Picking a world tracking ETF

j813ys

Looking at - UBS core MSCI world UCITS ETF USD ACC

It has an ongoing charge of 0.06% which is about half the price of other well known all world trackers.

Is there anything to be wary of down the line with this?

Exodi

They each have their own pro's and con's:

First and perhaps the most obvious is that it tracks the MSCI World index (as opposed to the slightly more popular FTSE All-World index). This is important because the MSCI World Index strictly covers developed nations, so no emerging markets coverage, like Taiwan, South Korea, China, India, etc.

For emerging markets coverage, you'd want to look at something like MSCI ACWI (All Country World Index - which I believe has performed better than the fund you linked, despite having a higher OCF), or as before, FTSE All-World (or a separate EM fund).

Because of this, it means several things. Firstly that MSCI is generally quite US heavy (currently around 68.3%, compared to the FTSE All-World which is currently at 61.74%) and holds less stock. While the FTSE A-W includes over 4200 stocks across 50 countries, the MSCI holds about 1500 across 23 countries.

Nonetheless, due to the significant performance by US tech companies and both having high saturation of these, they have both performed similarly over the years. The general advice is that most people would benefit focusing their attention on maximising their contributions and consistency, as opposed to agonising over the fraction of a percent difference between the various world index funds.

dunstonh

Is there anything to be wary of down the line with this?

Global trackers have an issue at the moment where the concentration in North America and, in particular, North American tech is far higher than its historical norm. This makes them higher risk than their historical norm. They're going to be far more volatile than they used to be, and the potential for loss is higher than it used to be. If you can handle that increased volatility

Recent analysis now notes that US equities have become the “epicenter” of global equity volatility, with both implied and realised volatility in US markets now surpassing that of EM (emerging markets) and EAFE (Europe, Australasia and Far East), reversing the older intuition that EM is always the main source of risk.

Whilst using trackers is still perfectly viable and sensible, global trackers perhaps should come with higher risk warnings than normal because of this. Indeed, many passive investors are using regional and country trackers to build their own weightings to reduce the amount allocated to the U.S.

Exodi, above, has covered other strong points.

US funds do tend to be in the 0.05% ballpark. And the particular global tracker you have looked at is almost at 69% U.S which is higher than most other benchmarks. So that probably explains the cost. Plus, you've listed the USD version of the fund. Most UK investors would buy the GBP version.

If a similar dot-com-style crash were to occur in the future, where tech fell around 80%, then this fund could fall around 60%. However, index trackers are more popular now than they were back then, and seeing as they increase market volatility, the short-term loss potential could be significantly more. Technology took about 15 years to recover its losses last time around. So in your financial planning, you should really be looking at a 20-year time scale minimum before you need to access this money if you invest in this way

aroominyork

A 20 year timescale for a global equity tracker? Wow. Do you see an alternative one-size-fits-all global equity index/ETF portfolio for current times? Would it have a different geographic and/or sector and/or style composition?

dunstonh

A 20 year timescale for a global equity tracker? Wow. 

Hopefully it won't be as bad as that. However, if you believe that technology is in a bubble and you compare the lost period to the last time it was in a bubble that burst, then 20 years is a reasonable time scale.

Do you see an alternative one-size-fits-all global equity index/ETF portfolio for current times?

I don't think there are many. I use individual country region trackers to give global coverage, but with the weightings that we select to give that a tilt away from North America.

Another option is to split it between global funds excluding tech. For example, have an FTSE All-World tracker as the core, but then have global trackers with reduced tech exposure as satellites.

j813ys

Putting your money in a global tracker seems to be the standard advice given?

aroominyork

A while back a forumite (maybe Linton) mentioned a geographic allocation of 40% North America, 30% UK/Europe, 30% EM/Japan/Developed AP. That is pretty much where I am now, with tilts to UK equity income, EM equity income, and small cap value. I'll post again in 20 years to let you know how it's going.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/82062452#Comment_82062452

There's no such thing as standard.

The average UK consumer is cautious to moderate in risk. A global tracker would be totally unsuitable in isolation for them.

The dominant investment type is the balanced fund. Often referred to as a multi-asset fund and commonly at the 60 to 85% equities ratio.

Most UK consumers do not have the risk profile or capacity for loss to invest 100% in a global tracker.

I think what you probably mean is it's a social media and YouTube favourite.

Looking at the published professional portfolios, there is a steady increase in tilting away from technology.

A while back a forumite (maybe Linton) mentioned a geographic allocation of 40% North America, 30% UK/Europe, 30% EM/Japan/Developed AP. That is pretty much where I am now, with tilts to UK equity income, EM equity income, and small cap value. I'll post again in 20 years to let you know how it's going.

I'm broadly similar on the equities side. North America is reduced t0 45% with the UK and a global infrastructure tracker picking up the difference. My other countries & regions match FTSE All World weightings. All my funds, apart from the global infrastructure, are benchmarked to FTSE to ensure consistency.

This has the effect of going a bit underweight with technology and a bit overweight with financials, energy and infrastructure.

Exodi

https://forums.moneysavingexpert.com/discussion/comment/82062470#Comment_82062470

This skews quite a bit from actual market capitalisation in favour of Europe.

To use the latest FTSE Global All Cap Index factsheet: https://research.ftserussell.com/analytics/factsheets/home/downloadsingleissue?issueName=GEISLMS&isManual=False

This puts US at ~62%, Europe at ~11% (excl. UK), the UK at ~3%, Japan at ~6%, AP at ~5%, and EM at ~13%.

Assuming 40% was the decided allocation for US stocks, spreading that evenly would mean Europe at ~17.4%, UK at ~4.7%, Japan at ~9.5%, AP at ~7.9% and EM at ~20.5%.

To put that in the same format as you said, it would be 40% NA, 22% UK/Europe, 38% EM/JP/AP if in line with current global market capitalisation (according to the FTSE Global All Cap).

Of course if one thinks Europe will perform well relative to it's global peers in the future, your weighting would be appropriate.

My current strategy is to reduce US exposure in my portfolio by a quarter in the medium term (I don't invest in a single all world fund, so this is easy to do by just not purchasing any additional shares in US equity funds for a while, but risky in the short term if a tech collapse happened soon).

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82062302#Comment_82062302

WRDA is the GBP denominated version of the fund and has a TER of 0.06%, which is cheap. The fund size and market spread both look fine.

The current high volatility of the US market is a possible reason to be wary of global trackers. A counter argument is that a global tracker will achieve the average performance of every dollar invested in the global market (before costs). There are some who believe that the US market is underpriced relative to other markets. They are counter balanced by those who hold the opposite view. That is what makes a market. A global tracker makes sense if you are content to receive the average performance for the equity portion of your portfolio with low costs. Those who believe that they know more than the market will make other choices. If you believe that the volatility of the global market has become too high for your risk tolerance, you can hold a higher proportion of other asset classes.

In my case, the increased volatility of the US market is not an issue. I am never going to run out of money. Most of my money will go to charity on my death. I have ridden the global market up, and I can ride it back down again. 100% equities would not be problem for me. I have been targeting 60% equities with cash flow rebalancing. The recent surge in equities leaves me close to 66% equities. I could rebalance more aggressively, but there is no good reason for me to do that.

aroominyork

A global tracker makes sense if you are content to receive the average performance for the equity portion of your portfolio with low costs. Those who believe that they know more than the market will make other choices.

I don't believe I know more than the market. I just don't want two-thirds of my equity exposure to be in one country. Of course, if I could only invest in one country I would choose the US, but I don't have to make that choice.