cheapest world tracker fund

[AWOL]

This is the passive investing board. If you want less risk, you can hold more bonds. The market thinks that the risk adjusted return from DM and EM will be the same. Nobody knows what the actual returns will be. The passive investing approach is to spread your equity risk as wide as you reasonably can. Passive investors do not sell on trouble. They just ride it out - or buy more to rebalance. You can find out more here:

https://monevator.com/tag/kroijer/

I've read his book. I thought this forum was for the discussion of passive investments (trackers/passive ETFs) which don't require one to subscribe to a particular ideology. People buy these funds for various reasons and not all buy into the whole don't asset allocate, stay static, don't use any actives, keep to market cap waiting of stock (but ignore the fact that bonds are the biggest asset class in existence and allocate to them to give a risk profile) mindset. Sure, people are free to choose it but it's not the law.

The original poster posted in another forum asking for a world tracker. (s)He was directed here as passive investments are discussed here by people who use them (but not necessarily exclusively). I suggested SWDA which follows MSCI World. He didn't ask for answers that were governed by a particular investment philosophy.

My own philosophy is that I have been lucky with most of the calls I made (but not my "buying the dips" investment in Woodford's Patient Capital!) but am finding it hard to be confident of adding value at the top of the market and will probably move from my 50% active (small caps and Asia):50% passive portfolio to a bigger passive allocation. Even then though I don't share your apparent outlook as I would probably increase my IT allocation when discounts widen after a major correction.

I invest in Passives but am therefore a passive investor. If markets were efficient then an AIM tracker would be the best way to profit from AIM. It's not so I invest actively in small caps. US Small caps and Large Caps are of course efficient enough that passive investing makes sense.

I think you'll find that most passive fund investors are active in some way be it asset allocation, use of OEICs/ITs, market biases, timing, TAA, varying contributions or even investing in funds like LifeStrategy where the allocation is adjusted by committee.

Are you saying those people shouldn't post here? It would exclude the Bogleheads!

[jonesa1]

I thought this forum was for the discussion of passive investments (trackers/passive ETFs) which don't require one to subscribe to a particular ideology.

Quite. I see no issue with mixing passive & active investments within a portfolio and this seems like the right place for a discussion about passive investments, whatever investment approach is being followed.

[GeoffF100]

There is plenty of evidence that the professionals cannot beat the market in risk adjusted terms except by chance. There are plenty of people on these boards who believe that they have a special skill that the professionals do not possess. All I have done is suggest that they consider whether that is really true. The global index is very hard to beat consistently on a risk adjusted basis.

[AWOL]

There is plenty of evidence that the professionals cannot beat the market in risk adjusted terms except by chance. There are plenty of people on these boards who believe that they have a special skill that the professionals do not possess. All I have done is suggest that they consider whether that is really true. The global index is very hard to beat consistently on a risk adjusted basis.

I agree Although I think there is good evidence of exceptions like illiquid or poorly researched areas like domestic small caps which a purest wouldn't agree with. I also think corrections create opportunities. None if this is risk free like you say. Now that I am drawing down I am increasingly inclined towards a passive approach. I also lack conviction about the alternatives in an expensive market. One major advantage of being passive and global is that it is hard to be "wrong".

[JohnW]

I agree Although I think there is good evidence of exceptions like illiquid or poorly researched areas like domestic small caps

60% of active UK small cap equity funds were outperformed by their benchmark index over the last 10 years according to SPIVA, so I don't think that category is likely to be an exception in future.

[AWOL]

I agree Although I think there is good evidence of exceptions like illiquid or poorly researched areas like domestic small caps

60% of active UK small cap equity funds were outperformed by their benchmark index over the last 10 years according to SPIVA, so I don't think that category is likely to be an exception in future.

I am quite happy sticking with a selection process that filters out garbage from a portfolio of small caps and holds them in a closed ended structure. Selling illiquid assets in a correction is very expensive/difficult. I have been with BRSC from my start of investing until a year ago although after a change of manager I had doubts and swapped into it's stablemate THRG.

BRSC has delivered 15.11% annualised NAV return (share price return is a little higher) versus 11.96% for FTSE Small Cap Ex ITs benchmark. That is a massive outperformance and is measured over a period ending with a year where BRSC lagged the benchmark.

It's THRG stablemate has done considerably better.

Now if you think that's because I have been lucky with my choices then bear in mind that the vast majority of UK Small Cap investment trusts beat their index and my trusts are far from the best performing (they just have processes I believe in over the long term).

I found a 2015 article if you want to read more but research is published regularly showing that Small Cap ITs outperform even when they usually have higher fees:
https://citywire.co.uk/funds-insider/ne ... st/a814795 read from 2'Slam dunk' for small cap trusts" onwards.

Now the only small cap tracker that I like is ISP6 which tracks an index (S&P600) which was designed to avoid the worst of the problems affecting passive small cap investment. Hardly passive purists would say but still it does deliver better returns and is sensible. Let's think of it as semi passive (it isn't buying the market so it isn't truly passive. The S&P600 is " index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable."

For large caps passive makes sense for the S&P500 as it is a market with a high degree of efficiency (leading to the fallacious belief that all markets are efficient). For small caps the US is still more efficient than most but small caps have inefficiencies that make them ill-suited to liquid open ended products.

[BobbyD]

There is plenty of evidence that the professionals cannot beat the market in risk adjusted terms except by chance. There are plenty of people on these boards who believe that they have a special skill that the professionals do not possess. All I have done is suggest that they consider whether that is really true. The global index is very hard to beat consistently on a risk adjusted basis.

VWRL has a zero allocation to Russia, and 4.7% allocation to China. Chinese shares are priced more cheaply than others to reflect the greater risk. Has the market got the relative pricing wrong? What superior knowledge do you have to make that judgement?

All 'World' indexes are partial, the question is whether the cost/completeness is fit for the OP's purpose. They asked for the cheapest and it is the cheapest.

[hiriskpaul]

Amundi Prime Global has a TER of 0.05% https://www.amundietf.co.uk/professiona ... 1931974692

It follows a Solactive index, which looks very similar in breadth and depth to MSCI World. I suspect that part of the reason the TER is so low is that Solactive charge less than MSCI.

I don't hold but am watching with interest, as I am with the other Amundi Prime ETFs. It is relatively new, launched in March 2019 and is still relatively small with assets of $410m.

I believe it does now have UK reporting status, but would advise anyone who wants to hold outside a SIPP/ISA to verify that.

[hiriskpaul]

I agree Although I think there is good evidence of exceptions like illiquid or poorly researched areas like domestic small caps

60% of active UK small cap equity funds were outperformed by their benchmark index over the last 10 years according to SPIVA, so I don't think that category is likely to be an exception in future.

I am quite happy sticking with a selection process that filters out garbage from a portfolio of small caps and holds them in a closed ended structure. Selling illiquid assets in a correction is very expensive/difficult. I have been with BRSC from my start of investing until a year ago although after a change of manager I had doubts and swapped into it's stablemate THRG.

BRSC has delivered 15.11% annualised NAV return (share price return is a little higher) versus 11.96% for FTSE Small Cap Ex ITs benchmark. That is a massive outperformance and is measured over a period ending with a year where BRSC lagged the benchmark.

It's THRG stablemate has done considerably better.

Now if you think that's because I have been lucky with my choices then bear in mind that the vast majority of UK Small Cap investment trusts beat their index and my trusts are far from the best performing (they just have processes I believe in over the long term).

I found a 2015 article if you want to read more but research is published regularly showing that Small Cap ITs outperform even when they usually have higher fees:
https://citywire.co.uk/funds-insider/ne ... st/a814795 read from 2'Slam dunk' for small cap trusts" onwards.

Now the only small cap tracker that I like is ISP6 which tracks an index (S&P600) which was designed to avoid the worst of the problems affecting passive small cap investment. Hardly passive purists would say but still it does deliver better returns and is sensible. Let's think of it as semi passive (it isn't buying the market so it isn't truly passive. The S&P600 is " index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable."

For large caps passive makes sense for the S&P500 as it is a market with a high degree of efficiency (leading to the fallacious belief that all markets are efficient). For small caps the US is still more efficient than most but small caps have inefficiencies that make them ill-suited to liquid open ended products.

If active managers are so good at weeding out the duds, who is holding the duds?

Does the S&P approach add value? Hard to say, but excluding Tesla until it became huge would have hurt performance.

10y annualised returns of Vanguard US listed ETFs.
Vanguard Large Cap ETF (Pure cap weighted) 14.91%
Vanguard S&P 500 ETF (Filtered cap weighted) 14.80%

[GeoffF100]

All 'World' indexes are partial, the question is whether the cost/completeness is fit for the OP's purpose. They asked for the cheapest and it is the cheapest.

Some of these indices have much fewer stocks than others, and offer less diversification, and therefore more risk. Most of the gains come from a relatively few stocks. The more stocks you hold the greater chance you have of catching these big winners. If the OP's purpose if the maximise his risk adjusted return, he needs to consider factors other than the OCF. The Devil is in the detail here. There is lots of studying to do.

[murraypaul]

There is plenty of evidence that the professionals cannot beat the market in risk adjusted terms except by chance. There are plenty of people on these boards who believe that they have a special skill that the professionals do not possess. All I have done is suggest that they consider whether that is really true. The global index is very hard to beat consistently on a risk adjusted basis.

But people may have different attitude to risk.
The idea that there is one single answer to everyone's investment profile is silly.
Investments in some areas of the world offer higher possible returns, with higher risks.
The risk-adjusted average may be the same, but that is not the only figure that matters.
Some people may be less willing to take the downside risk than others.
It is perfectly rational to deliberately target a lower expected average return that also offers lower downside risk.

[GeoffF100]

There is plenty of evidence that the professionals cannot beat the market in risk adjusted terms except by chance. There are plenty of people on these boards who believe that they have a special skill that the professionals do not possess. All I have done is suggest that they consider whether that is really true. The global index is very hard to beat consistently on a risk adjusted basis.

But people may have different attitude to risk.
The idea that there is one single answer to everyone's investment profile is silly.
Investments in some areas of the world offer higher possible returns, with higher risks.
The risk-adjusted average may be the same, but that is not the only figure that matters.
Some people may be less willing to take the downside risk than others.
It is perfectly rational to deliberately target a lower expected average return that also offers lower downside risk.

As I have said, if you want to lower your risk, you can hold more bonds. Movements in the EM and DM markets are not perfectly correlated. You can increase your risk adjusted return by holding some of the more risky asset. You may even reduce the volatility of your portfolio, and increase both your absolute return and reduce your risk (as measured by the volatility). Monevator has recently been discussing EM bonds, which are another possibility:

https://monevator.com/best-emerging-market-bond-etfs/