Correct overall allocation

20122013

As I only have some basic information about investing,  hence, I have chosen a global index tracker, as it 'mirrors' the market weighting . However, it includes some home bias. I am aware there are trackers which excl the UK but then it does not reflect the market allocation.

How do others deal with this (including non index trackers)?   how to know what fund(s) to choose so to 'correct the overall allocations to the desired percentages.' if possible?

eskbanker

Which global index tracker includes home bias, i.e. which index does it track?

What is your desired allocation?

dunstonh

As I only have some basic information about investing,  hence, I have chosen a global index tracker, as it 'mirrors' the market weighting . However, it includes some home bias. I am aware there are trackers which excl the UK but then it does not reflect the market allocation.

There are thousands of benchmarks and you can get trackers for money of them. 

How do others deal with this (including non index trackers)?   how to know what fund(s) to choose so to 'correct the overall allocations to the desired percentages.' if possible?

You would use trackers to match your chosen benchmark or trackers in individual country/regions that match your chosen benchmark.

20122013

HSBC FTSE All World Index Class C

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-world-index-class-c-accumulation

Country     Weight
United States     58.61%
Japan     5.63%
Non-Classified     2.59%
China     2.45%
Switzerland     2.42%
India     2.29%
Canada     2.26%
France     2.10%
United Kingdom     1.96%
Germany     1.88%

UK is 1.96 % weighting, useful to know as can I apply this to other funds, too.

20122013

dunstonh said:

There are thousands of benchmarks and you can get trackers for money of them. 

You would use trackers to match your chosen benchmark or trackers in individual country/regions that match your chosen benchmark.

Would you mind saying in simpler terms, please?

Hoenir

20122013 said:

As I only have some basic information about investing,  hence, I have chosen a global index tracker, as it 'mirrors' the market weighting . 

A little more nuanced than that. As an example. 



The MSCI Global Investable Markets Indexes are constructed and maintained at an individual Market level.   

Constructing the MSCI Global Investable Market Indexes involves the following steps:

• Defining the Equity Universe for each Market. 
• Determining the Market Investable Equity Universe for each Market.
• Determining market capitalization size-segments for each Market.
• Applying Index Continuity Rules for the Standard Index.
• Classifying securities under the Global Industry Classification Standard (GICS).
• Using a building block approach, Regional and Composite Indexes can be created from the individual Market Indexes for each size-segment. GICSbased, share type-based and other more granular indexes may also be derived from the Market, Regional and Composite Indexes. 

20122013

Hoenir said:

'A little more nuanced than that. As an example. '

Appreciate the information, however, I am a little lost with it, would you mind explaining it?

Hoenir

20122013 said:

Hoenir said:

'A little more nuanced than that. As an example. '

Appreciate the information, however, I am a little lost with it, would you mind explaining it?

I was merely pointing out that pure capitalisation indices are far and few between these days.

 Many companies trade internationally so where their brass plate is located is irrelevant. Shell has a London listing. Once upon a time it was a top ten constituent of the S&P500. Home bias is a badly misunderstood term across social media. 

dunstonh

20122013 said:

dunstonh said:

There are thousands of benchmarks and you can get trackers for money of them. 

You would use trackers to match your chosen benchmark or trackers in individual country/regions that match your chosen benchmark.

Would you mind saying in simpler terms, please?

its multi layed - so I will address each layer.

There are multiple benchmarking firms.  FTSE Russell, MSCI and Bloomberg for example.   Each will have its own methodology.   So, that is your first layer.

Lets pick one of those firms, FTSE Russell.  Here are their 1773 benchmarks (not including custom ones)
https://www.lseg.com/en/ftse-russell/index-resources/factsheets

If you want a global benchmark that follows large cap companies only, you can have that.
If you want one that is weighted by Market capitisaion, you can have that
If you want one that is weighted by GDP or an alternative weighting, you can have that.

You then find a tracker that matches that benchmark.   In some cases, you wont easily find a single global tracker that does.   However, you can use multiple tracker funds.  For example, a tracker fund that tracks FTSE North America (US and Canada), a tracker fund that tracker Developed Europe, another for Developed Asia and another for Japan and Emerging Markets etc.

You mentioned FTSE All World.   That is large cap (so restricted on mid and small cap).  If that is what you are after, then that's easy as there are many funds that can match that (either singularly or individual country/region funds - which is the cheaper way but involves more work)

You mentioned bias in your post.
Market capitalisation has a bias towards US.  That was great in the 10 years prior to 2024 when US was the best market.    However, it was bad thing in the cycle before that as US was one of the worst places to be.

Looking ahead, some feel this could be the point where US equities underperform the RoW.  So a tracker biased to US may not appeal in that scenario. So, an alternative weighted tracker or portfolio of trackers may appeal.

The HSBC fund has a bias to large cap and US.

eskbanker

20122013 said:

HSBC FTSE All World Index Class C

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-world-index-class-c-accumulation

Country     Weight
United States     58.61%
Japan     5.63%
Non-Classified     2.59%
China     2.45%
Switzerland     2.42%
India     2.29%
Canada     2.26%
France     2.10%
United Kingdom     1.96%
Germany     1.88%

UK is 1.96 % weighting, useful to know as can I apply this to other funds, too.

If that was intended to answer my question about home bias, it doesn't do so!  It tracks the FTSE All-World index, which aims to be fully market cap-weighted globally rather than arbitrarily favouring any specific market, which is what home bias would typically mean.

20122013

dunstonh said:

20122013 said:

dunstonh said:

There are thousands of benchmarks and you can get trackers for money of them. 

You would use trackers to match your chosen benchmark or trackers in individual country/regions that match your chosen benchmark.

Would you mind saying in simpler terms, please?

its multi layed - so I will address each layer.

There are multiple benchmarking firms.  FTSE Russell, MSCI and Bloomberg for example.   Each will have its own methodology.   So, that is your first layer.

Lets pick one of those firms, FTSE Russell.  Here are their 1773 benchmarks (not including custom ones)
https://www.lseg.com/en/ftse-russell/index-resources/factsheets

If you want a global benchmark that follows large cap companies only, you can have that.
If you want one that is weighted by Market capitisaion, you can have that
If you want one that is weighted by GDP or an alternative weighting, you can have that.

You then find a tracker that matches that benchmark.   In some cases, you wont easily find a single global tracker that does.   However, you can use multiple tracker funds.  For example, a tracker fund that tracks FTSE North America (US and Canada), a tracker fund that tracker Developed Europe, another for Developed Asia and another for Japan and Emerging Markets etc.

You mentioned FTSE All World.   That is large cap (so restricted on mid and small cap).  If that is what you are after, then that's easy as there are many funds that can match that (either singularly or individual country/region funds - which is the cheaper way but involves more work)

You mentioned bias in your post.
Market capitalisation has a bias towards US.  That was great in the 10 years prior to 2024 when US was the best market.    However, it was bad thing in the cycle before that as US was one of the worst places to be.

Looking ahead, some feel this could be the point where US equities underperform the RoW.  So a tracker biased to US may not appeal in that scenario. So, an alternative weighted tracker or portfolio of trackers may appeal.

The HSBC fund has a bias to large cap and US.

This is my interpretation : find a benchmark which suits my plan and then find a tracker which matches it as closely as possible ? 

and need to rethink what to do with my FTSE All World,  will wait till it bounces back (could be a long wait)  or I can switch funds