UK all share vs. equity income

aroominyork

What are people’s thoughts about UK all share vs. equity income in (whatever you consider important about) the current environment? When I sold my UK smaller companies fund last year I bought equity income (Vanguard) considering it more reliable given the UK economy didn’t seem to be going anywhere fast. I have about 15% of my equities in the UK and over 80% of that in the equity income fund. There is large overlap between the two and, since I do not plan to go back into the FTSE250 or smaller, do people see any reason to balance more towards an all share index for any reason other than a vote of faith in the economy picking up significantly?

Linton

https://forums.moneysavingexpert.com/discussion/6688925/uk-all-share-vs-equity-income

in terms of overall performance the graphs show no significant difference between the funds. They happen to start at a time when the market was recovering from the 2008 crash. Start 3 years earlier or 3 years later the picture could look different.

I do not believe basing fund choice on historic performance graphs is a good way of constructing a portfolio.

In my view investors whose primary objective is maximum long term returns should aim for maximum diversification, in this case the All Shares fund. If the objective is different, for example medium term income, a different choice of fund would make sense.

aroominyork

A few years earlier and indeed the All Share shows better but I started the graph where the Vanguard funds did.

Your point is of course taken about maximum diversification, but the question stands. The UK is one of the world's most dividend generative stock markets and the likelihood of steady profits from our old school businesses seems to outweigh the likelihood of a booming economy that lifts many boats. This is a retirement portfolio but not one dependent on drawing down dividends; however, on a risk/return basis, equity income seems to have forward-looking points in its favour.

GeoffTF

They are both poor choices. A global tracker is a more sensible choice, but you need to consider your tax situation.

aroominyork

https://forums.moneysavingexpert.com/discussion/comment/82189130#Comment_82189130

Most equities are in a global tracker but I underweight the US by buying regional trackers for other regions. 15% UK isn't an eyebrow-raising allocation.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82189202#Comment_82189202

I had not read your preamble. Funnily enough, I also have about 15% of my equity allocation invested in the UK. My FTSE 100 tracker had matched the global index over my holding period when I last looked. I have not gained or lost by overweighting the UK, but whether it was a good idea or not is another matter. Opinions differ on that.

Rollinghome

Recently, income funds have been doing well and I made adjustments to catch some of that myself. Before that it was growth, before that value, and before that quality. Of late there have been signs of life in small caps again and even Terry Smith and Nick Train have shown improved returns. For a long spell managed small caps were seen as a better bet than the FTSE100.

Rather than chasing past performance with the risk of recency bias, it's often a better tactic to top-slice the best best performers and recycle into the rest. So if I wanted a UK tracker I might look at growth but be ready to junp again. Alternatively, knowing that my ability to predict the future isn't great, I'd go for the all-share rather than risk being LILO.

aroominyork

On a 20 year view (other timeframes are available) there is barely anything between whole of market and equity income either globally or in the UK. The recovery from the COVID fall, subsequently quickly reversed, is the only time that stands out.

efunc

My very basic understanding is the FTSE100 is commodities heavy, whilst the S&P500 is tech heavy, and that may actually be a real benifit over the coming months/years. But time will tell.