Vanguard: funds or ETFs?

GeoffTF

sebtomato said:
I agree: if the fund manager is deciding on the weightings, it's not completely passive. Someone is still making some decisions/priorities. That's why VLS100 is probably 0.12% more expensive than the underlying ETFs/funds.

No, it is more expensive because people will pay more it. VWRL costs more than 0.9*VEVE + 0.1*VFEM, which is identical, for the same reason.

sebtomato said:
However, do you know a fund or ETF that is a world "tracker"? Even at the UK level, how would you create such UK all shares fund? One share per listed company? Number of shares proportional to the market cap? In which case, someone is again making a decision to put more weight on large caps...

A market weighted tracker (which nearly all trackers are, for good reasons) weights according to market capitalisation, i.e. it holds the same percentage of each company's shares in issue.

sebtomato said:

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

It was about 4.1% when I last looked.

sebtomato

GeoffTF said:

sebtomato said:

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

It was about 4.1% when I last looked.

When you last looked where? Who has got the "authority" to decide what should be the share of FTSE100 in a global portfolio?

Is that best of market caps of UK companies compared to others? The share of the UK GDP in the global economy?

tebbins

sebtomato said:

GeoffTF said:

sebtomato said:

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

It was about 4.1% when I last looked.

When you last looked where? Who has got the "authority" to decide what should be the share of FTSE100 in a global portfolio?

Is that best of market caps of UK companies compared to others? The share of the UK GDP in the global economy?

I think you've misunderstood.
If you look at the portfolio data of any global tracker that includes the UK - HSBC FTSE all-world, Vanguard FTSE global all-cap, iShares MSCI world - the weight of UK based companies in those is currently around 4.1%. In 1900 it would have been closer to 50%, in 2010 closer to 8-10% (credit suisse global returns yearbooks summary editions). Particularly since the 80s, coinciding with globalisation of economic activity has been falling rates of home bias among investors in the UK and elsewhere as investment has also globalised (Slow Finance Chapter 6.1, https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.regjeringen.no/globalassets/upload/fin/statens-pensjonsfond/eksterne-rapporter-og-brev/2012/msci_equityallocation_march2012.pdf&ved=2ahUKEwjht66rtf32AhXIT8AKHWDQCbkQFnoECCsQAQ&usg=AOvVaw2S0AODNiPKKX_-KCGF5A6J).
According to Vanguard research, some home bias can help lower volatility and most developed stock markets (https://www.google.com/url?sa=t&source=web&rct=j&url=https://corporate.vanguard.com/content/dam/corp/research/pdf/Global-equity-investing-The-benefits-of-diversification-and-sizing-your-allocation-US-ISGGEB_042021_Online.pdf&ved=2ahUKEwjht66rtf32AhXIT8AKHWDQCbkQFnoECEwQAQ&usg=AOvVaw2Uek3hNNVpzavnEXcL9Eiy). However any sufficiently long-term data will show that, at least in the UKs example, there hasn't been much of a difference between UK and Global equity returns at the index level.

There is no "supposed to be" weight, there is no economic law dictating the weight, it is simply a result of the sum of companies categorised as being UK based as a % of the total global market cap. It has nothing to do with GDP, for example Denmark's stock market is considerably larger than its GDP as it is something of an international financial centre.

If you're not familiar with the concept of market cap, there are plenty of explainers out there, I suggest Investopedia or Monevator: https://monevator.com/why-market-cap-investing-still-works/, https://monevator.com/the-stock-market-capitalisation-to-gnp-gdp-ratio/

Edit: personally I am fairly heavy on the UK, around 2/3-3/4 of my portfolio is UK equity (72% at the last counting, not counting the UK element of global trackers that make up the bulk of the rest). I have my own lengthy reasons for this, others have their own reasons for their own portfolios.

Albermarle

sebtomato said:

GeoffTF said:

sebtomato said:

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

It was about 4.1% when I last looked.

When you last looked where? Who has got the "authority" to decide what should be the share of FTSE100 in a global portfolio?

Is that best of market caps of UK companies compared to others? The share of the UK GDP in the global economy?

I believe it is the size of the UK stock market capitalisation compared to the global one .
Whether your own portfolio should have  more or less than this is a matter of debate . Probably most would say as a UK investor this would be a minimum, and many would have a higher % .
Also most peoples portfolios are not 100% equities, and having a higher UK % in fixed interest investments in GBP I think would be normal .

masonic

sebtomato said:

GeoffTF said:

sebtomato said:

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

It was about 4.1% when I last looked.

When you last looked where? Who has got the "authority" to decide what should be the share of FTSE100 in a global portfolio?

Is that best of market caps of UK companies compared to others? The share of the UK GDP in the global economy?

Mostly MSCI and FTSE who compile the main global indexes that most global trackers track. Based of course on the total market capitalisation of the shares trading on each market.

GeoffTF

The UK market comprises all the companies that have decided to list on the London Stock Exchange. The majority of their earnings come from overseas and are not part of the UK GDP.

If you make the simplifying assumptions that the market is efficient and that all investors have the same objectives, currency, taxes etc, it was proved back in the 1960s that the optimal equity portfolio was a market weighted global tracker. In reality, we do not pay withholding tax on UK dividends and being overweight in UK market reduces volatility. It does not reduce volatility by very much, however, unless you hold more UK stock than most people would want nowadays.

Thrugelmir

sebtomato said:

GeoffTF said:

sebtomato said:

Of course, you can have FTSE100 trackers etc. but what's supposed to be the weight of those in a global portfolio?

It was about 4.1% when I last looked.

When you last looked where? Who has got the "authority" to decide what should be the share of FTSE100 in a global portfolio?

Is that best of market caps of UK companies compared to others? The share of the UK GDP in the global economy?

Do you know what MSCI stands for? 

sebtomato

dunstonh said:

Regarding the S&P500, I am just following Warren Buffet's advice. He said people are better off investing in an S&P500 index tracker as opposed to his fund, but maybe I need to look at something a bit broader indeed.

Another person misinterpreted what he said.  You may wish to read up on what he actually said and to whom he said it.   In the context of the audience, it was correct. However, you are very different to those he was saying it to.

Well, may as well listen to what he said: https://www.youtube.com/watch?v=_qa6NbVrUtM

Quite clear.

dunstonh

sebtomato said:

dunstonh said:

Regarding the S&P500, I am just following Warren Buffet's advice. He said people are better off investing in an S&P500 index tracker as opposed to his fund, but maybe I need to look at something a bit broader indeed.

Another person misinterpreted what he said.  You may wish to read up on what he actually said and to whom he said it.   In the context of the audience, it was correct. However, you are very different to those he was saying it to.

Well, may as well listen to what he said: https://www.youtube.com/watch?v=_qa6NbVrUtM

Quite clear.

So, are you a US citizen subject to US taxation?  And do you use dollars as your primary currency?

GazzaBloom

FX gains from a UK based GBP S&P500 index tracker fund have favoured UK investors over US investors tracking the same index in USD since 2003.

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/how-currency-movements-affect-returns

Plus not facing the same taxation on investments as US investors, using salary sacrifice into a pension or stocks and shares ISAs may favour UK investors as well.

If Warren Buffet's core message for non skilled investors, of just hold a broad based, low cost index fund that tracks the US stock market, dollar cost average into it over your working life and forget about it, is seen as not fitting for UK investors, is anyone able to recommend something more appropriate that will require as little effort and deliver the same or better performance?