UK Funds

chiang_mai

The focus of my investments is global rather than UK centric but up to 12% of my equities asset allocation is allotted to UK funds. I currently hold 24% of my portfolio in a FTSE Global All World Tracker, along with other funds that have minor investments in the UK. The total of those things means I currently have only 6% of my holdings in UK funds hence I am underweight. UK shares are undervalued by comparison to the US so I now plan to increase my investment in the UK. 

I think UK large caps are a relatively safe bet and that a FTSE100 Index tracker might suit but I don't know for certain how much duplication exists between that and the All World Tracker, The AWT holds about 3,576 companies, of which, 2.15% or 77 companies are in the UK, the potential for extensive overlap with the FTSE100 is significant.

UK mid-caps don't interest me although UK small caps have some potential in light of changes to the way pension funds invest.

If anyone has any recommendations regarding the above, I'll be interested to hear them.

  

chiang_mai

Writing the above post helped me better understand the problem so I now think I have my answer! The AWT potentially covers 77 large FTSE companies, minus the 12 that are mid caps. But 2.15% of the total amount invested is very small hence I think I'm safe to buy the FTSE100 tracker as planned, without significant duplication. 

Thanks for bearing with me on this.

dunstonh

I think UK large caps are a relatively safe bet and that a FTSE100 Index tracker might suit but I don't know for certain how much duplication exists between that and the All World Tracker, The AWT holds about 3,576 companies, of which, 2.15% or 77 companies are in the UK, the potential for extensive overlap with the FTSE100 is significant.

Historically, the FTSE100 has been a laggard most of recent history (good in 2022 due to energy and falling sterling but thats the first time in over 20 years).      Until Brexit actually happened, the UK strength was smaller and medium sized companies.   Returns were similar to the S&P500.   However, post Brexit, sentiment has weakened prices.  Time will tell whether that is a short/medium term sentiment rather than reality or whether Brexit has really weakened them. 

UK mid-caps don't interest me although UK small caps have some potential in light of changes to the way pension funds invest.

Avoiding small and mid cap would mean ignoring what the UK has historically been good at.  i.e. coming up with ideas, research and development.  The UK is awful and then turning them into commercial success.  Often because US and Asian companies come in and buy the smaller/medium sized company and its lost to overseas.

With the FTSE100, a bit like the S&P500, the top handful of companies dominate the weightings.  

Qyburn

What do people think about holding an ex-UK index fund, and a separate UK only? That way you could choose your own weighting without overlap.

Linton

Qyburn said:

What do people think about holding an ex-UK index fund, and a separate UK only? That way you could choose your own weighting without overlap.

I dont see the point of holding an ex-UK global index fund since the performance difference between it and a global fund is marginal but there is a much smaller choice of global ex-UK funds.  If you held a UK small companies fund in addition to a global tracker the overlap would be very small.

The reason for the FTSE100 poor performance can be fully explained by its major sectors rather than anything to do with the UK economy.  There is virtually no Tech and an excess of miners and drillers.   So the FTSE100 part of a global fund could be seen as useful for sector diversification.

chiang_mai

I find that trying to get diversification right is very difficult. Asset allocation is difficult enough but when it comes to spreading equities funds in a  meaningful way, not only do you have to consider sectors and geographic percentages but also the allocations to Giant/Large/Medium/Small. When all those things are done, there's then the risk of over diversification, no wonder I'm going bald!

Because of these things I've become more of a fan of global trackers which now occupy 24% of my equity holdings and 9% of my bond holdings, that relegates my job to filling in gaps and analysis. I was fortunate to buy 18% of RL Global Select at an early stage and now the fund has been closed to new sales, I'm relieved that I did. I'm 43/32% giant/Large, 15% medium and 10% small/micro. Geographically I'm 57% US, 13% EU, 6% UK, 4% Japan, 7% Asia Dev and 7% EM. I've found it helpful in the past to review the JPM Asset Allocation forecast each quarter and to back check their accuracy, I've also stopped reading any articles by well known investors and instead now concentrate on the underlying economics. I'm rambling, good luck to all and thanks for your comments.