Investing in one world fund vs multiple regional ones

Kaizen917

Im investing for the long term (stocks only) by trying to make use of both ISA and pensions. 

For the most part, my SIPP/DC pension are one fund index fund/ETFs that are globally diversified in the usual way by proportion of their stock market share(e.g. 55-60% in the US, 10-15% in Europe and so on).

However, for my ISA, my approach became a bit different by picking 6 different ETFs that vaguely represents each of those segments - SP 500 for the US, one for Europe ex UK, FTSE100 for the UK, one for Japan, one for Asia and then one for Emerging markets. 

My reasoning here was twofold - to have the freedom of altering the proportions of exposure by region (e.g. do a bit less US instead of another region) and Im ok to rebalance if needed. Also, charges-wise, its actually an improvement since it works to a 0.11% against my FTSE Global all cap being at 0.23% and if I pick the same proportions by regions, the overlap will be quite big.

Anyway, performance has been ok and not too different from the world funds but it got me wondering - other than having to rebalance, is there some other drawback to this approach that I am overlooking when investing like this in the ISA? 

I know that people can mostly just offer opinion but thats all Im asking for. 

eskbanker

Kaizen917 said:

Also, charges-wise, its actually an improvement since it works to a 0.11% against my FTSE Global all cap being at 0.23%

You could always take advantage of cheaper global trackers such as HSBC FTSE All World at 0.13%.

aroominyork

The All Cap fund takes you deeper into mid cap and small cap companies, which is why it charges 0.23% instead of 0.13% for the HSBC fund. The regional indexes are probably more like HSBC than Vanguard in that respect, so it depends on what you want to own.

billy2shots

Not advice but FTSE100 is not investing in the UK. .

eskbanker

billy2shots said:

Not advice but FTSE100 is not investing in the UK. .

It's not investing wholly in the UK, in that many of the UK-registered companies derive substantial revenues from elsewhere (like those in other markets too, albeit maybe more pronounced), but personally I'm not aware of an index of companies with UK-only revenues and would question its usefulness if it did exist.

There is also the point that the FTSE 250 would often be considered to be more diverse than the 100....

Kaizen917

eskbanker said:

You could always take advantage of cheaper global trackers such as HSBC FTSE All World at 0.13%.

Yes, a nice fund and one of the inspirations to try and "beat" the FTSE Global charge. I do have some investments into it via my LISA but not a significant amount and I am sort of on the lookout if a cheap provider ends up offering it. I probably sound a bit inconsistent if Im ok to end up dropping the next ISA allowance into another fund instead of consistently sticking to the same but there is a benefit to always be open to some alterations.

billy2shots said:

Not advice but FTSE100 is not investing in the UK. .

Agreed. Its not a great proxy for the UK stocks but I actually dont mind that because I am actually trying not to invest in UK equities too much (I feel default DC pension funds, wherever I start a new job, end up overexposing in UK stocks on my behalf anyway). My share of it within the ISA is 2% instead of the usual 4-5 that other funds will contain.

eskbanker said:

There is also the point that the FTSE 250 would often be considered to be more diverse than the 100....

I suppose its the whole debate between small/mid cap vs larger companies, whether its about the UK or elsewhere. Personally, I dont have strong conviction in favour of one or the other.

Expotter

Kaizen917 said:

eskbanker said:

You could always take advantage of cheaper global trackers such as HSBC FTSE All World at 0.13%.

Yes, a nice fund and one of the inspirations to try and "beat" the FTSE Global charge. I do have some investments into it via my LISA but not a significant amount and I am sort of on the lookout if a cheap provider ends up offering it. I probably sound a bit inconsistent if Im ok to end up dropping the next ISA allowance into 

You can get the HSBC FTSE All World through the Dodl investment app pretty cheaply, via ISA, LISA, pension or GIA and charges are just 0.15%. If that's all you want, it's fine, but other investment choices are quite limited.

Kaizen917

Expotter said:

Kaizen917 said:

eskbanker said:

You could always take advantage of cheaper global trackers such as HSBC FTSE All World at 0.13%.

Yes, a nice fund and one of the inspirations to try and "beat" the FTSE Global charge. I do have some investments into it via my LISA but not a significant amount and I am sort of on the lookout if a cheap provider ends up offering it. I probably sound a bit inconsistent if Im ok to end up dropping the next ISA allowance into 

You can get the HSBC FTSE All World through the Dodl investment app pretty cheaply, via ISA, LISA, pension or GIA and charges are just 0.15%. If that's all you want, it's fine, but other investment choices are quite limited.

Thats where my LISA is actually.

I dont know why AJ Bell didnt offer that as part of their own brand (they do but at higher fees anyway). ISA for next year is definitely on the table as an option although I have around half year to make my mind up on this.

chiang_mai

The ride up with an Index tracker can be fun but the ride down is uncontrolled, you have to go with it and you can't get out. It's for that reason alone that I much prefer a managed fund where the FM has some scope to switch funds around when things get rough in one area.

JohnWinder

The ride up with an Index tracker can be fun but the ride down is uncontrolled, you have to go with it and you can't get out. It's for that reason alone that I much prefer a managed fund where the FM has some scope to switch funds around when things get rough in one area.’‘

Perhaps you need to finish the thought process there. You got as far as ‘I prefer a type of fund because it’s actively managed’, but what I suspect you prefer is to get the best returns you can for the level of risk you take. And that’s where the data on fund returns starts crashing into the apparent logic of your proposition.

Year after year, country after country, equity sector after equity sector, the results show that fewer than half the active managers’ funds can outperform a comparable index (ie in a similarly risky market). Here’s a recent report: https://www.evidenceinvestor.com/us-active-managers-continue-to-struggle/

Your challenge, if you prefer better than market returns without taking more risk, is to identify the small percentage of fund managers who will outperform the market over however long you’ll be investing for; or you’ll know how to choose when to abandon them if they underperform the market. When you come up with those answers you’re onto a winner choosing funds which switch around when things get rough in one area.

chiang_mai

JohnWinder said:

The ride up with an Index tracker can be fun but the ride down is uncontrolled, you have to go with it and you can't get out. It's for that reason alone that I much prefer a managed fund where the FM has some scope to switch funds around when things get rough in one area.’‘

Perhaps you need to finish the thought process there. You got as far as ‘I prefer a type of fund because it’s actively managed’, but what I suspect you prefer is to get the best returns you can for the level of risk you take. And that’s where the data on fund returns starts crashing into the apparent logic of your proposition.

Year after year, country after country, equity sector after equity sector, the results show that fewer than half the active managers’ funds can outperform a comparable index (ie in a similarly risky market). Here’s a recent report: https://www.evidenceinvestor.com/us-active-managers-continue-to-struggle/

Your challenge, if you prefer better than market returns without taking more risk, is to identify the small percentage of fund managers who will outperform the market over however long you’ll be investing for; or you’ll know how to choose when to abandon them if they underperform the market. When you come up with those answers you’re onto a winner choosing funds which switch around when things get rough in one area.

Yes, I should have said more.

Firstly, I agree that trackers outperform managed funds in the US market, that is clear to me. But I nearly always select global equities funds that diversify across a number of geographic territories, I almost never buy a single country fund.

Secondly, I don't know if trackers outperform managed funds globally, I've never checked, but I do know at age 74 I don't have 5/7 years remaining to wait and see if they do or not. So when markets correct as they appear to have done recently, I like the idea that the FM can go heavily into cash, as the JPM Global Equity Fund did, or that the FM can go underweight US as some BG funds have, and that the FM can switch into China from Japan as the Invesco Pac FM has. If I was 21 years old there is no question I'd be holding HSBC FTSE AW for the following decade, regrettably I'm not. 

Lastly, one of my strict criteria for fund selection is the track record of the FM, I'm only interested in holding funds managed by FM's that are at the top of their game and have successful track records, that is after all what I'm paying for and a tracker won't allow me to meet that selection criteria.