning about the US valuations, so, you decided to reduce the weight of them... To your detriment, I foujd myself doing the same - both then and now. Half heartily back then - I chose some Majedie fund with a lower US exposure, and a bunch of UK small caps. The Majedie has been a bit of a flop. I did consider a European and Asian tracker this morning to compliment the global but I didn't do anything in the end! 

Might as well hold a multi asset fund and let the investment managers progressively rotate the exposure as they think fit.  There's been a negative mantra towards the UK markets for a long time. Over the past 3 months you'd be in positive territory with UK exposure while US markets have turned negative. Shifts don't have to be seismic.  Soon there'll be threads pronouncing the benefits of holding UK shares again. Much of the best return on offer will already have been taken. 

I think you may be right about the best UK returns having already been taken, horse bolted some time ago...?

ChilliBob

Thrugelmir said:

ChilliBob said:

See that's the thing, a year ago people were warning about the US valuations, so, you decided to reduce the weight of them... To your detriment, I foujd myself doing the same - both then and now. Half heartily back then - I chose some Majedie fund with a lower US exposure, and a bunch of UK small caps. The Majedie has been a bit of a flop. I did consider a European and Asian tracker this morning to compliment the global but I didn't do anything in the end! 

Might as well hold a multi asset fund and let the investment managers progressively rotate the exposure as they think fit.  There's been a negative mantra towards the UK markets for a long time. Over the past 3 months you'd be in positive territory with UK exposure while US markets have turned negative. Shifts don't have to be seismic.  Soon there'll be threads pronouncing the benefits of holding UK shares again. Much of the best return on offer will already have been taken. 

I do still hold all those UK small caps, I still believe in it as a sector full stop. Stuff like Marlborough nano and micro are sitting on a loss for me, but I intend to hold them for a while. From what I can see the UK stuff doing well at the moment is the much ridiculed ftse 100 and similar, which besides accidental exposure I have no direction exposure too.

Still holding a position in HRI but its taken a pummelling soon, again, I don't intend to sell it soon, but it's also not a life changing allocation or percentage 

jimjames

ChilliBob said:

Thrugelmir said:

ChilliBob said:

The forecasts do seem to be quite different to the conventional financial modelling you see from IFAs, or other sites where you talk about assuming x% per year when cash flow forecasting and stuff.

Probably as the ground rules have only recently started to change. One investment article I read recently described the coming era as the "Great Reset".  There's far too many uncertainties to start to forecast with any degree of accuracy. The one thing that stock markets hate is uncertainty. Uncertainty increases volatility.  Hence why I've said on a few occasions recently active investment management is likely to prevail. There's no longer a one size fits all. An abundance of cheap money in peoples pockets driving all stocks upwards to crazy valuations will progressively fade away. Fundamentals will again matter. Cash generation. Balance Sheet Strength. Etc, etc. Going to be sizable winners and losers. 

I suppose if you're trying to forecast for the next say 50 years you'd need to see how far back you could go and take that average. 11.29% for MSCI World since 1978 is apparently the average, according to https://backtest.curvo.eu/market-index/msci-world  which seems a lot higher than I was expecting. 

Bear in mind that for a lot of the period before 1995 inflation was pretty high, very high in the early 1980s so the real return would be lower.

BrockStoker

ChilliBob said:

See that's the thing, a year ago people were warning about the US valuations, so, you decided to reduce the weight of them... To your detriment, I foujd myself doing the same - both then and now.

The classic pitfall of timing the market due to being swayed by noise - I think most investors here (including myself) have been caught out like this at least once. US growth stocks have performed consistently over the long term, and I see no reason why that shouldn't continue, albeit after taking a short (in relative terms) breather. As the saying goes, make hay when the sun shines - but in order to do that to best effect, it makes sense to plant the seed when the sun is not shining. My investment in an S&P 500 tracker on 12 March 2020 has been one of my best performing investments to date for example:

On a side note, investing in the S&P 500 is not too different to investing in a managed/active fund with the focus on momentum stocks - stocks that under perform are excluded.

The whole portfolio (very overweight biotech and tech) has made enough ground over the last few years to weather all but the worst storms, and even in the worst case (5-10 years of depressed equity valuations), I'm holding enough cash that I won't need to sell any funds/assets. Admittedly that is a fortunate position to be in, and it was by accident that I found myself in this position!

Here's my main portfolio over one, three, and five years:

For me at least it's just a case of stick to the plan, keeping eyes firmly fixed on long term goals, and following the old mantras:

Cash is king.

Buy (quality - sectors/companies with good future prospects) when there is blood on the streets. Basically, do the opposite of whatever the market does.

Ignore the noise and do your own DD.

Diversification not diworsification.

Hedge your bets/risks by balancing them with appropriate less risky/more liquid assets Eg cash.

My advice would be to stick to your original plan, assuming that plan was comprehensive enough to take into account all possible conditions (within reason). If you wanted to load up on tech/equities, now is not a bad time, IMHO. Unless you think we're going back to the stone age (perhaps we are with Ukraine - still 1/1000000 since no one really wants all out war IMHO), then humanity will need tech, healthcare, energy, agriculture, raw materials, etc, at least for the foreseeable future, so there is good reason to be invested in these things that humans will need/can't live (easily) without. Of course at times there may be bubbles, which is why corrections like the one we are currently experiencing are not a bad thing - that and they present buying opportunities.

Thrugelmir

@BrockStoker  "US growth stocks have performed consistently over the long term, and I see no reason why that shouldn't continue"

What time frame are you referring too? 

Which US stocks are top of your growth list? 

BrockStoker

Thrugelmir said:

@BrockStoker  "US growth stocks have performed consistently over the long term, and I see no reason why that shouldn't continue"

What time frame are you referring too? 

Which US stocks are top of your growth list? 

The last 30 years at least, and I think it makes sense to compare over the near term time frame rather than the longer term time frame as the further back you go, the more the consumer dynamic moves away from what we have today. In particular tech has intertwined itself into everyday life in a way that is hard to separate humanity from tech today, and it's as important to us today as is food and healthcare for example. Indeed, without the tech, there would be no food or healthcare, at least as we know it.

Top of my own growth list? It would have to be the disruptive tech stocks which I think are set to take market share from existing players (stocks like ARWR, and AMRS which I own), but also many established disruptors like the Apples and Microsofts of this world, as long as they keep innovating in order to find new ways to bring in revenue. No harm in having some more blue-chip/consumer staples stocks as well to help smooth the ride, if that suits. I prefer a slightly more aggressive approach!

Thrugelmir

BrockStoker said:

Thrugelmir said:

@BrockStoker  "US growth stocks have performed consistently over the long term, and I see no reason why that shouldn't continue"

What time frame are you referring too? 

Which US stocks are top of your growth list? 

The last 30 years at least, and I think it makes sense to compare over the near term time frame rather than the longer term time frame as the further back you go, the more the consumer dynamic moves away from what we have today. 

Out of curiosity I pulled up the SP500 for 1992.  In descending order the largest companies in the index were

Exxon
General Electric
Wal Mart
AT&T
Philip Morris
Coca Cola
Merck
Royal Dutch Shell
Procter & Gamble
Bristol Myers Squibb

Not an era for high growth companies. More monopolies. That eventually all had their day at the top of the tree, .