Return expectations - Global Equity, next decade

Michael121

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:
A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level

By what specific measure would China be weighted on a roughly equal basis with the US, and do any such indices (with trackers) exist?

Market capitalisation of publicly listed companies. None as far as I am aware.

Not all shareholders are equal. The Ford family (as an example) only own 2% of the company but control 40% of the vote. Many Chinese companies have the state amongst their largest shareholders. 

So do you feel that free-float indices are inferior, or are you just making the point that this is inherently an adjustment and therefore less 'true' in a purist sense?  Why do you think there aren't global indices that follow your preferred methodology?

Think that you are misconstruing my observations. In summary benchmarks are in themselves are man made and not unadulterated. Which is the misconception that prevails social media in that the major indices used by passive trackers are market cap weighted. .  

Something tells me you wouldn't put 20% of your investments in china as well as not investing in passive trackers that over half of it is in the US. So even though i kind of see your point of view most of us are stuck to using the passive trackers you don't seem all that keen on.

Thrugelmir

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:
A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level

By what specific measure would China be weighted on a roughly equal basis with the US, and do any such indices (with trackers) exist?

Market capitalisation of publicly listed companies. None as far as I am aware.

Not all shareholders are equal. The Ford family (as an example) only own 2% of the company but control 40% of the vote. Many Chinese companies have the state amongst their largest shareholders. 

So do you feel that free-float indices are inferior, or are you just making the point that this is inherently an adjustment and therefore less 'true' in a purist sense?  Why do you think there aren't global indices that follow your preferred methodology?

Think that you are misconstruing my observations. In summary benchmarks are in themselves are man made and not unadulterated. Which is the misconception that prevails social media in that the major indices used by passive trackers are market cap weighted. .  

Still seems to me that you're essentially seeing perfect as the enemy of the good - it seemed that you were criticising those who use global index trackers that do exist, but the hypothetical existence of something purer doesn't negate the value of such products!

Seems that you are intentionally being obtuse. As I'm now deemed to criticising. Can only assume that I've touched a nerve. No interest in debating semantics on an investment thread.  

Thrugelmir

Michael121 said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:
A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level

By what specific measure would China be weighted on a roughly equal basis with the US, and do any such indices (with trackers) exist?

Market capitalisation of publicly listed companies. None as far as I am aware.

Not all shareholders are equal. The Ford family (as an example) only own 2% of the company but control 40% of the vote. Many Chinese companies have the state amongst their largest shareholders. 

So do you feel that free-float indices are inferior, or are you just making the point that this is inherently an adjustment and therefore less 'true' in a purist sense?  Why do you think there aren't global indices that follow your preferred methodology?

Think that you are misconstruing my observations. In summary benchmarks are in themselves are man made and not unadulterated. Which is the misconception that prevails social media in that the major indices used by passive trackers are market cap weighted. .  

Something tells me you wouldn't put 20% of your investments in china as well as not investing in passive trackers that over half of it is in the US. So even though i kind of see your point of view most of us are stuck to using the passive trackers you don't seem all that keen on.

Passive trackers are perfectly good investments. If you've no inclination to manage your own. As risk comes in many many forms. My comments earlier are purely related to the fact that global indexes aren't pure plays on market capitalisation. They are tailored to reduce the extremes of volatility investors in the markets would otherwise experience.


In summary investing in Chinese stocks exposes investors to risks such as a communist structure, regulatory differences, and insider trading. 

eskbanker

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:

eskbanker said:

Thrugelmir said:
A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level

By what specific measure would China be weighted on a roughly equal basis with the US, and do any such indices (with trackers) exist?

Market capitalisation of publicly listed companies. None as far as I am aware.

Not all shareholders are equal. The Ford family (as an example) only own 2% of the company but control 40% of the vote. Many Chinese companies have the state amongst their largest shareholders. 

So do you feel that free-float indices are inferior, or are you just making the point that this is inherently an adjustment and therefore less 'true' in a purist sense?  Why do you think there aren't global indices that follow your preferred methodology?

Think that you are misconstruing my observations. In summary benchmarks are in themselves are man made and not unadulterated. Which is the misconception that prevails social media in that the major indices used by passive trackers are market cap weighted. .  

Still seems to me that you're essentially seeing perfect as the enemy of the good - it seemed that you were criticising those who use global index trackers that do exist, but the hypothetical existence of something purer doesn't negate the value of such products!

Seems that you are intentionally being obtuse. As I'm now deemed to criticising. Can only assume that I've touched a nerve. No interest in debating semantics on an investment thread.  

I hadn't reproduced the entire nest of prior quotes in the above exchange but the context was you jumping on a poster mentioning global weighted indices - perhaps this wasn't intended as critical of such indices (and those who buy the associated trackers) but that's how it came across to me, i.e. as if you had better ideas about how to track global equities:

Thrugelmir said:

GazzaBloom said:

"as they see fit" using sorcery, magic formulas and pixie dust no doubt. Or would it be better to simply hold a low cost index tracker fund that follows a global weighted index, as no-one can predict market shifts and trends with any certainty, ever.

You do realise that the global weighted indexes you refer to aren't pure trackers. They are risk adjusted, free float adjusted,  etc etc.  Likewise the indexes themselves regularly change. They are not set in stone. A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level. People rarely delve into the fundamental differences between benchmark indexes. Vanguard (for example) will use the services of the index creators to determine their own allocations. No one relies on Pixie dust.  Though retail investors are well known for wearing blinkers and failing to perform their own research. 

GazzaBloom

Thrugelmir said:

GazzaBloom said:

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. 

"as they see fit" using sorcery, magic formulas and pixie dust no doubt. Or would it be better to simply hold a low cost index tracker fund that follows a global weighted index, as no-one can predict market shifts and trends with any certainty, ever.

You do realise that the global weighted indexes you refer to aren't pure trackers. They are risk adjusted, free float adjusted,  etc etc.  Likewise the indexes themselves regularly change. They are not set in stone. A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level. People rarely delve into the fundamental differences between benchmark indexes. Vanguard (for example) will use the services of the index creators to determine their own allocations. No one relies on Pixie dust.  Though retail investors are well known for wearing blinkers and failing to perform their own research. 

I've researched enough through the benefit of hindsight, of years of real investing experience, to know that languishing in a default actively managed, multi-asset fund with it's associated fees, fees that paid for professional fund managers and the wisdom of their expertise, has lead to the mediocre returns I endured for way too long and offered no real protection from market downturns. I'm no expert, and don't profess to be, I know what I don't know and I know there are many things that I don't even know I don't know.

However, I have learned enough to know that anyone who makes such spectacularly incorrect predictions about the future performance of the S&P500 isn't really worth listening to.

Bobziz

GazzaBloom said:

However, I have learned enough to know that anyone who makes such spectacularly incorrect predictions about the future performance of the S&P500 isn't really worth listening to.

Each to their own, but I find Thrug's contribution to be useful and thought provoking. Didn't the S&P500 fall around 10% between the end of Dec and end of Jan 22 ? If so then they were only out by and matter of weeks.

Prism

GazzaBloom said:

Thrugelmir said:

GazzaBloom said:

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. 

"as they see fit" using sorcery, magic formulas and pixie dust no doubt. Or would it be better to simply hold a low cost index tracker fund that follows a global weighted index, as no-one can predict market shifts and trends with any certainty, ever.

You do realise that the global weighted indexes you refer to aren't pure trackers. They are risk adjusted, free float adjusted,  etc etc.  Likewise the indexes themselves regularly change. They are not set in stone. A true Global Weighted Index would have an exposure to China nearer 20% and a reduction of US companies to a similar level. People rarely delve into the fundamental differences between benchmark indexes. Vanguard (for example) will use the services of the index creators to determine their own allocations. No one relies on Pixie dust.  Though retail investors are well known for wearing blinkers and failing to perform their own research. 

I've researched enough through the benefit of hindsight, of years of real investing experience, to know that languishing in a default actively managed, multi-asset fund with it's associated fees, fees that paid for professional fund managers and the wisdom of their expertise, has lead to the mediocre returns I endured for way too long and offered no real protection from market downturns. I'm no expert, and don't profess to be, I know what I don't know and I know there are many things that I don't even know I don't know.

However, I have learned enough to know that anyone who makes such spectacularly incorrect predictions about the future performance of the S&P500 isn't really worth listening to.

Thankfully those days seem to be gone. I also had an expensive multi-asset for years, but nowadays the default funds seem like a much better deal and are mostly passive based, with just the allocations being decided upon. Same as Vanguard Lifestrategy. 

tebbins

Been away from the forum for a bit, not read everything above, just a few basic points.
1. There is no "one" inflation rate, everyone experiences their own rate.
2. Companies tend to have some economic power to raise prices and control costs and be able to maintain profits with inflation.
3. However valuations in most markets are high, especially in the US. Inflation theoretically makes bonds less attractive, lowering their prices while central banks raise rates, potentially making bonds interesting again (when?) - every point has a "and" "but" or "and now for something completely different" attached to it. Literally no one knows.
4 - demographics and return on labour/capital
In Vanguard's 2022 economic outlook a significant portion of the secular fall in rates since the 70s/80s (which was an all time high, before then 3-5% was the norm) is attributed to demographics, specifically boomers ageing and not having as many kids. Now they're retiring, the labour pool as a % of the population is net shrinking and Boomers are slowing/stopping/reversing their huge accumulation of assets. As capital is converted into consumption, while the labour supply shrinks, that could also be another longer term inflationary push. The 80s to now has been all about economies shifting from returns on labour (the post war social democratic norm) to return on capital (Thatcher, Reagan, neoliberalism) alongside globalisation and supply side economics (the internet) holding inflation down. Under these changing conditions there is a case for believing a reversal - inflation, real wage growth, and potentially renewed productivity growth and a return of dividends as the main attraction of equities.

Edit: for every reasonably intelligent economic theory there is always at least one different reasonably intelligent theory that can also be reasonably inferred from the same data.

Thrugelmir

tebbins said:

2. Companies tend to have some economic power to raise prices and control costs and be able to maintain profits with inflation.

There's no direct correlation between inflation and company profitability. There's little control over wages, energy costs,  payroll/corporate taxes at the current time. Borrowing costs are also set to rise. 

ChilliBob

Well that turned into a bit of a different discussion than I'd intended when starting the thread. Blimey. Interesting though. 

So it seems the conclusions from opinions on here are:

1. Yes, it's likely returns will be significantly lower for perhaps the next decade. But, nobody knows, this is just combined predictions across multiple sources.

2. Sticking to investing in Equities is still probably the best choice to produce the highest returns - whether these turn out to be inflation beating, or simply losing the least to inflation

3. Considerations for exactly what Equities will produce these highest returns is a million dollar question - with thoughts about tilting to factors such as value (and to a lesser degree quality), away from factors such as growth, and possibly tilting away from the US and to other areas. 

4. *If* and this is a big if, you believe in such tilting away from where you currently are, you could choose active management to achieve this, at a higher cost than index funds, clearly, or factor driven ETFs from say iShares, or, go totally into details and start choosing individual stocks (like the most recent Pensioncraft video). Or, of course, a mix from this menu.

This probably leaves me not doing anything that different really. I do buy into 3 to a degree, but not to the extent I'm willing to take more than small tilts, which will obviously have smaller impacts on returns. 

Well there we go, happy Monday, oh and Happy Valentines day gang - come on, play nice - there's shed loads of wise words and interesting comments written from lots of people, take them all on board and make your own mind up