Research going nowhere!

GeoffTF

ColdIron said:

GeoffTF said:

A global equity tracker includes every equity except unquoted investments, or equities that are not investable at all. You do not need anything else.

Are you sure about that?

For practical purposes, yes. The very small equities are typically sampled in an all cap tracker. The tiny equities are not going to make much difference anyway. There is not going to be much difference between an all cap tracker and a large and medium cap tracker. The whole point of global tracker is that it includes everything at its market weight. It does not matter what does well, because you own everything. "Do not look for the needle in the haystack. Buy the haystack." as Jack Bogle used to say.

bostonerimus

It really doesn't matter what you buy, or at least you won't know how the millions of choices you have will perform until sometime in the future. So stop faffing around and just buy a global equity tracker from Vanguard, HSBC etc. If you want some other allocation ie a UK bias buy a UK FTSE equity tracker. But first ask yourself if your basic finances are ok. ie do you have debt? do you have enough emergency cash in the bank, have you done a budget to maximize your spare cash to save and invest, are you maxing out your pension and how is that invested. Also ask yourself how you will manage your investments over the next 15 or 20 years. Do you have a rebalancing strategy? Those are far more important questions than what percentage allocation to something akin to "pork bellies" you should have.

Thrugelmir

GeoffTF said:

ColdIron said:

GeoffTF said:

A global equity tracker includes every equity except unquoted investments, or equities that are not investable at all. You do not need anything else.

Are you sure about that?

The whole point of global tracker is that it includes everything at its market weight.

Are you sure about that? 

Prism

GeoffTF said:

ColdIron said:

GeoffTF said:

A global equity tracker includes every equity except unquoted investments, or equities that are not investable at all. You do not need anything else.

Are you sure about that?

For practical purposes, yes. The very small equities are typically sampled in an all cap tracker. The tiny equities are not going to make much difference anyway. There is not going to be much difference between an all cap tracker and a large and medium cap tracker. The whole point of global tracker is that it includes everything at its market weight. It does not matter what does well, because you own everything. "Do not look for the needle in the haystack. Buy the haystack." as Jack Bogle used to say.

They won't make much difference in an equity tracker but they would in an active smaller companies fund. You don't need smaller companies but it can help to be more diversified.

GeoffTF

Prism said:

GeoffTF said:

ColdIron said:

GeoffTF said:

A global equity tracker includes every equity except unquoted investments, or equities that are not investable at all. You do not need anything else.

Are you sure about that?

For practical purposes, yes. The very small equities are typically sampled in an all cap tracker. The tiny equities are not going to make much difference anyway. There is not going to be much difference between an all cap tracker and a large and medium cap tracker. The whole point of global tracker is that it includes everything at its market weight. It does not matter what does well, because you own everything. "Do not look for the needle in the haystack. Buy the haystack." as Jack Bogle used to say.

They won't make much difference in an equity tracker but they would in an active smaller companies fund. You don't need smaller companies but it can help to be more diversified.

An all market tracker is a little more diversified than a large and medium cap tracker, but that is not going to make much difference to the outcome. You can overweight the small companies. That will be profitable if you know more than the market and manage to buy the smaller companies when they are undervalued and sell them when they are overvalued. The problem is that you almost certainly do not know more than the market. Active fund managers do not have more than chance success here either.

tebbins

mears1 said:

tebbins said:

So you're looking for some suggestions for actively managed funds to occupy what % of the portfolio, and why? I.e. what has led you to this decision?
A good global equity tracker is about as diversified as it gets in the world of equities. However if you're seeking something 'different' that is still equity but less correlated, UK mid and small cap funds, infrastructure and real estate funds are popular additions I can think of of the top of my head. UK mid and small cap equity tends to be less correlated with UK large cap and global equity, than UK large cap and global equity are correlated with each other.
What is your objective with this money, what are you hoping to achieve with it?

About 20-30%. This is to invest and leave for a long term. Would like to achieve growth, not an income. Have come across some infrastructure funds but the charges are high. Alternative energy, insulation etc, must show some growth too, if there was a passive fund for this, that would be ideal. The press has suggestions for some funds that are not so affected by inflation, but  put off by their past performance which have been quite low (despite higher charges) compared to trackers (although, this is not indicative, but still a factor to consider)

So you're looking for a global growth equity fund, bearing in mind that growth has been doing very well since the GFC and what does well over such a long period is unlikely to be able to maintain superior returns over the next decade or so.
Why do you not want an income? You could go for zero dividend stocks like Berkshire Hathaway (which still pays substantial buybacks), and for example the allegedly high growth S&P500 actually pays out a higher combined dividend + buybacks yield and has a higher payout ratio than the allegedly low growth/high yield/high payout FTSE 100. Historically most of the real total return from global equity came from dividends, not growth.
You can still use accumulation units, e.g. Legal & General have a global infrastructure index fund that has an accumulation version.
Commodities are impossible to track in the conventional sense.

Thrugelmir

tebbins said:

mears1 said:

tebbins said:

So you're looking for some suggestions for actively managed funds to occupy what % of the portfolio, and why? I.e. what has led you to this decision?
A good global equity tracker is about as diversified as it gets in the world of equities. However if you're seeking something 'different' that is still equity but less correlated, UK mid and small cap funds, infrastructure and real estate funds are popular additions I can think of of the top of my head. UK mid and small cap equity tends to be less correlated with UK large cap and global equity, than UK large cap and global equity are correlated with each other.
What is your objective with this money, what are you hoping to achieve with it?

About 20-30%. This is to invest and leave for a long term. Would like to achieve growth, not an income. Have come across some infrastructure funds but the charges are high. Alternative energy, insulation etc, must show some growth too, if there was a passive fund for this, that would be ideal. The press has suggestions for some funds that are not so affected by inflation, but  put off by their past performance which have been quite low (despite higher charges) compared to trackers (although, this is not indicative, but still a factor to consider)

 Historically most of the real total return from global equity came from dividends, not growth.

Not in my investing lifetime. 

tebbins

Thrugelmir said:

tebbins said:

mears1 said:

tebbins said:

So you're looking for some suggestions for actively managed funds to occupy what % of the portfolio, and why? I.e. what has led you to this decision?
A good global equity tracker is about as diversified as it gets in the world of equities. However if you're seeking something 'different' that is still equity but less correlated, UK mid and small cap funds, infrastructure and real estate funds are popular additions I can think of of the top of my head. UK mid and small cap equity tends to be less correlated with UK large cap and global equity, than UK large cap and global equity are correlated with each other.
What is your objective with this money, what are you hoping to achieve with it?

About 20-30%. This is to invest and leave for a long term. Would like to achieve growth, not an income. Have come across some infrastructure funds but the charges are high. Alternative energy, insulation etc, must show some growth too, if there was a passive fund for this, that would be ideal. The press has suggestions for some funds that are not so affected by inflation, but  put off by their past performance which have been quite low (despite higher charges) compared to trackers (although, this is not indicative, but still a factor to consider)

 Historically most of the real total return from global equity came from dividends, not growth.

Not in my investing lifetime. 

I don't have global data but S&P500 data is very available. If you include buybacks which really picked up after rule 10b-18 was introduced in 1982, and have almost consistently overtaken dividends since the .com bubble, it still holds true.
From y/c 2000 to y/e 2021, the S&P500 averaged 7.53%, or 5.06% in real terms, of that real total return the geometric dividend yield was 1.98%, buybacks were almost always higher implying at least ~4% of that ~5% is total payout rather than what is conventionally considered "growth".

Sources: multpl.com, S&P500tr index values, yardeni research (search S&P500 buybacks their papers are one of the first links).
I have been somewhat selective with the dates as Yardeni research doesn't go back much further, if you wanted to go back to 1982 you could look up Lazonick's and Shiller's datasets.

The Big Bang: Stock Market Capitalization in the Long Run, September 2021

Edit: actually if the total payout yield has averaged at least 4% and the nominal total return was only 7.5%, then it's still true that a majority of the even the nominal return was made up of payouts.

Malthusian

GeoffTF said:

An all market tracker is a little more diversified than a large and medium cap tracker, but that is not going to make much difference to the outcome. You can overweight the small companies. That will be profitable if you know more than the market and manage to buy the smaller companies when they are undervalued and sell them when they are overvalued. The problem is that you almost certainly do not know more than the market. Active fund managers do not have more than chance success here either.

No, it will be more profitable if smaller companies are more risky than the global market and come with a higher risk premium, which they are and do.

A portfolio consisting of global equity tracker + smaller companies fund would be expected to outperform 100% global equity tracker if held for the long term. There is no need to switch in and out of the smaller companies fund to achieve that.

Smaller companies funds are one of the few areas where there is good evidence and good reason to believe that fund managers can outperform the market. They often outperform small cap indices because the small-cap end of the market is full of scams, obvious no-hopers, vanity projects and companies trying to drill for oil in Surrey. Over the last 24 years, the total return of the FTSE AIM All Share was 17.3%, i.e. literally nothing. The total return of the average IA UK Smaller Companies Fund was 575% over the same period.

However the OP has shown no appetite for dialling up the risk in pursuit of higher returns, so your original post was correct, he doesn't need one of those.

tebbins

Malthusian said:

GeoffTF said:

An all market tracker is a little more diversified than a large and medium cap tracker, but that is not going to make much difference to the outcome. You can overweight the small companies. That will be profitable if you know more than the market and manage to buy the smaller companies when they are undervalued and sell them when they are overvalued. The problem is that you almost certainly do not know more than the market. Active fund managers do not have more than chance success here either.

No, it will be more profitable if smaller companies are more risky than the global market and come with a higher risk premium, which they are and do.

A portfolio consisting of global equity tracker + smaller companies fund would be expected to outperform 100% global equity tracker if held for the long term. There is no need to switch in and out of the smaller companies fund to achieve that.

Smaller companies funds are one of the few areas where there is good evidence and good reason to believe that fund managers can outperform the market. They often outperform small cap indices because the small-cap end of the market is full of scams, obvious no-hopers, vanity projects and companies trying to drill for oil in Surrey. Over the last 24 years, the total return of the FTSE AIM All Share was 17.3%, i.e. literally nothing. The total return of the average IA UK Smaller Companies Fund was 575% over the same period.

However the OP has shown no appetite for dialling up the risk in pursuit of higher returns, so your original post was correct, he doesn't need one of those.

Historically yes, but there is no magic that makes small companies perform better over long periods simply because they are small, it is a historic observation, now widely known and arguably more efficient markets these days may have reduced the future potential. That said, the SPIVA scorecards for UK small cap management are very promising.
A lot of the reason for inferior performance of small cap indices is that they include everything, some of which would never appear in a "mainstream" index, and the FTSE small cap especially is dominated by expensive investment trusts of debatable, varying quality. Fundamentally, a good company bought at or below a fair price is a good company bought at or below fair price, and a good fund manager is a good fund manager. UK small cap is a space where local knowledge and local market access that foreign capital may lack can come into play much more than higher up the market cap/fund size scale, where liquidity becomes a material issue. Index funds are not yet a big player, actively managed funds and institutional investors are also relatively smaller players - a lot more market cap is held by individuals/founders/management etc who tend to be less concerned with price discovery.
Even though the risk and volatility of such a fund may be greater on its own, UK mid and small cap, though still equity, tends to be less correlated with UK large cap and global equity - I worked out a few years ago the FTSE 250/FTSE 100 correlation was around 0.8. Adding a (UK) small cap fund *may* reduce overall portfolio volatility, though very slightly.