Global tracker or diversify?

gravlax

If global trackers hold approx 60-70% US stocks, in proportion to global market weighting, some commentators have concerns that this means being over exposed to US and the days of US exceptional out performance may be coming to an end. Some therefore advocate reducing holdings in pure global trackers and allocating more to global ex-US. 

Do pure global trackers not automatically rebalance their holdings anyway, so if longterm investors do start selling US equities and start looking for more opportunities in Europe, UK, or Asia, then will the pure global trackers not automatically also hold less US weighting and more rest of the world to reflect this trend?

So is that necessary to diversify away from a pure global tracker in order to reduce US exposure, or can you not just continue to hold the global tracker and let it recalibrate to the rest of the world stocks?

InvesterJones

If the global tracker is started at market cap weighting then it'll always reflect the value accurately because the proportion will change as the value of the underlying investments change (without having to do any rebalancing). So if there was a movement of investment into non-US assets, the US assets would lose value and form a smaller proportion of the global holding.

If you want to further go against market opinion then you can chose to hold something different to market cap weighting, whether that's ex-US, or some other proportion other than market cap.

kempiejon

Not answering the question about US/global trackers though I broadly agree that the market is just that. The US weighting in it or the UK or other part are a feature of that market's proportion and will vary.
As we have seen the global interconnectedness of markets doesn't necesarrily being away from the US won't have an affect on whichever markets you might be in.
Diversification is also away from equity/stocks into fixed interest, corporate bonds, gilts, gold and so on.

Hoenir

gravlax said:

So is that necessary to diversify away from a pure global tracker in order to reduce US exposure, or can you not just continue to hold the global tracker and let it recalibrate to the rest of the world stocks?

Investing goes in cycles. Wind back to the late 80's , early 90's. Japan was in vogue. Sucking in investors money. Japan at peak represented 40% of the developed world global index. The US just 30%. The Nikkei crashed. The Nikkei 225 plunging from a height of 38,915 at the end of December 1989 to 14,309 at the end of August 1992.  A fall of 63%. No great surprise that US stocks commenced their ascendancy around that period. Due to the manner in which index trackers work. 

The investing herd will scatter as if being attacked by a pride of lions. Once everybody has forgotten what happened the last time. Investors will regroup to start the same long process all over again. 

dunstonh

Do pure global trackers not automatically rebalance their holdings anyway, so if longterm investors do start selling US equities and start looking for more opportunities in Europe, UK, or Asia, then will the pure global trackers not automatically also hold less US weighting and more rest of the world to reflect this trend?

I think you have misunderstood what a tracker is.  A global tracker will follow the benchmark it is tracking.  It won't be looking for opportunities.  It will just follow whatever the benchmark is.   So, if its a market cap tracker, if will follow the market cap, whatever that ends up being.

You can use different trackers to follow different benchmarks.  e.g. building a portfolio of trackers to follow the FTSE GWA All index (which underweights the US).   Although there isn't a single global tracker that follows that benchmark.  You would have to use country/region specific trackers.

Alternatively, you can buy a global exc US tracker and then have a US tracker alongside it and select your own weightings.

aroominyork

dunstonh said:

Do pure global trackers not automatically rebalance their holdings anyway, so if longterm investors do start selling US equities and start looking for more opportunities in Europe, UK, or Asia, then will the pure global trackers not automatically also hold less US weighting and more rest of the world to reflect this trend?

Alternatively, you can buy a global exc US tracker and then have a US tracker alongside it and select your own weightings.

Does this exist in the UK?

Hoenir

aroominyork said:

dunstonh said:

Do pure global trackers not automatically rebalance their holdings anyway, so if longterm investors do start selling US equities and start looking for more opportunities in Europe, UK, or Asia, then will the pure global trackers not automatically also hold less US weighting and more rest of the world to reflect this trend?

Alternatively, you can buy a global exc US tracker and then have a US tracker alongside it and select your own weightings.

Does this exist in the UK?

ETF's proliferate every day

https://www.justetf.com/uk/how-to/msci-world-ex-usa-etfs.html

Albermarle

If global trackers hold approx 60-70% US stocks, in proportion to global market weighting, some commentators have concerns that this means being over exposed to US and the days of US exceptional out performance may be coming to an end. Some therefore advocate reducing holdings in pure global trackers and allocating more to global ex-US. 

The predictions and worries about the future of the US stock market, and over exposure to it have been around ever since it started booming some years ago. Many have advocated reducing US exposure at least 10 years ago, which would have been a big mistake with hindsight.
So for sure Trump has injected some new uncertainty, but just worth keeping in mind that these market pundits are often wrong. Maybe they will be right this time and maybe not......
Personally I would think generally 70% is too high and anything between 40% and 60% is sensible depending on your own ideas. 

eskbanker

gravlax said:

Global tracker or diversify?

[...]

So is that necessary to diversify away from a pure global tracker in order to reduce US exposure, or can you not just continue to hold the global tracker and let it recalibrate to the rest of the world stocks?

Diversification in investing would normally relate to extending the number of underlying holdings or range of markets, etc, whereas your question appears to be more about the (separate but valid) question of whether or not to adjust weightings.

aroominyork

Hoenir said:

aroominyork said:

dunstonh said:

Do pure global trackers not automatically rebalance their holdings anyway, so if longterm investors do start selling US equities and start looking for more opportunities in Europe, UK, or Asia, then will the pure global trackers not automatically also hold less US weighting and more rest of the world to reflect this trend?

Alternatively, you can buy a global exc US tracker and then have a US tracker alongside it and select your own weightings.

Does this exist in the UK?

ETF's proliferate every day

https://www.justetf.com/uk/how-to/msci-world-ex-usa-etfs.html

That's the theory, but I haven't found any of the tickers on HL or ii. I was under the impression ex-US was not available in the UK. 

Hoenir

aroominyork said:

Hoenir said:

aroominyork said:

dunstonh said:

Do pure global trackers not automatically rebalance their holdings anyway, so if longterm investors do start selling US equities and start looking for more opportunities in Europe, UK, or Asia, then will the pure global trackers not automatically also hold less US weighting and more rest of the world to reflect this trend?

Alternatively, you can buy a global exc US tracker and then have a US tracker alongside it and select your own weightings.

Does this exist in the UK?

ETF's proliferate every day

https://www.justetf.com/uk/how-to/msci-world-ex-usa-etfs.html

That's the theory, but I haven't found any of the tickers on HL or ii. I was under the impression ex-US was not available in the UK. 

Just found

Amundi MSCI World Ex USA UCITS ETF Acc

on AJ Bell under ticker 

WEXU