S&P 500 vs World Fund, last 12 months

mr._prude

I have the following two funds in my S&S ISA and compared their performance over the last 12 months.

GSPX    iShares Core S&P 500 UCITS ETF GBP Hedged

HMWO   HSBC MSCI World UCITS ETF USD 

 

S&P 500 1 year performance is nearly double that of the world fund

S&P 500 (+12.26%) and the World fund (+6.19%)

Both dropped to similar levels during the Trump tariff twist 

S&P 500 (-18.6%) World (-18.3%)  [% from the peak]

The S&P 500 fund is also recovering faster, currently

S&P 500 (-4.3%) and the World fund (-8.4%)  [% from the peak ]

I did except the world fund to grow slower as it is more diversified fund. Equally I expected it to hold up more during the market crash and would have expected it to recover faster. So I am wondering if world funds are worth it at all.

Am I missing something here, any thoughts?

jackrack

I've been thinking this for a while. S&P dropped circa 20% VWRL 18%. I would expect a much less drop with VWRL, but no... 

Exodi

This is an incredibly flawed comparison as one is denominated in USD and the other GBP hedged, so you have inadvertently included currency fluctuation in your calculations. Really you should have been comparing with IGWD (edit: link of the proper comparison in my below reply).

Just a quick google of the S&P500 and FTSE All World suggests the S&P is up 11.0% over the past year, whereas the FTSE All World is up 10.2%.

Likewise the S&P dropped around 18.9% from its ATH, whereas the FTSE All World dropped 15.9%.

Lastly the S&P is 4.1% from its ATH, whereas the FTSE All World is 1.2%.

This is significantly different from the numbers you are citing which suggest the All World indices have tanked relative to the S&P.

It's also worth noting that while the tariffs which caused the dip originated in the US, they were imposed on the rest of the world and thus affected many countries. Even if they didn't, nearly 2/3rds of an All World index fund is the US.

EthicsGradient

One of your funds is hedged, the other isn't. Trustnet doesn't seem to have figures for the hedged version, but here's a comparison of the unhedged version with GSPX: Chart Tool | Trustnet
Over 1 year, the S&P 500 fund grew 7.7%, the World fund 7.2%. So it looks like the difference you see over a year is almost all down to the hedging. Unhedged,  the S&P 500 had a higher peak, dropped more so that at the trough, the performance since May 24 was about the same, and the recovery was about the same.

You need to decide if you think that hedging will work in your favour in the future. But these are all snapshots; there's nothing magical about starting from a year ago. Your decision should also be whether you think the US will do better or worse than the world in the future.

Exodi

EthicsGradient said:

One of your funds is hedged, the other isn't. Trustnet doesn't seem to have figures for the hedged version, but here's a comparison of the unhedged version with GSPX: Chart Tool | Trustnet
Over 1 year, the S&P 500 fund grew 7.7%, the World fund 7.2%. So it looks like the difference you see over a year is almost all down to the hedging. Unhedged,  the S&P 500 had a higher peak, dropped more so that at the trough, the performance since May 24 was about the same, and the recovery was about the same.

You need to decide if you think that hedging will work in your favour in the future. But these are all snapshots; there's nothing magical about starting from a year ago. Your decision should also be whether you think the US will do better or worse than the world in the future.

Comparison on Morningstar:

https://www.morningstar.co.uk/uk/compare/investment.aspx#?idType=msid&securityIds=0P0000Q622|0P0000Q624

If you remove the arbitrary 1 year timeline the OP has imposed, and look at 1M/3M/6M, you can see the world fund has performed relatively well and provides a good illustration to the OP's question (asked ad nauseam) "why not just go all in the S&P 500".

Eyeful

The GSPX has over 99% in the USA and only 503 holdings.
The HMWO is about 69% in the USA and has1329 holdings.

You are comparing apples with oranges.
With the first you are taking a bet on the USA continuing to out perform the rest of the world.
What makes you think this will continue?

You must be new to investing.
Investing is for the long term. Do not worry about i year.

Why are you holding both of the funds at the same time?

If it was me, I would just hold HMWO.

Hoenir

mr._prude said:

Am I missing something here, any thoughts?

Different investments will produce different outcomes over different time frames. Past performance is no reliable indicator of future performance.  Chasing returns over short time frames is not investing. Buy investments with a long term horizon in mind i.e. 10 years and that meet your personal objectives. These will change as the years pass by. 

dunstonh

I did except the world fund to grow slower as it is more diversified fund. Equally I expected it to hold up more during the market crash and would have expected it to recover faster. So I am wondering if world funds are worth it at all.
Am I missing something here, any thoughts?

You are missing exchange rates.     The global fund is not currency hedged but the US one is.

So, the global fund with circa 63% US equities is unhedged.    Sterling has risen against the dollar which has hurt unhedged funds.    However, when it goes back the other, it will hurt the hedged funds.

Historically global exc US vs US have cycled between which area is best. Typically over periods of a decade or so.    The last 12 years have favoured US.   The 15 years prior to that favoured global.

A global equity fund is both global and US and is the obvious option for a UK investor given the high US equity content already.

However, your mistake is not taking exchange rates and hedging into account.

ChilliBob

It's also about what's going to happen in the future, not just what has happened in the past. Will 'American Exceptionalism' continue forever? Or will another region/country take over? - Who knows, nobody, even those who claim they do, the big banks are always revising their predictions for say the S&p, and others. The bulk of my equity investments are in a global fund, with market cap weighting, I'll probably stick with it like that.

For interest though I do have a Europe only fund and the l&g 100 (fund), in small quantities. Comparing these two recently was quite interesting too (yes, I appreciate it's quite different things to compare, but you get the idea).

Would you be fine with just s&p 500? - Yeah, probably. Would I like to 'bet the house' on it? No!