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Low-cost tracker - how best to buy?

Index tracking funds and ETFs
GeoffF100
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Re: Low-cost tracker - how best to buy?

#336258

Postby GeoffF100 » August 27th, 2020, 8:53 am

1nvest wrote:Necro-bumping ... I believe HSBC's World tracker is now down to 0.13% charges. Vanguards accumulation FT All Share is down to 0.06%. In a iWeb account after initial loading, no ongoing fees/costs :) https://www.markets.iweb-sharedealing.c ... 00B3X7QG63

When I look at historic FT All Share versus World total returns, I see reasonable similarities, but where World in effect lags by around withholding taxes applied to dividends (15% average withholding tax perhaps applied to 4% average dividends = 0.6% type lag). Many of the large stocks in the FT All Share are global businesses.

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thumbnail image, click to enlarge

That is interesting, but where did you get the data?

hiriskpaul
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Re: Low-cost tracker - how best to buy?

#336317

Postby hiriskpaul » August 27th, 2020, 12:42 pm

The data I have available, from a private database so I cannot post a link, indicates that the MSCI World and FTAS have had virtually identical CAGRs of 11.0% (in pounds) from the end of 1969 to the end of 2019. So not far off. The difference may be down to rounding errors in compounding up all those annual returns. The other difference might be down to precisely which MSCI World index is chosen. One of them assumes 30% dividend withholding taxes are applied, which is a bit steep. I agree that the FTAS has been a lot more volatile than MSCI World, so on a risk adjusted basis MSCI World was better. The make-up of both indices has changed enormously over the last 50 years. That on its own means past differences in performance cannot be of any guide to the future, but I would expect MSCI World to continue to be less volatile as it is more diversified.

Both the MSCI World and FTAS have become much more correlated over time, so less tendency to move in opposite directions. That has reduced any expected free lunch rebalancing benefits.

If I had to pick a single tracker to invest in, I would definitely go for a World tracker, preferably including EM, rather than a UK market only one.

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Re: Low-cost tracker - how best to buy?

#336327

Postby Adamski » August 27th, 2020, 1:03 pm

I've become a big fan since the Covid-19 correction of l&g global 100 index I class, which has an ocf of 0.14%. As more heavily weighted to US and the tech giants, it has outperformed my world tracker fund in the past 12 months.

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Re: Low-cost tracker - how best to buy?

#336343

Postby 1nvest » August 27th, 2020, 1:55 pm

https://www.bogleheads.org/wiki/Global_ ... ex_returns and applied £/$ conversion.

FTAS data was in part sourced from older Equity/Gilt study data and more recent from http://www.swanlowpark.co.uk/ftseannual

Volatility is considered a risk to some, a benefit to others, such as if you rebalance between high and low volatility holdings, or inversely correlated, where more movement tends to scale up combined benefits.

I consider a 50/50 barbell of stock/gold (silver 1932 to 1970 as the US still was pegging the $ to gold) to be a form of central currency unhedged global 'bond' bullet, which provides enough 'foreign' currency diversification. Stock in this chart is again FT Composite/FT All Share based data.

Image

More recently I've been pondering whether rebalancing is even needed/appropriate. Could be enough to simply just add to the lagging asset value if saving/accumulating, or draw from the leading value asset in drawdown. Again that does introduce a higher standard deviation, but similar overall rewards. I particularly like that really passive option as with some magic wand waving I can buy and sell physical gold (coins) at effectively spot gold prices, so combined 50/50 with Vanguards FT All Share accumulation unit trust that has a 0.06% expense, that comes out at a 0.03% portfolio expense (that if I open a iWeb account and hold via that brokerage, there are no further costs). That wand waving however does take time/effort so I'd rather just be doing it the once rather than repeatedly (as one year gold was reduced to add to stocks and the next year stocks being reduced to buy back gold again - would involve further wand waving that might not be as easy as at present in the current low interest rate environment).

In the above chart the bars are staked and are the weighted gains, i.e. 50/50 stock/gold with stock up 20% would have a 10% stock bar in the chart. With 50% of the gold gain staked on top (or deducted from) the stock bar. The blue dots show each years actual 50/50 stock/gold gain/loss. The accumulation lines for nominal and real are relative to the right hand log scaled Y axis.

Looking at all start years since 1932 up to 1994 for 50/50 stock/gold either rebalanced, or not rebalanced running up to the most recent date (end of 2019) rebalancing did reward more than not rebalancing for many of cases, but not always. And rewards were close enough to tolerate some relative under-performance from not rebalancing in view of better cost/tax savings.

Image

I quite like the totally passive choice of loading 50/50 into a accumulation stock index and gold, and not rebalancing other than just (retirement) drawing from either stocks or gold according to whichever was the higher capital value.

Still struggling however between whether the stock should be FTAS (Vanguards accumulation unit trust (0.06% expense)), or global (HSBC's global accumulation unit trust (0.13% expense)). The UK with the likes of Unilever that has sales in over 190 countries, global miners, global banks, global oil, global pharmaceuticals ...etc.) could already be global enough. Higher tax/cost savings. But I also like how a global holding would be dynamic enough to track the overall global drift that may occur over time. Plan is to open several different family members iWeb accounts and load into those, could end up perhaps with a three way equal initial split of FTAS/global/gold. Some rebalancing will occur between those accounts over time (capital flows), so there would be natural tendency to redirect each account towards being equal weighting of the three assets anyway.

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Re: Low-cost tracker - how best to buy?

#336360

Postby 1nvest » August 27th, 2020, 2:35 pm

50/50 FT All Share/Gold versus third each FT All Share/Global Stocks/Gold

Image

Thinking along the lines of a Talmud asset allocation of a third each land (home), commerce (stocks) and in-hand (gold) and the simpler 50/50 FTAS/gold has appeal, even if its a marginally bumpier ride along the way.

The rightmost figures in this Callan provide a indicator of the real (after inflation) gains across each decade

Image

Stock is FT All Share. Precious Metals (PM) were silver for years prior to 1970.

Fundamental is that the yearly best asset on average offsets the yearly worst asset ... and some. Which historically was the case in a reasonably consistent manner.

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Re: Low-cost tracker - how best to buy?

#336434

Postby 1nvest » August 27th, 2020, 6:59 pm

FT100 and FT All Share blur into one in this chart

Image

Seems to be a case of all indexes broadly align, until a exceptional event hits one that knocks it out of kilter with the others. Something for instance knocked World down relative to the others in 1990.
FT100 and FTAS recovered less well from the dot com bubble burst (2003 lows)

Perhaps a reason why equal weight tends to relatively outperform - as its less impacted by single negative side events than what a more concentrated (cap weighted) may be exposed to ??

Terry's (TJH) HYP has more aligned with the FT250 (best case) outcome over those years.

Makes one wonder whether a 11 stock portfolio might be reasonable, one stock from each sector, all equally weighted - such that both stocks and sectors were all equally weighted. Double up to 22 stocks to further reduce single stock risk factors. Perhaps selected for global presence/business exposure.

Yearly total return data ...
Image

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Re: Low-cost tracker - how best to buy?

#336469

Postby hiriskpaul » August 27th, 2020, 11:26 pm

Here are the MSCI World (GBP TR) figures I have:

1970	-1.98
1971 12.46
1972 34.39
1973 -13.66
1974 -25.32
1975 56.11
1976 36.37
1977 -8.81
1978 10.61
1979 2.79
1980 19.20
1981 21.61
1982 30.94
1983 37.31
1984 32.16
1985 13.97
1986 39.85
1987 -8.01
1988 28.27
1989 31.36
1990 -30.17
1991 22.89
1992 17.49
1993 26.08
1994 -0.15
1995 22.25
1996 3.42
1997 20.89
1998 23.42
1999 29.39
2000 -6.04
2001 -14.32
2002 -27.26
2003 20.29
2004 7.46
2005 23.04
2006 5.83
2007 7.72
2008 -17.39
2009 16.45
2010 15.87
2011 -4.31
2012 11.42
2013 25.00
2014 12.07
2015 5.45
2016 29.01
2017 12.42
2018 -2.50
2019 23.44


Returns slightly higher than yours, probably because your version may be for the index with a 30% dividend withholding tax.

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Re: Low-cost tracker - how best to buy?

#336475

Postby hiriskpaul » August 27th, 2020, 11:54 pm

MSCI World small caps (GBP TR)

2001	3.90
2002 -23.78
2003 42.47
2004 16.31
2005 29.82
2006 3.12
2007 -0.57
2008 -19.15
2009 28.88
2010 30.55
2011 -8.03
2012 12.95
2013 30.46
2014 8.69
2015 5.92
2016 35.09
2017 12.52
2018 -8.10
2019 21.89


That lot compounds up to 10.2% CAGR compared to 6.8% For MSCI World over the same period. More volatile as well though (St.Dev 18.7 for small caps vs 15.3).

Equal weight tends to perform better when small caps perform better https://www.forbes.com/sites/rickferri/ ... ght-sp-500

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Re: Low-cost tracker - how best to buy?

#336479

Postby 1nvest » August 28th, 2020, 12:51 am

Thanks.

Pulling out Vanguards yearly world fund figures from https://www.vanguardinvestor.co.uk/rs/g ... ts/6016/gb and converting to Pounds (figures in that doc are US$ based) ... and comparing your MSCI world £ based total return figures (World £TR) ...

Image

... and ahh! Vanguards fund clearly tracked its benchmark index very closely, low cost and all that, but compared to your figures and it lagged by 1.5% annualised since 2013 !!??

Vanguards choice of benchmark index however is the FTSE All-World Index, haven't run the precise figures as ftserussell.com is down at present, but from the figures I already have there isn't that much of a difference between the Russells (FTSE) and MSCI's.

Comparing Vanguards world fund to HSBC's - that also uses the FTSE All world index as its benchmark https://www.trustnet.com/factsheets/o/k ... orld-index and that pretty much mirrored Vanguards results.

Looks to me as though your data might be on the high side, at least for the years since 2013, but intermittently so, 2016 and 2017 for instance was more aligned/lagging.

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Re: Low-cost tracker - how best to buy?

#336480

Postby hiriskpaul » August 28th, 2020, 1:20 am

The Vanguard fund includes EM, which has underperformed over 5 years. Try iShares SWDA for an MSCI tracker.

My figures are without any withholding taxes, but any global fund will have suffered some. Pension funds have much reduced withholding taxes compared to retail funds and ETFs.

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Re: Low-cost tracker - how best to buy?

#336534

Postby 1nvest » August 28th, 2020, 10:32 am

Thanks.

Now seeing similar yearly £ based returns to yours. I sourced end of year £/$ data from FRED and looking at the KIID https://www.ishares.com/uk/individual/e ... 983-en.pdf that provided yearly 2010 onward figures ...

Image

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Re: Low-cost tracker - how best to buy?

#336539

Postby 1nvest » August 28th, 2020, 10:48 am

Updating that earlier chart to include your MSCI data

Image

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Re: Low-cost tracker - how best to buy?

#336546

Postby Adamski » August 28th, 2020, 11:07 am

1nvest, you're debating whether to have 33% in gold or 50%. This is a very high gold allocation, as most would argue 5 or 10% to be enough. Gold's gone up 30% this last 12 months so although a good investment now with all the uncertainty and risk of a second wave. Once covid is eventually under control and things return to normal as they can be, stocks will rally again, and gold is at risk of crashing. No one has a clue what will happen next, but its history is a volatile asset so I'd be cautious about putting so much in one asset.

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Re: Low-cost tracker - how best to buy?

#336548

Postby hiriskpaul » August 28th, 2020, 11:11 am

iShares are also comparing against an index which includes withholding taxes!

Here are the gross returns (in dollars) compared with the iShares provided returns:

year    gross  iShares 
2010 12.34 11.8
2011 -5.02 -5.5
2012 16.54 15.8
2013 27.37 26.7
2014 5.50 4.9
2015 -0.32 -0.9
2016 8.15 7.5
2017 23.07 22.4
2018 -8.20 -8.7
2019 28.40 27.7


Compound up and you get CAGRs of 10.1% and 9.5%, consistent with a withholding tax of 30% on 2% dividend yield. In reality the withholding tax will be less than half that figure, say 0.3% per year. iShares fee of 0.2% and other charges/frictions make up another 0.3% or so, which is why iShares manage to track the index so closely. No mention of any of this in their literature of course.

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Re: Low-cost tracker - how best to buy?

#336582

Postby 1nvest » August 28th, 2020, 12:46 pm

Sourcing yearly stock total return data from portfoliovisualizer.com my focal point is diversification along the lines of holding £'s invested in a UK home, gold as a global currency (and a commodity), and either a global currency in the way of a global stock index, or US$ primary reserve currency in the way of US stock, or another form of global currency via the FT All Share index - that has many large cap stocks with global business presence.

With costs/taxes utmost in mind for retail (regular) investors I'd rank those as FTAS as being the most cost/tax efficient, US second, Global last.

Excluding £'s (home value) and since 1972 I'm seeing total returns (accumulation) when using Paul's MSCI world stock data (all data is £ adjusted) ...

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I'd categorise that as broadly being just noise of differences - in effect the same, at least on a pre-cost/taxes basis. Within that date range however there were periods of divergence, for instance by-eye 2010 to 2015 looks like FTAS/gold was more flat than US/gold, and indeed over those years FTAS/gold rose just 6.5% in total whilst US/gold rose 27% (all values are nominal gains (don't factor in inflation)).

Swapping out FT All Share for FT100 instead (since 1986), despite the FT100 having been pretty lousy over recent years ...

Image

and in the log scaled broader view that made little difference. 2010 to 2015 inclusive however did see the reward drop down to just 3.8% in total over those years.

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Re: Low-cost tracker - how best to buy?

#336602

Postby 1nvest » August 28th, 2020, 1:48 pm

Adamski wrote:1nvest, you're debating whether to have 33% in gold or 50%. This is a very high gold allocation, as most would argue 5 or 10% to be enough. Gold's gone up 30% this last 12 months so although a good investment now with all the uncertainty and risk of a second wave. Once covid is eventually under control and things return to normal as they can be, stocks will rally again, and gold is at risk of crashing. No one has a clue what will happen next, but its history is a volatile asset so I'd be cautious about putting so much in one asset.

Thanks Adamski

Yes most dislike gold. Others opine differently. In India for instance there is more faith in gold than in their domestic currency (for historic good reasons). 50% weighting would be relative to liquid assets, more like a third relative to total wealth. My philosophy is that each/any asset could be as good as totally devastated during a 30 year/whatever investment horizon and providing the other two-thirds pull-through its a bad but not critical factor. When gold is considered as part of a overall portfolio its benefits are considerably better than if just looked at in isolation. I fully expect its price to drop sooner or later, considerably. When so I would look to be accumulating more ounces being held. When managed that way its liability cost for providing 'insurance' is relatively low.

Consider a worst case where equity like assets gain 10% annualised for 30 years, but where instead you'd deposited a third into gold and only two-thirds into equities. 100% all equity rises 17.5 times, in contrast just two thirds exposure to that rises to 11.5 times, 8.5% annualised instead of 10% annualised. And that's assuming total loss of the third. In practice the gap is closed down as gold doesn't totally fail and at times for instance its taken 70 ounces of gold to buy the average house, at other times its taken 700 ounces. Or a little over 1 ounce to buy the Dow, to at other times requiring over 40 ounces to buy the Dow. It's volatility to a large extent is part of its appeal. During the 1980's/1990's 50/50 rebalanced stock/gold would have seen the price of gold down in nominal terms, but where you'd accumulated 8 or more times more ounces of gold. Over other periods that swings around and ounces of gold are reduced to add more equity/shares.

For 50/50 yearly rebalanced stock/precious metals (silver pre 1970, gold from 1970)

Image

The dips coincide with times where ounces of gold were typically being reduced to add more stock shares.

Broadly you might expect a ounce of gold to maintain purchase power, but it tends to do so in a volatile manner. When more ounces are also accumulated naturally, and where the rate of accumulation compares to broad prices inflation, then that's a 2i reward (two times the inflation rate). Broadly I would expect stocks to see share prices broadly rise with inflation, along with paying dividends that might compare to cash interest/inflation, also a 2i type asset. Similar broad rewards, but distinctly different assets and correlations.

US data log scaled and after inflation
Image
and to recent over that period (since 1972) the two yielded similar total return outcomes. Of the two I'd opt for the red line choice (50/50 stock/gold) over the blue line choice (100% stock).

I wonder if Gen Z will even bother with stocks or bonds. Maybe given low rewards for the risks and massive bond spreads/costs (pay to lend to the state) they could very well opt for the likes of Glint, Bitcoins and P2P. The next decade or two with the Baby Boomers inheritances being handed over to Gen Z and many states have done little to promote continuation of conventional stock/bond investing, if anything its almost as though the state are intentionally driving investors away. Look at Gilts for instance, and spreads of 5% on top of negative real returns is pretty much a no-entry sign. The state used to provide pretty much guaranteed low cost investments to its population - such as Index Linked Savings Certificates .... but no more. The EU has even laid down rules where Bank failures can now be opted to be either funded by tax payers, or by the depositors (Bail-In). Personally I think that is bad policy, as when citizens instead opt for jumping between currencies/assets at the press of a button rather than supporting their own domestic currency then that is more inclined to see large-scale rapid moves between currencies at times, that will induce crises and at those times gold may shine.

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Re: Low-cost tracker - how best to buy?

#336604

Postby dealtn » August 28th, 2020, 2:00 pm

1nvest wrote: Look at Gilts for instance, and spreads of 5% on top of negative real returns is pretty much a no-entry sign.


Where are you seeing 5% spreads?

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Re: Low-cost tracker - how best to buy?

#336621

Postby 1nvest » August 28th, 2020, 3:16 pm

dealtn wrote:Where are you seeing 5% spreads?

ii asset-search/quote-box.

4% at present ...
Image

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Re: Low-cost tracker - how best to buy?

#336625

Postby dealtn » August 28th, 2020, 3:35 pm

1nvest wrote:
dealtn wrote:Where are you seeing 5% spreads?

ii asset-search/quote-box.

4% at present ...
Image


Well I don't use them so can't say its wrong. But I suspect they are taking feeds from the LSE platform which is used for <1% of gilt transactions. The vast majority of gilt business would be undertaken elsewhere, and I suspect for retail investors the majority of the exposure is via funds which from experience will be trading at mid. (They will of course be charging a management fee to retail customers too, but they would for other asset classes as well!).

The gilt market is poorly set up for retail accounts, that's for sure, and I doubt much has changed for the better in the 5 years or so since I left it.

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Re: Low-cost tracker - how best to buy?

#336664

Postby Alaric » August 28th, 2020, 5:20 pm

dealtn wrote:The gilt market is poorly set up for retail accounts, that's for sure, and I doubt much has changed for the better in the 5 years or so since I left it.


The DMO quotes prices available to private investors.

https://www.dmo.gov.uk/data/pdfdatarepo ... tCode=D10B


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