Vanguard: funds or ETFs?

GeoffTF

sebtomato said:

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.

A market weighted tracker has the right number of eggs in each basket. Some baskets are bigger and stronger than others. It makes no sense at all to invest the same amount of money in a corner shop as in Apple (particularly if you are Vanguard with $trilllions to invest). Tesla is about 1% of the global market:

https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/portfolio-data

That is nothing to worry about. Market weighted trackers bought Microsoft on IPO when it was a tiddler. It goes up. It goes down. Market weighted trackers just hold the stocks and do nothing. That is why they are so cheap. More to the point, trying to beat them is a mug's game:

https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf 

noclaf

Hope no issue with me using this thread for a question albeit related to 'funds Vs etf's'.

Are there any additional risks in using large/liquid well established ETF's for an investment rather than funds?

For example, if I was to consolidate all my pensions into my Fidelity SIPP and use either a single ETF such as VWRL or VEVE/HMWO + an EM and small cap ETF. 
I understand that for synthetic ETF's using derivatives there are heightened risks under certain market conditions but what about the large ETF's from the big providers that use physical replication?

It's unlikely for example that I would use VWRL as a standalone (no issue with the fund or Vanguard but the idea of using a single fund for my whole pension makes me nervous..black swan events etc)

 I already invest in both VEVE and HMWO so could see myself using a 2/3 etf portfolio but just want to understand if there are other risks and considerations Vs using OEIC funds.

Prism

GeoffTF said:

sebtomato said:

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.

A market weighted tracker has the right number of eggs in each basket. Some baskets are bigger and stronger than others. It makes no sense at all to invest the same amount of money in a corner shop as in Apple (particularly if you are Vanguard with $trilllions to invest). Tesla is about 1% of the global market:

https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/portfolio-data

That is nothing to worry about. Market weighted trackers bought Microsoft on IPO when it was a tiddler. It goes up. It goes down. Market weighted trackers just hold the stocks and do nothing. That is why they are so cheap. More to the point, trying to beat them is a mug's game:

https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf 

The Spiva reports tell us little about how individual investors do. For example which ones bought a FTSE 100 tracker 10 years ago vs an S&P 500 tracker. Or which ones managed to avoid most of the worse part of this century by holding a FTSE 250 tracker instead of a world one. Its possible to be quite 'active' with passive trackers should someone wish to and there is very little evidence of how well they do (or not).

Thrugelmir

noclaf said:

Are there any additional risks in using large/liquid well established ETF's for an investment rather than funds?

Markets can rapidly dry up if the prevailing conditions change. As they can for any traded instrument. 

GeoffTF

noclaf said:

Are there any additional risks in using large/liquid well established ETF's for an investment rather than funds?

I understand that for synthetic ETF's using derivatives there are heightened risks under certain market conditions but what about the large ETF's from the big providers that use physical replication?

No and no. An ETF can acquire a discount to NAV and a wide spread, but a corresponding fund would most likely have its trading suspended. That should not happen for the funds you are talking about, expect in the most extreme circumstances, e.g. a global nuclear war.

GeoffTF

Prism said:

GeoffTF said:

sebtomato said:

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.

A market weighted tracker has the right number of eggs in each basket. Some baskets are bigger and stronger than others. It makes no sense at all to invest the same amount of money in a corner shop as in Apple (particularly if you are Vanguard with $trilllions to invest). Tesla is about 1% of the global market:

https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/portfolio-data

That is nothing to worry about. Market weighted trackers bought Microsoft on IPO when it was a tiddler. It goes up. It goes down. Market weighted trackers just hold the stocks and do nothing. That is why they are so cheap. More to the point, trying to beat them is a mug's game:

https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf 

The Spiva reports tell us little about how individual investors do. For example which ones bought a FTSE 100 tracker 10 years ago vs an S&P 500 tracker. Or which ones managed to avoid most of the worse part of this century by holding a FTSE 250 tracker instead of a world one. Its possible to be quite 'active' with passive trackers should someone wish to and there is very little evidence of how well they do (or not).

We do know that the capitalisation weighted average performance of all the individual equity investors is that of a global tracker, minus their costs. (Simple mathematics.) The Spiva persistence score card tells us that we cannot use past performance to predict in advance who will beat the global tracker (or any other tracker that has been studied).

tebbins

However there is a lot more to equity markets than that, markets are always, often surprisingly less than perfectly efficient. There are various investors trying to achieve various objectives - investment trusts, retail ETFs and OEICs, family offices, sovereign wealth, endowments, pension and life funds, various overseas investors... And different asset classes.
That quote, often ascribed to Bogle is undeniably true at the global level, it doesn't mean there is no room to do better. For example the main driver of the FTSE 250s dramatic outperformance of the 100 and global indices since the .com bubble is, aside from the fact that it has held normal valuations whereas at least the 100 has fallen from bubble valuations to cheap/average prices, has been its continued status as a hunting ground for acquisitions, the profit on which has caused the indexes price to grow nearly 3% faster than its market cap. The S&P500 has benefitted hugely from lax buybacks regulation, global markets have benefitted hugely from the opening up of international investment.