AJ Bell S&P 500 iShares Fund

bfgun

JohnWinder said:

 Seems one can't post a three character reply, so, yes.

Thank you. 

Linton

bfgun said:

gm0 said:

For a UK investor the Warren Buffett S&P recommendation cannot be taken at face value only.  It refers to a US investor not a UK one. 

It needs the issue of the long term and structural decline of sterling to be taken into account.  And the future of GBP/USD FX rates.  Whether you believe the travails of the UK are near any kind of corner.  And whether fiat currency in general or the £ in particular is due a further beating or some level of recovery.

There is a lot of analysis and speculation around whether over the medium and long term the cost of hedging is appropriate to equity and bond investments as a general topic.  But in this instance whether to pick a hedged US equities fund or an unhedged fund is of even greater significance than in a more balanced and international global portfolio.

I don’t profess to understand this, but if a UK investor invested in the S&P500 using the fund I mentioned in my opening post, the iShares S&P 500 GBP Hedged UCITS ETF (Acc), does the hedging aspect protect against currency fluctuations?

I must admit, my post is posing me more questions than answers. 

Do you want to be “protected” against currency fluctuations? Sadly currency they work both ways.

Without hedging when the £ is doing well foreign investments will drop in value in £ terms but so will the price of foreign goods. Conversely when the £ falls against other currencies foreign investments rise in value but so does the cost of imported goods. It could be argued that this is advantageous as it provides some protection against UK-specific inflation. With hedging when the UK economy is faltering with the £ falling and prices rising your foreign investments perform less well so you get hit twice.

MX5huggy

Your warning from history is the Nikkei 225 the darling of the 1980’s stock market it still has not returned to the high of 1989. Japan was about 45% of world stock markets today about 6%

https://en.m.wikipedia.org/wiki/Nikkei_225

that ignores dividend returns and you would have done great investing in the Nikkei for the last 15 years. 

Pat38493

gm0 said:

For a UK investor the Warren Buffett S&P recommendation cannot be taken at face value only.  It refers to a US investor not a UK one. 

It needs the issue of the long term and structural decline of sterling to be taken into account.  And the future of GBP/USD FX rates.  Whether you believe the travails of the UK are near any kind of corner.  And whether fiat currency in general or the £ in particular is due a further beating or some level of recovery.

There is a lot of analysis and speculation around whether over the medium and long term the cost of hedging is appropriate to equity and bond investments as a general topic.  But in this instance whether to pick a hedged US equities fund or an unhedged fund is of even greater significance than in a more balanced and international global portfolio.

If I believed that the UK is in long term decline versus the US, wouldn't this make it a stronger argument to invest in the US (without hedging)?

dunstonh

I looked at the S&P 500 over the last 10 years, and it appeared to have very good returns, except for 2015 and 201

An economic cycle is around 15 years.   In the the cycle you are looking at US equity has been the place to be.  In the previous cycle it was one of the worst areas to be.    Frequently, you see US equity and global equity take turns with each cycle.     US equity did well because it did poorly previously and there was an element of catch up but also due to tech stocks having recovered from their massive falls previously.

I have read that Warren Buffett has told his wife that  when he dies to put her wealth into an S&P500 index fund (albeit Charlie Munger disagrees and believes returns from Berkshire Hathaway will outperform the S&P500).  I wonder why he wouldn't suggest a more globally diverse index fund?

Not quite.  He told a room of US investors domiciled in dollars to use the S&P500.   He didnt tell people not domiciled in dollars to do it.   American investors tend to be very inward looking.   And they can be in most respects due to the size of the US stockmarket. European investors tend to be more global in their approach.

Also, which years did the US stock market suffer terribly compared to other countries/global markets?  When I compare the S&P500 to say the FTSE100 (which does go back as far as 1983) their performances are broadly in line until the mid 90s, when the S&P500 starts to accelerate and leaves the FTSE100 for dead, no doubt driven by technology stocks.  As I said, I'm genuinely interested and am looking to learn more about this.

It would be wrong to compare the FTSE100 with the S&P500 as its not like for like.    The FTSE100 is a low growth/high dividend large cap index.   The index values do not include dividends.     Total return is what matters. Not the index value.    

And exchange rate is a key influence.  In the Labour years when Sterling grew against the dollar, UK investors didn't get S&P500 returns.  They got S&P500 returns minus the change in exchange rate.      In the period post Brexit to date, the fall in Sterling gave UK investors better returns on US equity than US investors got.

Currently, US equity has a high P/E but globally, it is much lower.   This could suggest that US equity is in a bubble.   You don't need a crash to improve P/E but the global economy with rising interest rates is not in an expansionary phase at the moment.  
   

If I believed that the UK is in long term decline versus the US, wouldn't this make it a stronger argument to invest in the US (without hedging)?

The UK was the first economy to industrialise.   It is also the first economy to deindustrialise.   Other developed economies are following the same path but at a different pace.    So, the UK is often seen as an indicator for what others will follow.

The US economy spent most of the 20th century as an emerging market economy.  It is now beginning to suffer developed market issues.   However, it has plenty of scope to expand its population base which allows it to counter those issues, just as the UK has done.   Although the UK is hitting limits to how many people it has whereas the US is nowhere near that.

The more economies of the world align, the closer the exchange rates will gravitate to the dominant currency but that is a very long game.

Until post 2020, UK smaller companies was performing better for UK investors than the S&P500.    Sentiment has gone away from the UK at the moment and it UK smaller companies crashed.    So, some would argue that investing in a market after a crash is better than a market that is in a bubble.       The UK is a fantastic place to invent or develop things.   There are few countries that match it.    It is an awful place to turn those things into commercial success.      US and Asian companies tend to swoop in and buy UK smaller companies.

Its a global economy and the US is a very large part of that global economy.    Most portfolios will be heavily weighted to US equity but life does not begin and end in the US.

bfgun

Is it fair to say that none of us really know what is the best market to invest in given that we do not know the future, and with the Russia / Ukraine situation, matters could turn significantly worse in a very short space of time.

Just look at today's news regarding the failed missile attack on an RAF surveillance plane. Had that been successful, we could now be in WW3.

My wife's company pension scheme has had an annualized return of 1.9%. I don't think this great, and yet this is from a major mutual insurance society.

Clearly, I am not an IFA, and I am certainly not experienced in this area, but I can only look at history albeit I accept that does not mean the same will happen in the future.

In addition to past performance of the S&P, my interest is in the companies that form the top holdings, all of which are in the technology / AI sector.

I do not see the world moving away from development in these areas, so would investment in the S&P 500 be an appropriate means of capturing gains from these companies?