Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Why buy UK?

Index tracking funds and ETFs
SalvorHardin
Lemon Quarter
Posts: 2049
Joined: November 4th, 2016, 10:32 am
Has thanked: 5297 times
Been thanked: 2465 times

Re: Why buy UK?

#345127

Postby SalvorHardin » October 4th, 2020, 3:40 pm

dealtn wrote:A much more reasonable statement. Investors should consider this. In doing so, they might consider what their aims are, and whether this is best achieved by focussing solely on UK funds, non-UK funds, or a mixture.

Having done so a consideration might be given to whether the future is likely to resemble the past, or not, and to what extent.

Agreed. But the OP asked "Why buy UK" and questioned why people would ever invest in the UK. The FTSE100's poor performance was made to look even worse by omitting dividends, which have produced all of the returns since 2000, which is a bit disingenuous.

Then when answers were given the OP said we were all wrong, despite the answers being correct (it is well established that investors are biased in favour of their home market, some investors display a huge preference for dividends, etc.)

The OP seems to have been expecting answers to a different question, such as: "Why invest in the UK now when the.historical performance of America in recent years has been much better".

In which case that should have been asked and different answers would have been forthcoming.

Also the OP was not happy when some of us pointed out that the main reasons for America's indices outperforming in recent years are technology shares and much lower dividends (which means more retained capital, which shows up in the index).

dspp
Lemon Half
Posts: 5884
Joined: November 4th, 2016, 10:53 am
Has thanked: 5825 times
Been thanked: 2127 times

Re: Why buy UK?

#345132

Postby dspp » October 4th, 2020, 3:55 pm

seekingbalance wrote:I apologise for the poor choice of words. I should have said that it is incorrect to assert that adding in dividends makes the FTSE performance comparable to the main US indices.

However, saying people are wrong in their analysis, after Salvor Hardin said "That's an omission on par with looking at England's performance in a five test match series against Australia and ignoring all runs scored by Steve Smith. By ignoring dividends you've left the best bit out. If you exclude the S&P500 technology sector in the last few years, then the S&P500's performance isn't all that special." (and in what way is this not as "bad" as saying you are wrong, just more articulately and more cuttingly expressed?) and others said that if I include dividends the UK performance is similar to the US - is not exactly incorrect.

Saying someone is wrong may indeed not be a good way to foster debate, as Hariseldon (is this the Isaac Asimov appreciation society here?) said - but saying the UK is the same as the US when dividends are accounted for is simply not even close to right, and in my opinion is a big weakness of the majority of topics I see on these lemon fool forums, which still have a huge bias to the old Motley Fool, Pyad driven UK dividend shares.

As I pointed out - even including total return the S&P500 has returned more then double the FTSE and the Nasdaq more than 4 times over 11 years. And this is not isolated or cherry picked. It is pretty consistent over numerous time periods (albeit there was a long period of Nasdaq underperformance following the big ramp up in the 2000-2002 period, more than eliminated now). As Passive investing is generally meant for the long term, numbers like 90x growth in the Nasdaq total, 20+ times in the S&P total v 18 x for the FTSE total return or 4.4x for the FTSE since 1986 seems pretty clear.

Or even 4x for the Nasdaq, 3x for the S&P v 2x for the FTSE total since 2000.

I reassert my point - focusing on the UK versus a mix of UK and International, especially the US, seems a bad thing to do, so investors should consider this.

And finally, as I am not going to keep posting if my input is not required, I did take care to post this in the Passive Investing forum, so picking individual shares, picking indexes but ignoring the bad bits or the good bits do not make for a good comparison.


Your input is most welcome. It happens to be aligned with my own thoughts, hence my underweighting the UK which is currently in single digits as a % of my portfolio (not that my thoughts are necessarily a good place to start from .... viewtopic.php?f=56&t=4396).

Excluding tech stocks from US performance seems to me to be like ignoring the eggs when assessing the quality of an omelette. The tech stocks have been a very significant component of the TR of the USA indices, and for so long as Silly Vally (and to a lesser extent northern I95) and New York remain good places to generate & fund value likely will do so. For decades they were pretty much the only place to go: regrettably the UK is too small to be at minimum scale in this respect; and the EU as a whole (whether inc or exc the UK) has not been able to find collective pooling mechanisms to lead to tech clusters hitting global scale. However it is notable the extent to which China is forcing its way into the tech scene by any & all means fair & foul these days (and there has been plenty of sloping of the playing field in the USA for decades, so I can understand why China is returning the favor).

As to whether the UK itself should form more than a GDP-share of one's portfolio (which is about 2.24% per google), that rather depends on whether one thinks that UK is undersold or oversold at present; and whether the financials & resource sector skews in the UK indexes are likely to be a good or a bad thing. Personally I seen o reason to take a risk on the UK right now - I see very little upside in Brexit, and enormous downside risks.

regards, dspp

seekingbalance
2 Lemon pips
Posts: 162
Joined: November 7th, 2016, 11:14 am
Has thanked: 16 times
Been thanked: 66 times

Re: Why buy UK?

#345151

Postby seekingbalance » October 4th, 2020, 4:47 pm

dspp wrote:
As to whether the UK itself should form more than a GDP-share of one's portfolio (which is about 2.24% per google), that rather depends on whether one thinks that UK is undersold or oversold at present; and whether the financials & resource sector skews in the UK indexes are likely to be a good or a bad thing. Personally I seen o reason to take a risk on the UK right now - I see very little upside in Brexit, and enormous downside risks.

regards, dspp


Thanks dspp.

Your point re UK potential going forward, above, also made in a more speculative way by another poster, echoes my own.

When you look at world events, the direction everything is going, and then include Brexit, the UK's historic poor performance, the structure of the FTSE100 even if not taking into account our propensity for selling the family silver, it seems clear that Tech, Biotech, China (plus perhaps other Asian markets now bootstrapping themselves up) will most likely continue to outperform the UK market. At least for indexes - of course a single retro picked individual share (mine is Fevertree) could negate every other choice, but we are on the Passive investing board here, after all.

And the indexes that have big tech, decent Bio and a record of growth (while also actually paying dividends) are the S&P500, NASDAQ 100 and going forward probably China and maybe Japan, Vietnam. Of course, making a bigger bet and actually selecting Tech or Biotech ETFs might give much better returns if tech and bio are where you think the future lies (I do, personally) but that is perhaps going almost into stock picking territory, which I would not want to do on this board.

I think it is also worth noting that demographics favour Asia Pac (ex Japan) as well as Africa and South America. I am not sure I would want much in the latter two, but it is food for thought. According to my reading Europe is on a long decline in population growth, dipping into population reduction in the next 100 years.

I also looked up the performance of some actual funds to get a wider view. All are Acc units, so include reinvested dividends. I could only easily go back 10 years, but all are very consistent with the earlier performance i listed, going back 30+ years. It is, in my opinion, interesting to note that even the Vanguard Worldwide fund (exUK) trounces the UK market. I also was wrong in my earlier stats, as the dividend reinvestment in the S&P and the Nasdaq make their outperformance v the FT100 even more than I estimated.

Some examples - like for like Accumulation fund returns
Vanguard FT100 Acc -- 5yrs 17% 10yrs 51%
Vanguard World exUK- 5yrs 32% 10yrs 212% (4x FT100)
Vanguard SP500 Acc -- 5yrs 90% 10yrs 240% (4.7x FT100)
iShares - Nasdaq Acc - 5yrs 192% 10yrs 631% (12.7x FT100)

Personally, bearing in mind past performance and likely future growth areas and demographics (Tech, Bio, Healthcare, Digital Security) I am inclined to abandon UK passive funds altogether, sticking with the S&P500, Nasdaq100 and a Worldwide ETF, for all my passive investing, with some UK stock picks, gold and bonds thrown in for balance.

dealtn
Lemon Half
Posts: 6072
Joined: November 21st, 2016, 4:26 pm
Has thanked: 441 times
Been thanked: 2324 times

Re: Why buy UK?

#345156

Postby dealtn » October 4th, 2020, 5:44 pm

SalvorHardin wrote:
dealtn wrote:A much more reasonable statement. Investors should consider this. In doing so, they might consider what their aims are, and whether this is best achieved by focussing solely on UK funds, non-UK funds, or a mixture.

Having done so a consideration might be given to whether the future is likely to resemble the past, or not, and to what extent.

Agreed. But the OP asked "Why buy UK" and questioned why people would ever invest in the UK. The FTSE100's poor performance was made to look even worse by omitting dividends, which have produced all of the returns since 2000, which is a bit disingenuous.

Then when answers were given the OP said we were all wrong, despite the answers being correct (it is well established that investors are biased in favour of their home market, some investors display a huge preference for dividends, etc.)

The OP seems to have been expecting answers to a different question, such as: "Why invest in the UK now when the.historical performance of America in recent years has been much better".

In which case that should have been asked and different answers would have been forthcoming.

Also the OP was not happy when some of us pointed out that the main reasons for America's indices outperforming in recent years are technology shares and much lower dividends (which means more retained capital, which shows up in the index).


None of which I disagree with.

If the conversation had started in such a way, and the "dismissive" tone not occurred a more reasoned argument could take place, which may well now happen.

It seems odd, and particularly ironic, that someone with the moniker "seekingbalance" in particular, sought no such thing, and hence the tone of (justified) response he got that presumably he didn't find favourable.

dspp
Lemon Half
Posts: 5884
Joined: November 4th, 2016, 10:53 am
Has thanked: 5825 times
Been thanked: 2127 times

Re: Why buy UK?

#345180

Postby dspp » October 4th, 2020, 7:37 pm

seekingbalance wrote:I think it is also worth noting that demographics favour Asia Pac (ex Japan) as well as Africa and South America. I am not sure I would want much in the latter two, but it is food for thought. According to my reading Europe is on a long decline in population growth, dipping into population reduction in the next 100 years.


I think one has to be more granular re demographics. China, like Western Europe (inc UK), is ageing fast. It is India, Africa, and various disaster states (MidEast etc) that are still on the upswing, and not necessarily one that will yield a demographic dividend. Even Brazil is now at 1.75 births/female (about the same as USA) !

Therefore, to the extent that all the countries that are generating wealth on a significant enough scale to feature materially in indices, have similar demographic trends, I don't think this matters so much as a guidance factor.

Personally I think a shrinking human population should be welcome. Regrettably Africa et al are likely to prevent that, with consequences that are all too apparent. However as a purely investment matter I am not rushing to take a skewed exposure towards Africa so I can set that aside except to the extent that I do skew away from Africa ....

regards, dspp

spasmodicus
Lemon Slice
Posts: 259
Joined: November 6th, 2016, 9:35 am
Has thanked: 65 times
Been thanked: 117 times

Re: Why buy UK?

#345322

Postby spasmodicus » October 5th, 2020, 12:07 pm

thanks to all for some useful observations
a couple of points
somewhere in the thread there was a remark that UK should maybe be weighted only 2.something percent, presumably the UK's % of world population. And whilst demographics may be significant for growth rate, as presumably a country's retired population might be regarded as economic dead weight, success may be more down to the vitality of the companies in a countries stock markets and the quality of its economic leadership, a hard thing to define.

De-risking a portfolio by diversification requires that the various components are uncorrelated to some extent, as world regions are in the longer term, but not so much in the short term as the daily effects of COVID have shown in the last six months. Nevertheless, in that six month period some region's stock markets have been a lot more volatile that others.

Of the ETFs that I dipped into in March/April this year, XMAF, representing Africa, has subsequently performed better than many, including the UK. XMAF's peak was in late 2013 to 2014 when it reached $10 and subsequently it's performance was lacklustre to say the least. It crashed by more than 40% from its pre covid high of about $8 to less than half its 10 year high. Today it stands around $6.5 and so I ask myself whether it will ever return to its previous giddy heights, or should I regard it as representing a bunch of longer term no-hopers and cash out? On the other hand EQQQ representing the NASDAQ is already well over its pre covid February high and maybe showing signs of irrational exuberence. De-risking to reduce volatility inevitably runs the risk of diluting winner's performances. The point being that I currently haven't figured out a a satisfactory basis on which to weight and rebalance.
regards,
S

dspp
Lemon Half
Posts: 5884
Joined: November 4th, 2016, 10:53 am
Has thanked: 5825 times
Been thanked: 2127 times

Re: Why buy UK?

#345402

Postby dspp » October 5th, 2020, 4:46 pm

spasmodicus wrote:thanks to all for some useful observations
a couple of points
somewhere in the thread there was a remark that UK should maybe be weighted only 2.something percent, presumably the UK's % of world population. And whilst demographics may be significant for growth rate, as presumably a country's retired population might be regarded as economic dead weight, success may be more down to the vitality of the companies in a countries stock markets and the quality of its economic leadership, a hard thing to define. ...........

The point being that I currently haven't figured out a a satisfactory basis on which to weight and rebalance.
regards,
S



The 2.24% which I referenced is the UK's share of global GDP. As it happens the UK's share of global population is about 0.87%.

regards, dspp

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Why buy UK?

#345451

Postby hiriskpaul » October 5th, 2020, 7:35 pm

What are the ramifications of not buying UK? The other side of the "No UK" trade, is "Overweight the UK". At any point in time there are a finite number of listed shares and all these shares are held by someone somewhere. So if someone is underweight UK, the other side of that trade has to be "overweight the UK". One side of that trade will be wrong (ignoring the highly improbable coin landing on its edge likelihood of both sides performing identically). How can we best determine, in advance, which is the correct side of the trade? Looking at past performance is well established to be completely useless, largely because everyone* is fully aware of the past history so it is not something that offers an edge.

We could try looking at valuations. If the aggregate weight of all views is that the UK is crap, the price of UK stocks will be set according to an equilibrium view of the level of crapiness. The price of crap shares will fall until they are low enough to attract sufficient buyers in order to stop the free fall. Even if UK shares are generally considered crap by most of the market compared to Nasdaq or whatever, paradoxically they may end up being better investments by virtue of the fact that the entry prices are very low. It is perfectly possible to do better buying into unloved junk rather than buying into the perceived mass market overcrowded favourites that subsequently turn out to be on offer at inflated prices. We are currently at an unusual place with respect to relative valuations of "Good stocks", such as those listed on Nasdaq and "Crap stocks" such as many of those listed in the UK. The division between the 2 is, historically, unusually wide. In the past when there have been similar extremes in pricing it has usually worked out better to be overweight crap stocks. However everyone* knows this, so again this knowledge may not be of any use in choosing which side of the trade to be on.

For anyone who cannot be [expletive deleted] with any of this guesswork, the natural thing to do is to sit precisely on the fence in a global tracker and wish everyone who wants to be overweight/underweight the very best of luck. Oh and to thank the under/over-weighters for being incredibly helpful in contributing to relative pricing, because you have absolutely no interest in helping out with any of that.


*ok, not everyone - enough people.

Newroad
Lemon Quarter
Posts: 1090
Joined: November 23rd, 2019, 4:59 pm
Has thanked: 17 times
Been thanked: 341 times

Re: Why buy UK?

#345479

Postby Newroad » October 5th, 2020, 9:49 pm

Hi HiRiskPaul.

Most and perhaps all of what you say makes sense. But I think there is a nuance or two to add.

There is more than one group of market participants (the first being your suggested purchasers of a global tracker) who are price insensitive, or partially so, to the price of UK equities - a significant number of the domestic investing population. For whatever reason, most likely matching investments to liabilities, perceived or otherwise, they typically overweight the UK.

The above is just the local case of a global phenomenon - this post could well have been titled "Why buy local?" for most non-US jurisdictions. A similar line of thinking probably explains why, as I understand it, the metaphoric Japanese wives in charge of their family's investments are overweight JGB's. Personally, I think this makes a lot of sense sense for well defined liabilities, e.g. around the turn of the century, I thought it was too risky to take out a EUR mortgage when earning in GBP, notwithstanding the low interest rates associated with them.

However, I have quite a different view for less well defined liabilities, e.g. unemployment/retirement needs etc, where I both want less correlation with my GBP earnings (in case I and/or UK PLC do poorly) and further do not wish to constrain my investments seeking out the optimal opportunities, wherever they might be found. Those who haven't done this, such as Enron employees who stuffed (or had stuffed for them) their 401K plans with Enron stock, have often come unstuck due to the inherent risk of correlation once realised.

The point of all this (and other examples I haven't gone into) is the relative pricing you refer to in your final paragraph - I don't think it can particularly be relied upon, even with this conscious under and over weighters - and hence the correct side of the trade, so to speak, is even more opaque.

What to do about this - who knows? My guess - taking the middle of the road as I see it. Mostly equities, some bonds - and within both asset classes, 50% global passive, 50% global active.

Regards, Newroad

seekingbalance
2 Lemon pips
Posts: 162
Joined: November 7th, 2016, 11:14 am
Has thanked: 16 times
Been thanked: 66 times

Re: Why buy UK?

#345732

Postby seekingbalance » October 6th, 2020, 9:31 pm

hiriskpaul wrote:What are the ramifications of not buying UK? The other side of the "No UK" trade, is "Overweight the UK". At any point in time there are a finite number of listed shares and all these shares are held by someone somewhere. So if someone is underweight UK, the other side of that trade has to be "overweight the UK". One side of that trade will be wrong (ignoring the highly improbable coin landing on its edge likelihood of both sides performing identically).


With respect, surely this is not true for an individual.

I have, say, £500k in my individual portfolio, and have 50% in the UK, thus I am overweight by probably any reasonable standard. If a thousand different people are on "the other side" of that position, or indeed if even one is, but he has a £10m portfolio, the how do we know whether anyone is underweight?

You are literally my most favourite poster on these boards, so I am now going to assume I have got that wrong. Can you explain?

seekingbalance
2 Lemon pips
Posts: 162
Joined: November 7th, 2016, 11:14 am
Has thanked: 16 times
Been thanked: 66 times

Re: Why buy UK?

#345740

Postby seekingbalance » October 6th, 2020, 9:42 pm

dspp wrote:I think one has to be more granular re demographics. China, like Western Europe (inc UK), is ageing fast. It is India, Africa, and various disaster states (MidEast etc) that are still on the upswing,


Thanks. Yes, I had forgotten China was on the list of declining population countries in the article I was thinking of. India is forecast to grow for a while yet but decline later in the century too.

I wonder, now, how the world's obsession with constant growth will fare if only Africa and South America has a growing population!

To my mind all the more reason to focus on tech, as maybe the challenges of the future will be less focused on population expansion.

seekingbalance
2 Lemon pips
Posts: 162
Joined: November 7th, 2016, 11:14 am
Has thanked: 16 times
Been thanked: 66 times

Re: Why buy UK?

#345748

Postby seekingbalance » October 6th, 2020, 9:54 pm

hiriskpaul wrote:We are currently at an unusual place with respect to relative valuations of "Good stocks", such as those listed on Nasdaq and "Crap stocks" such as many of those listed in the UK. The division between the 2 is, historically, unusually wide. In the past when there have been similar extremes in pricing it has usually worked out better to be overweight crap stocks. However everyone* knows this, so again this knowledge may not be of any use in choosing which side of the trade to be on.

For anyone who cannot be [expletive deleted] with any of this guesswork, the natural thing to do is to sit precisely on the fence in a global tracker and wish everyone who wants to be overweight/underweight the very best of luck.


I agree, and my post which included the performance of the World exUK fund makes me feel this latter point is probably the way to go - at least under the sorts of considerations one might have, and be allowed to have, on the Passive Investing board. (Worrying about price finding is surely for denizens of other boards).

Regarding your first points, above, though - has not everyone been saying this for years, decades even? And while it is indeed clear that over time asset classes, or share classes may revert to a mean, my view would be that this is covered by the S&P500's wider mix of shares compared to the Nasdaq which by their nature tend to be expensive tech.

Going further down the ladder, even the Russell 3000 comfortably outperforms the FTSE, so buying American in that wider realm of stocks also seems to make more sense than UK index fund purchasing.

I guess I am essentially coming back to the Subject of my first post - which in a more nuanced but much less concise way I could have written -

"With the repeated short and long term underperformance of UK equities, which despite all wisdom saying it will revert to the mean and will end up having a decade of spectacular returns, it never actually does, why bother with the UK at all? Or certainly why would anyone ever go overweight in such a consistently poor performer in the maybe and seemingly forever vain hope that it will eventually turn?"

spasmodicus
Lemon Slice
Posts: 259
Joined: November 6th, 2016, 9:35 am
Has thanked: 65 times
Been thanked: 117 times

Re: Why buy UK?

#345836

Postby spasmodicus » October 7th, 2020, 9:15 am

seekingbalance wrote:
"With the repeated short and long term underperformance of UK equities, which despite all wisdom saying it will revert to the mean and will end up having a decade of spectacular returns, it never actually does, why bother with the UK at all? Or certainly why would anyone ever go overweight in such a consistently poor performer in the maybe and seemingly forever vain hope that it will eventually turn?"


Maybe the UK is reverting to its mean and that "mean" is crap? The "mean" in an investment context seems to me to be better represented by a log-linear trend line than a simple arithmetic mean, i.e. the equity premium of about 3%. The USA seems to follow this pattern most ofthe time. There will always be periods when it doesn't, of course. Is the UK market showing early signs of a change in this behaviour, i.e. first into the industrial revolution and first out?

S

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Why buy UK?

#345902

Postby hiriskpaul » October 7th, 2020, 1:40 pm

seekingbalance wrote:
hiriskpaul wrote:What are the ramifications of not buying UK? The other side of the "No UK" trade, is "Overweight the UK". At any point in time there are a finite number of listed shares and all these shares are held by someone somewhere. So if someone is underweight UK, the other side of that trade has to be "overweight the UK". One side of that trade will be wrong (ignoring the highly improbable coin landing on its edge likelihood of both sides performing identically).


With respect, surely this is not true for an individual.

I have, say, £500k in my individual portfolio, and have 50% in the UK, thus I am overweight by probably any reasonable standard. If a thousand different people are on "the other side" of that position, or indeed if even one is, but he has a £10m portfolio, the how do we know whether anyone is underweight?

You are literally my most favourite poster on these boards, so I am now going to assume I have got that wrong. Can you explain?

Let's assume that the value of all stocks in the UK market adds up to 4% of all the stocks in the world (currently about right). For a £500k portfolio, that would imply a market neutral position of £20k in UK stocks, £480k in rest of the world stocks. If you hold £250k in UK stocks, you are overweight £230k worth. For you to be overweight £230k of UK stocks, there must be £230k less stocks for everyone else in the world. This is basic arithmetic. If the total value of UK stocks is £1,000,000,000,000 and the neutral weight for a £500k portfolio is £20,000 there would be £999,999,999,980 of stocks held by everyone else. But if you hold £250k in stocks there must only be £999,999,999,750 worth of stocks held by everyone else. ie in aggregate if you are £230k overweight, the "everyone else" portfolio is £230k underweight. There will of course be a wide variation in the proportion of UK shares held in other people's portfolios, but in aggregate, there must be £230k's worth fewer stocks to go around than would be the case if you were market neutral.

It then boils down to who is right. You, £230k overweight, everyone else combined, £230k underweight. Or if you like, it boils down to you being right or not right. Whether you are right may of course depend on the end date when you stop being overweight UK. It is perfectly possible that if you exited the overweight position after a year you would be ahead of the market neutral portfolio, but after 2 years you would be behind.

For simplicity, I am assuming in the above that your portfolio is market neutral with respect to non-UK stocks portfolio and UK stocks portfolio. It is perfectly possible to be overweight the "right" UK stocks and outperform the global market even if the UK market as a whole underperforms the global market. The basic arithmetic applies at the individual stock level. If you overweight BP, the "everyone else" portfolio is underweight BP.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Why buy UK?

#345907

Postby hiriskpaul » October 7th, 2020, 2:02 pm

seekingbalance wrote:
hiriskpaul wrote:We are currently at an unusual place with respect to relative valuations of "Good stocks", such as those listed on Nasdaq and "Crap stocks" such as many of those listed in the UK. The division between the 2 is, historically, unusually wide. In the past when there have been similar extremes in pricing it has usually worked out better to be overweight crap stocks. However everyone* knows this, so again this knowledge may not be of any use in choosing which side of the trade to be on.

For anyone who cannot be [expletive deleted] with any of this guesswork, the natural thing to do is to sit precisely on the fence in a global tracker and wish everyone who wants to be overweight/underweight the very best of luck.


I agree, and my post which included the performance of the World exUK fund makes me feel this latter point is probably the way to go - at least under the sorts of considerations one might have, and be allowed to have, on the Passive Investing board. (Worrying about price finding is surely for denizens of other boards).

Regarding your first points, above, though - has not everyone been saying this for years, decades even? And while it is indeed clear that over time asset classes, or share classes may revert to a mean, my view would be that this is covered by the S&P500's wider mix of shares compared to the Nasdaq which by their nature tend to be expensive tech.

Going further down the ladder, even the Russell 3000 comfortably outperforms the FTSE, so buying American in that wider realm of stocks also seems to make more sense than UK index fund purchasing.

I guess I am essentially coming back to the Subject of my first post - which in a more nuanced but much less concise way I could have written -

"With the repeated short and long term underperformance of UK equities, which despite all wisdom saying it will revert to the mean and will end up having a decade of spectacular returns, it never actually does, why bother with the UK at all? Or certainly why would anyone ever go overweight in such a consistently poor performer in the maybe and seemingly forever vain hope that it will eventually turn?"

Again, you are making your judgement on past performance and everyone knows about past performance. If enough people think the UK market will underperform in future and underweight, that will drive prices down until a balance is achieved between those who think the way you do and others who view the lower prices as an opportunity worthy of overweighting. Supply and demand have to balance out at some price level.

tjh290633
Lemon Half
Posts: 8208
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4096 times

Re: Why buy UK?

#345984

Postby tjh290633 » October 7th, 2020, 7:02 pm

hiriskpaul wrote:Let's assume that the value of all stocks in the UK market adds up to 4% of all the stocks in the world (currently about right). For a £500k portfolio, that would imply a market neutral position of £20k in UK stocks, £480k in rest of the world stocks. If you hold £250k in UK stocks

So if you have 20k in the UK, in a 500k portfolio, that is likely to be a single stock. Alternatively you might use a collective investment for that portion. Of course, not all UK shares are solely UK exposure, so you might have 2 or 3 with non-UK exposure, maybe 25-75%.

With that in mind, I would perhaps go for 3 or 4 global ITs.

TJH

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Why buy UK?

#346026

Postby hiriskpaul » October 7th, 2020, 10:03 pm

tjh290633 wrote:
hiriskpaul wrote:Let's assume that the value of all stocks in the UK market adds up to 4% of all the stocks in the world (currently about right). For a £500k portfolio, that would imply a market neutral position of £20k in UK stocks, £480k in rest of the world stocks. If you hold £250k in UK stocks

So if you have 20k in the UK, in a 500k portfolio, that is likely to be a single stock. Alternatively you might use a collective investment for that portion. Of course, not all UK shares are solely UK exposure, so you might have 2 or 3 with non-UK exposure, maybe 25-75%.

With that in mind, I would perhaps go for 3 or 4 global ITs.

TJH

The 20k does not have to be in a single UK stock. A FTSE all world tracker would include hundreds of UK stocks.

Hariseldon58
Lemon Slice
Posts: 835
Joined: November 4th, 2016, 9:42 pm
Has thanked: 124 times
Been thanked: 513 times

Re: Why buy UK?

#347131

Postby Hariseldon58 » October 12th, 2020, 3:42 pm

@seekingbalance

Opinions tend to be formed by what has worked in the past ( for an individual) and the innate tendency to believe in mean reversion.
We do see mean reversion..until we don’t and spotting a break in a pattern, is tough, how often we do deride the the phrase “this time it’s different “

You refer to investing over the last 11 years, a period in which US markets have done very well indeed and as SalvorHardin points out the first decade of this millennium for US markets was pretty dire. My own investing became serious in 1990 and was UK/Global with a bias to UK equity income and I had splendid results from this bias until 2007. I moved over to a more Global Outlook and in particular a strong bias to the US and Global Passive ETFs and this has served me well, yet I still played around the edges of the UK market, looking to value and income situations, despite knowing that it was most likely wrong....

Ben Graham in the “Intelligent Investor” provides useful market commentary of the post world war 2 period until the early 70’s for example and we see the errors from the nifty fifty thought process, there are similarities to todays US market in many ways, particularly the groupthink that arises.

In the late 80’s the Japanese market was getting on for ½ the Developed World markets and now....

Home bias exists and until the last 20 years the returns were not that different to the World markets in aggregate, so for many it may not seem unreasonable, our prior experience guides our expectations, yet we need to be aware that things change over time constantly.

I and many others on these boards grew up in a time of high interest rates and high inflation and intellectually there seems to be little chance of that reoccurring but it is very hard to not consider the possibility.

We see the total triumph of Growth over Value, will Value return to spectacular form? Is a Passive Global Investment the easy ‘safe” middle of the road option ?

No one knows for sure, but sensible to keep your mind open to other opinions, we may be wrong in our assertions/beliefs including your own.

monabri
Lemon Half
Posts: 8396
Joined: January 7th, 2017, 9:56 am
Has thanked: 1539 times
Been thanked: 3428 times

Re: Why buy UK?

#347141

Postby monabri » October 12th, 2020, 4:24 pm

Looks like Nick Train is puzzled too!

"Nick Train: global investors’ aversion to UK is ‘getting ridiculous’"

https://www.ii.co.uk/analysis-commentar ... s-ii513529

AWOL
Lemon Slice
Posts: 563
Joined: October 20th, 2020, 5:08 pm
Has thanked: 366 times
Been thanked: 277 times

Re: Why buy UK?

#350160

Postby AWOL » October 23rd, 2020, 6:59 pm

Small Caps. Next question?

Sure UK Small Caps haven't had there best years recently but long term they have and will do very well. Unfortunately wIth BREXIT some of them will do less well but there are still plenty of great small caps in the UK.

I wouldn't touch the FTSE 100 with a barge poll.


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 8 guests