Which Index funds to invest in?

Cus

michael1234 said:

Cus said:

Imo, one would be hoping that at some point others would realise the potential future value of that region (assume you mean index) and so validate your hope.  However since so many investors are not interested in value, then ride the passive wave. Personally I don't think there will be a snap change, just a slow multi year's/decade movement towards more passive investing of active value funds as people realise whats going on 

But isn't that the same as hoping that investors will pour more money into the index after you have ?

Yes, but the hope is based on those people pouring more money in because they see 'value' rather than something else

masonic

There seems to be a fundamental misunderstanding about what is required for a share price to go up. This can happen without money being poured into it. All it takes is news that materially changes the market's view of what the company is worth and participants will readily adjust their offer price. Only those with existing limit orders that are not paying attention are likely to have their shares taken off them at what they'll come to regard as a bargain price. Such news can be released while the market is closed, giving participants plenty of time to reappraise the situation.

michael1234

masonic said:

There seems to be a fundamental misunderstanding about what is required for a share price to go up. This can happen without money being poured into it. All it takes is news that materially changes the market's view of what the company is worth and participants will readily adjust their offer price. Only those with existing limit orders that are not paying attention are likely to have their shares taken off them at what they'll come to regard as a bargain price. Such news can be released while the market is closed, giving participants plenty of time to reappraise the situation.

I think you are aiming this mostly at me or anyone else who thinks like me? I said in my original question that I thought there were two reasons a region's stocks may increase:

1/ Money being "poured in" thus increasing demand
2/ The region itself doing better than expected. (i.e. the companies in the region doing better than expected possibly due to political and economic events). That implies the "news" is positive

I think you are referring 2 here.

Could you elaborate on why you believe this makes you think I have fundamentally misunderstood what is required for a stock to rise and fall? 

GeoffTF

michael1234 said:

masonic said:

There seems to be a fundamental misunderstanding about what is required for a share price to go up. This can happen without money being poured into it. All it takes is news that materially changes the market's view of what the company is worth and participants will readily adjust their offer price. Only those with existing limit orders that are not paying attention are likely to have their shares taken off them at what they'll come to regard as a bargain price. Such news can be released while the market is closed, giving participants plenty of time to reappraise the situation.

I think you are aiming this mostly at me or anyone else who thinks like me? I said in my original question that I thought there were two reasons a region's stocks may increase:

1/ Money being "poured in" thus increasing demand
2/ The region itself doing better than expected. (i.e. the companies in the region doing better than expected possibly due to political and economic events). That implies the "news" is positive

I think you are referring 2 here.

Could you elaborate on why you believe this makes you think I have fundamentally misunderstood what is required for a stock to rise and fall? 

I expect that masonic is referring to 1. For every buyer there is a seller. Money can only be poured in at the same rate as it is poured out. Journalists do not seem to understand that. The price goes up if the buyers are keener than the sellers, not because they are more numerous.

Cus

If the price goes up, then the market cap is up. It wouldn't be unfair to call the monetary value of that increase in market cap with the words 'money poured in'.  The only real money is actual money if we are going to be clinical..

Edit to add: if you said that Apple is now worth $4trn and 20 years ago it was worth $10mn or whatever, if you had said money has poured in to that company, I think we know what you mean

masonic

michael1234 said:

masonic said:

There seems to be a fundamental misunderstanding about what is required for a share price to go up. This can happen without money being poured into it. All it takes is news that materially changes the market's view of what the company is worth and participants will readily adjust their offer price. Only those with existing limit orders that are not paying attention are likely to have their shares taken off them at what they'll come to regard as a bargain price. Such news can be released while the market is closed, giving participants plenty of time to reappraise the situation.

I think you are aiming this mostly at me or anyone else who thinks like me? I said in my original question that I thought there were two reasons a region's stocks may increase:

1/ Money being "poured in" thus increasing demand
2/ The region itself doing better than expected. (i.e. the companies in the region doing better than expected possibly due to political and economic events). That implies the "news" is positive

I think you are referring 2 here.

Could you elaborate on why you believe this makes you think I have fundamentally misunderstood what is required for a stock to rise and fall? 

It was the exchange predicated on hoping money pours into a region for an investor to realise the potential future value in their investment. Three posts ending in an agreement, but further context was not quoted, and I think it was asserted earlier in the discussion too.

As Geoff says, there is no pouring of money into a region when shares are traded between investors. Either those undervaluing the shares they currently hold decide to demand a higher price due to new information or sentiment, or those sellers undervaluing the share dry up due to excess demand and are replaced by those demanding a higher price.

A stockmarket is made up of many potential buyers and sellers, all with different opinions of what their shares should be worth and hence what they are prepared to exchange them for. In an orderly market there will be a bolus of investors looking to buy just below, and sell just above, a certain price. The order book will continually be adjusted while the market is open. When a buyer becomes satisfied with the offer of a seller, then a trade will happen at the price closest to the mid-point, and likewise for a seller with a buyer. No trade can happen without both.

Each successful trade updates the share price and hence the market valuation of the company in question. This does not require any particular value of shares to be traded relative to the change in market capitalisation of the company. For example, when Nvidia gained $330bn (13%) in a single day last July, less than $500m of its shares were traded (less than 0.02% of its market cap and 0.15% of the market cap gain). On the down side, when Meta lost $232bn (26%) in value in Feb 2022, the volume of shares traded was less than $200m (0.02% of share capital and less than 0.1% of the value wiped off its market cap). In an illiquid market, just a small volume traded could have a large effect on share price and market cap.

The trades assist with price discovery, but do not represent money pouring into or out of the company in question (or the market in which the company is listed). It is certainly not the case that changes to the value of a share or market is backed by equivalent inflows or outflows of money from investors. 

GeoffTF

masonic said:

When a buyer becomes satisfied with the offer of a seller, then a trade will happen at the price closest to the mid-point, and likewise for a seller with a buyer. No trade can happen without both.

One small point here. For trades in the order book, there is no mid point at which trades take place. Here is how it works:

https://en.wikipedia.org/wiki/Order_book

If want to buy one share, you will buy at the lowest priced offer to sell. If you want to buy more shares than are offered at that price, you will have to match the remainder of your order with one or more offers to sell at higher prices.

GeoffTF

The market capitalisation of a company is the price at which the last share was traded multiplied by the number of shares in issue. It is not a pot of money. It would not be possible to sell ALL the shares at that price.

The shares in a company are only worth what people will pay for them. If the price for buying one share increases by a factor of ten, with no new shares being issued, the market capitalisation increases by a factor of ten.

The money paid by the buyers precisely matches the money raised by the sellers (all before costs). No money flows into the company. All that has happened is that sellers are demanding higher prices and buyers are wiling to pay them.

leosayer

GeoffTF said:

leosayer said:

GeoffTF said:

masonic said:

Cus said:

InvesterJones said:

Linton said:

InvesterJones said:

chiang_mai said:

InvesterJones said:

If that was the case then the professional investor with more capital would take advantage and buy up EM/Asia to get increased returns for the price, bringing the cost up to the same risk adjusted return as other markets.

An interesting read: https://www.investmentmagazine.com.au/2025/07/why-emerging-markets-are-back-in-focus/

But again that's not secret sauce. Reading that isn't suddenly going to make me spot an opportunity that the rest of the market doesn't know about. They do know about it, and still cause the odds to favour elsewhere.

It would seem to me that a large % of investors globally have a significant home bias and hence value opportunities in foreign countries lower than corresponding opportunities in their home market. If that was not the case the allocations adopted by investors in different countries would be the same.

Hence global markets are skewed by the locations of investors.

The argument that buying opportunities self correct may well apply within a market, but it is less clear that it works between markets.

I made a similar point about US home bias a few posts back - that's the obvious mix of population size and home investment. EM does contain two of the most populous nations so *if* there was a similar home bias and large number of investors then it doesn't really make the case for going to EM for extra value either - of course, they don't have anywhere near the same number of investors as the US does I'm sure, but I'd love to see what the actual investor population is country by country.

It would also be interesting to see the percentage of UK based investors who invest in the S&P versus the FTSE against  the same with US based investors, as well as the total number.  Our home bias I suspect is not as biased as US investors 

It depends also how you define bias. Some would consider 60% S&P and 3% FTSE not biased. Then how biased is 100% S&P for a US person vs 20% FTSE for a UK person.

I suspect home bias is much less of a thing in the UK than it was 20 or even 10 years ago, since it has been a drag on returns. Whereas in the US global diversification has been a losing strategy.

The equity part of Vanguard UK LifeStrategy is 25% UK. For the US version it is 60% US. Vanguard has said more than once that the home bias is for marketing reasons, so those numbers should be a fair indication of what the market wants.

https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-60-equity-fund-accumulation-shares/overview

https://investor.vanguard.com/investment-products/mutual-funds/profile/vsmgx#portfolio-composition

The US version does not appear to have a home bias at all. Also note how much simpler the US portfolio is.

The difference in the number of underlying funds between the UK and US version is likely down to different regulatory requirements. 

I'm sure Vanguard in the UK would prefer to hold 3 underlying funds rather than the 15+ they currently do.

What regulatory requirements? Many (but not all) IFAs use many funds when one or two would do to make it look as though they are doing more for their money. Vanguard is following this dubious practice in the belief that it sells. Using many funds costs Vanguard nothing.

It's described by ESMA below. I can't find the delegated FCA rule.

"1.  A UCITS may acquire the units of UCITS or other collective investment undertakings referred to in Article 50(1)(e), provided that no more than 10 % of its assets are invested in units of a single UCITS or other collective investment undertaking. Member States may raise that limit to a maximum of 20 %.

2.  Investments made in units of collective investment undertakings other than UCITS shall not exceed, in aggregate, 30 % of the assets of the UCITS."

https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/ucits/article-55

Cus

GeoffTF said:

The market capitalisation of a company is the price at which the last share was traded multiplied by the number of shares in issue. It is not a pot of money. It would not be possible to sell ALL the shares at that price.

The shares in a company are only worth what people will pay for them. If the price for buying one share increases by a factor of ten, with no new shares being issued, the market capitalisation increases by a factor of ten.

The money paid by the buyers precisely matches the money raised by the sellers (all before costs). No money flows into the company. All that has happened is that sellers are demanding higher prices and buyers are wiling to pay them.

Completely factually correct.  All I was suggesting is that if the market cap of a company has increased, it means that the total holders of all those shares (assuming they haven't put in a sell order...) are prepared to have a piece of paper that the rest of the world value at a that $(for apple eg) value at that moment instead of actually having those $'s in a cash account, whereas before the share price rose they were willing to have a smaller $ value piece of paper than the smaller actual dollars in a cash account. In a way, you could see that as money poured in, as it's money that hasn't poured into their cash accounts.

Perhaps when we look at our equity portfolios and see a value of $X, we should actually say it's not real money until its in your cash account