Do US investors use global passive funds as much as the rest of the world investors?

Cus

I've a fair chunk of investments in a passive global equity index fund based on market cap, as so recommended on here. With the concept of the 'fire and forget' investing that is so recommended, do US investors pour more into a S&P passive index tracker funds than global passive index tracker funds versus people in the rest of the world, as it's their 'home' market?  And I assume that US investors are proportionally wealthier and put more in?

If so, does this mean that for now and going forward the S&P index will continue to be heavily concentrated in mega stocks, and 'overvalued' versus the rest of the world?

I was looking at Apple and Samsung revenues, profits, sales market shares etc etc and it's amazing how much more Apple's market cap is versus Samsung when you actually look at the company. It can't just be which exchange the stock is traded on?

I know there are lots of nuanced differences between those companies but I'm trying to get a feeling for the current and future impact of these current trend behaviours from retail investors who follow this movement of passive investing, as I can't shake the feeling that it's all going to very wrong somehow.

I also have value based tracker fund investments, not sure if that's what the masses are recommended to do though.

Linton

Also look at the allocation to China.......

In Vanguard FTSE Global All Cap Fund Micrososoft is 3.94%, The whole of China is 2.62%.  To what extent does  a global index really represent the whole world?

Hoenir

Linton said:

Also look at the allocation to China.......

In Vanguard FTSE Global All Cap Fund Micrososoft is 3.94%, The whole of China is 2.62%.  To what extent does  a global index really represent the whole world?

Probably wouldn't have much interest in the product if China was given a proper weighting. 

Though overseas investors are restricted to ownership of 49% of listed Chinese company shares I believe. Blocks takeovers. 

Cus

Linton said:

Also look at the allocation to China.......

In Vanguard FTSE Global All Cap Fund Micrososoft is 3.94%, The whole of China is 2.62%.  To what extent does  a global index really represent the whole world?

Although market cap issues is a valid discussion, I'm looking more at people's views around the behaviour factor of US investors following the passive fire and forget type investing and how the story will unfold in the future

eskbanker

I was curious about the relative scale of retail investors versus institutional ones, and came across this piece, suggesting 80-90% of the (US) volume is the latter, thereby heavily diluting the impact of retail investor behaviour:

Institutional investors (professional entities that invest massive sums) are the biggest players on Wall Street, with over 80% of the market cap of U.S. equities in their control.

[...]

Institutional investors are the movers and shakers of Wall Street — since they buy and sell stocks and other financial instruments in massive amounts, their trading decisions have a far more noticeable impact on asset prices than those of retail investors.

[...]

Reuters reported in 2021 that, according to a spokesperson at Morgan Stanley, retail investors were responsible for only 10% of the trading volume on the Russel 3000 (a benchmark of the U.S. stock market), indicating that the remaining 90% was accounted for by institutions. 

https://www.thestreet.com/dictionary/institutional-investors

Cus

Do those institutional investors include the active fund managers investing on behalf of retail? Or even passive institutional investing on behalf of the underlying retail individuals, How many of them are closet tracker funds?

masonic

Some would argue the S&P500 is a global market, with many multinational companies choosing to list in the US for the access to capital, liquidity and boost to the company's image.

Regarding institutional investors, this would include active and passive fund managers.

Hoenir

masonic said:

Some would argue the S&P500 is a global market, with many multinational companies choosing to list in the US for the access to capital, liquidity and boost to the company's image.

The SP500 is an index not a market. To be considered for inclusion in the SP500 (amongst other factors). Companies must be American (Brass Plate Location) and have their shares listed on either the NASDAQ or NYSE. 

Bostonerimus1

US investors have historically concentrated on domestic stock and bond markets because they have been a large percentage of the World markets and because of domestic bias and a mistrust of foreign regulation. The advice now is to buy the global markets, often cap weighted. So many people own a US Equity Index, often tracking the Russell 3000, and an International Equity Index that excludes the USA. The same goes for bonds, although US T-bills are still the default bond...sorry for the pun.

Linton

Cus said:

Linton said:

Also look at the allocation to China.......

In Vanguard FTSE Global All Cap Fund Micrososoft is 3.94%, The whole of China is 2.62%.  To what extent does  a global index really represent the whole world?

Although market cap issues is a valid discussion, I'm looking more at people's views around the behaviour factor of US investors following the passive fire and forget type investing and how the story will unfold in the future

This is not a matter of market cap but rather raises the question as to whether distortions in the construction of indexes gives rise to opportunities for active investors since the purportedly global indexes relied on by passive investors decreasingly represent the underlying global market. 

As to the future, the declining relevance of the US in global trade must at some point lead to a realignment of the behaviour of investors globally. I suspect this realignment, when it occurs, will not take place gradually but rather as a major step change. It is clearly in the interests of the US that the dominant position of US companies in the US-based global indexes is retained for as long as possible.

EdSwippet

Bostonerimus1 said:

US investors have historically concentrated on domestic stock and bond markets because they have been a large percentage of the World markets and because of domestic bias and a mistrust of foreign regulation.

Also -- or perhaps even primarily -- because US investors get a special low (or even, zero) tax rate for qualified dividends from US stocks, but pay ordinary tax rates on dividends from non-US stocks.