Vanguard: funds or ETFs?

sebtomato

Tailender_Investor said:

Just remember with an ETF you have to buy a whole share.  Not sure how often you will be buying but by buying a fund all your money will be invested whereas with an ETF you might have money left over.

Good point. Makes precise balancing or rebalancing a bit more difficult. 

sebtomato

MX5huggy said:

sebtomato said:

Nebulous2 said:

sebtomato said:

dunstonh said:

A fund that is made up of underlying funds is a fund of funds.  Not a tracker.     It is also a managed fund not passive as the fund house has to pick the weightings it wants to be allocated to each fund.  it also increases the cost.

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.

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...

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

Have you seen this? 

A fairly simple breakdown of global trackers and the differences between them, including reliability, what they track (whether all world, or developed world only) and costs. 

Best global tracker funds – how to choose - Monevator

One which is often mentioned here is the HSBC one - which comes out well in that article. 

I started a year ago - from probably the other end of the spectrum from you. I was worried that the 60+% per cent weighting of the US in a global tracker was putting too many eggs in that one basket. It has outperformed for some time, but there is no guarantee that will continue.  I tried to select some funds to move away from that. Some UK mid and small caps, some Europe and some Japan. 

Early days, but our  trackers are doing better than the managed funds I selected and these of course are higher cost. 

Yes, I saw the Monevator articles.

I wouldn't be comfortable having 60% of my portfolio in the US, particularly when a large part would be concentrated on a few very large caps (Microsoft, Apple, Amazon etc.). Not good diversification, and some of the companies seems quite overvalued.

If I consider the platform fee and fund/ETF fees, I think Vanguard is the best option for me, but I won't be able to invest in non-Vanguard funds, like HSBC.

There are some smaller players with no platform fees, and access to ETFs (e.g. Freetrade), but I wouldn't be comfortable putting large pensions or ISAs with them. 

Every time I have experimented with managed funds or individual shares, they did worse than the trackers/index funds, so I am done with that. I am convinced (like Monevator) that having a set of passive funds will do better in the long run, while keeping fees very low (which does matter, when investments like pensions are for the next 10-15 years at least).

Yet you are going to use S&P 500 for your US allocation where Amazon Apple MS FB and Google make up over 22%.

Indeed, but not planning to have the S&P 500 ETF accounting for 60% of my portfolio...

The other option for US equities with Vanguard is to use the US equities fund, covering 4,000 stocks. However, the weight of those large market caps is still very high. For instance, Apple still 5.69% of the fund. 

I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

eskbanker

sebtomato said:

I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

But that's an inevitable consequence of most indices, and therefore their associated trackers, being cap-weighted - if you feel uncomfortable with that and believe that lower cap companies will outperform the megacaps, you could always buy into something that tracks an equivalent equal weight index:

https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/

sebtomato

eskbanker said:

sebtomato said:

I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

But that's an inevitable consequence of most indices, and therefore their associated trackers, being cap-weighted - if you feel uncomfortable with that and believe that lower cap companies will outperform the megacaps, you could always buy into something that tracks an equivalent equal weight index:

https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/

Yes indeed. However, the cap of just a couple of companies in the US is so massive currently compared to other companies that it feels quite disproportionate. I am not sure it was that pronounced in the past, when technology was less dominant.

Let's hope Apple, Microsoft, Amazon, Tesla and Google continue to do well!

Tesla is probably my main concern out of those, as it's managed by someone behaving like a 12-year old, and there is serious competition coming up. The others are established dominant players in their market with no immediate threats (but also maybe little market shares to gain now).

Good to know about the equal weight index. However, I am using the Vanguard platform so that won't be available.

GeoffTF

sebtomato said:
I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

That is because they are huge companies making huge profits. If you buy a market weighted tracker, you own the same proportion of everything. Some companies will move up and others down, but nobody knows which ones. It does not matter. You own all of them.

ColdIron

sebtomato said:

eskbanker said:

sebtomato said:

I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

But that's an inevitable consequence of most indices, and therefore their associated trackers, being cap-weighted - if you feel uncomfortable with that and believe that lower cap companies will outperform the megacaps, you could always buy into something that tracks an equivalent equal weight index:

https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/

Yes indeed. However, the cap of just a couple of companies in the US is so massive currently compared to other companies that it feels quite disproportionate.

It's entirely proportionate with the construction of a market cap weighted index. If you don't believe in the rationale behind cap weighted indexing maybe look for an actively managed fund that's in line with your preferences. Not much point in investing in something that you think is 'wrong'

GeoffTF

ColdIron said:

sebtomato said:

eskbanker said:

sebtomato said:

I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

But that's an inevitable consequence of most indices, and therefore their associated trackers, being cap-weighted - if you feel uncomfortable with that and believe that lower cap companies will outperform the megacaps, you could always buy into something that tracks an equivalent equal weight index:

https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/

Yes indeed. However, the cap of just a couple of companies in the US is so massive currently compared to other companies that it feels quite disproportionate.

It's entirely proportionate with the construction of a market cap weighted index. If you don't believe in the rationale behind cap weighted indexing maybe look for an actively managed fund that's in line with your preferences. Not much point in investing in something that you think is 'wrong'

Your chance of winning if you do that is very slim. Better to try to understand why you are mistaken.

sebtomato

ColdIron said:

sebtomato said:

eskbanker said:

sebtomato said:

I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

But that's an inevitable consequence of most indices, and therefore their associated trackers, being cap-weighted - if you feel uncomfortable with that and believe that lower cap companies will outperform the megacaps, you could always buy into something that tracks an equivalent equal weight index:

https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/

Yes indeed. However, the cap of just a couple of companies in the US is so massive currently compared to other companies that it feels quite disproportionate.

It's entirely proportionate with the construction of a market cap weighted index. If you don't believe in the rationale behind cap weighted indexing maybe look for an actively managed fund that's in line with your preferences. Not much point in investing in something that you think is 'wrong'

I understand it's proportional to the market caps, so not wrong for some passive investments.

However, not that great from a diversification view-point. Clearly, that's an example where passive investment/index trackers don't necessarily provide the diversification people think they might get.

Nothing I can do about it, aside from buying individual shares, which I won't be doing, or not having the USA region with too much weight in my portfolio.

sebtomato

GeoffTF said:

sebtomato said:
I think the weight of the top market caps (only a few companies) seems very high in all funds I have looked at.

It does not matter. You own all of them.

Yes, I own them all, but a bit too much of a very few number. That's an issue for "proper" diversification. Too many eggs in the same basket.

Tesla: could easily crash, as fast as it has risen, particularly with such SEO, who does market manipulation (Bitcoin, Twitter), build tunnels in Las Vegas full of electric cars without any safety concerns, forces his factory employees to work during Covid or decides that its cars can ignore road regulation (not stopping at "stop" signs for instance). There is also the ongoing Theranos-like announcements, of features/capability supposedly "ready" but still not seen years later...

Microsoft: all you need is some security breach on Azure, or some other bad stories, and share could lose a significant amount quickly

etc.

Nowadays, a market cap is not protected by just making profits.

tebbins

A big part of those companies weights is not so much that they have done well, but also a combination a corporate consolidation fuelled by low interest rates and high stock valuations, not to mention all of the pointless M&A activity that has to happen so the poor law/consulting firms - the same people who run S&P500 companies - don't starve.