The Lemon Fool

Here is an update on Vanguard's 10 year expectations for market returns:

https://www.vanguardinvestor.co.uk/arti ... rkets-2022

"In sterling terms, we think UK shares over the next ten years are likely to return between 4.6% and 6.6% on an annualised basis. For unhedged, non-UK shares the projected range is between 2.8% and 4.8%."

"We see UK bonds offering returns of between 0.8% and 1.8% on average over the next ten years, while international (non-UK) bonds will offer returns of between 0.7% and 1.7%, which is slightly up on our expectations from last year."

Overall, that is likely to mean struggling to keep up with inflation.

Interesting that they think it's highly likely that UK shares will outperform (unhedged) overseas shares. I wonder how much of that is that they expect the pound to strengthen, and how much the relative performance of the markets in their own currencies. It'd also be useful to know if "UK shares" means a capitalization-weighted index of all LSE-traded shares (ie including the big miners, oil etc. that have largely overseas revenue and costs), or if they mean "UK-based companies" - or perhaps they think it won't make a difference.

Their expectation for UK shares would be properly above inflation.

I think this might be of interest Vanguard’s outlook from late 2011, US equity returns were for a central forecast of 6% to 9%, actual returns over the last 10 years 17.5% pa ( to end of October) The predictions were that was a 90% probability that returns would be less than the actual outcome.

Such reports are interesting but I wouldn’t take them too seriously.

https://personal.vanguard.com/pdf/s289.pdf

EthicsGradient wrote:Interesting that they think it's highly likely that UK shares will outperform (unhedged) overseas shares. I wonder how much of that is that they expect the pound to strengthen, and how much the relative performance of the markets in their own currencies. It'd also be useful to know if "UK shares" means a capitalization-weighted index of all LSE-traded shares (ie including the big miners, oil etc. that have largely overseas revenue and costs), or if they mean "UK-based companies" - or perhaps they think it won't make a difference.

Their expectation for UK shares would be properly above inflation.

UK PLC is fairly valued compared to most other markets which are varying degrees of expensive. Blame the FTSE's lag on Brexit, or blame it on the high weighting of out-of-favour financial and commodity shares, or just put it down to fashion.
I think FTSE - the all-share index trackers will do - looks likely to be one of the least ugly contestants over the next decade or so. I said 'least ugly' because I think many of the world's stock markets feel similar to the 'late-1990s', pumped up with magic money and zero interest rates.

EthicsGradient wrote:It'd also be useful to know if "UK shares" means a capitalization-weighted index of all LSE-traded shares (ie including the big miners, oil etc. that have largely overseas revenue and costs), or if they mean "UK-based companies" - or perhaps they think it won't make a difference.

I think they mean the whole London stock market. These reports do not square well with Vanguard's founding philosophy that the markets know best. Over ten years, random volatility is likely to swamp the modest expected return anyway.

GeoffF100 wrote:"In sterling terms, we think UK shares over the next ten years are likely to return between 4.6% and 6.6% on an annualised basis. For unhedged, non-UK shares the projected range is between 2.8% and 4.8%."

As good a guess as any. Suggesting a strengthening Pound, weak global stock performance over the next ten-years, perhaps on the basis of a Brexit relative £ decline rebound and global/common large-scale QE leading to a broad forward lost-decade. The FT100 has something like 70%+ of earnings sourced from foreign, even the FT250 has 50%+. Perhaps a era of de-globalisation where if anything the UK COULD do relatively well in returning to more domestic production/supply over that of importation that is more inclined to see wealth concentration into pockets/locations of greatest tax efficiencies. However the real issue for the UK is that of state/public spending, where the £2.6Tn official debt figure is actually more like £4.8Tn https://www.nationaldebtclock.co.uk/ A consequence of excessive subsidising businesses (top up wages via the likes of housing-benefits/universal-credits). Historic and forward looking poor governance (Parliament is a massive liability that is more often just managing crises of its own making at great cost to the economy).

GeoffF100 wrote:These reports do not square well with Vanguard's founding philosophy that the markets know best.

How so? It's just forecasting/crystal-balling what markets are likely to do given currently known factors. I can't imagine they think it's cast in stone....

mc2fool wrote:

GeoffF100 wrote:These reports do not square well with Vanguard's founding philosophy that the markets know best.

How so? It's just forecasting/crystal-balling what markets are likely to do given currently known factors. I can't imagine they think it's cast in stone....

The founding philosophy was to ignore the news and any predictions and hold a tracker through thick and thin. It would have been a US equity tracker in the early days. Now it would be a global tracker, with a percentage of bonds appropriate to your risk tolerance. The philosophy was also to minimise costs. Hiring economists is not very consistent with that. Marketing is taking the upper hand.

reminds me of the old saying about economists:-

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today

scrumpyjack wrote:reminds me of the old saying about economists:-

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today

See also: Economist have correctly predicted five of the past three recessions.

GeoffF100 wrote:

mc2fool wrote:

GeoffF100 wrote:These reports do not square well with Vanguard's founding philosophy that the markets know best.

How so? It's just forecasting/crystal-balling what markets are likely to do given currently known factors. I can't imagine they think it's cast in stone....

The founding philosophy was to ignore the news and any predictions and hold a tracker (it would have been a US one in the early days) through thick and thin. It was also to minimise costs. Hiring economists is not very consistent with that.

Yes, but I don't see how expectations on where markets are likely to go alters that, I think they'd still say hold a tracker through thick and thin anyway -- the last section of the article is titled "Stay diversified and stay the course".

After all, if you're in equity markets at all it's 'cos you have the expectation that they'll go up over your investment period (lifetime, or until retirement or whatever). I don't see why specifying those expectations for a 10 year period is counter to the idea of buy-and-hold a tracker. Genuinely confused.

James wrote:

scrumpyjack wrote:reminds me of the old saying about economists:-

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today

See also: Economist have correctly predicted five of the past three recessions.

and
Economic forecasting is only there to make astrology look respectable.

My teabag burst this morning (bloody recyclable pyramids seem to fail for fun).

Having stared (and stirred) forlornly into my mug, I think this is an Omen, and I should apply for a job as an economic forecaster.

The only interesting things to me is they predict the UK to outperform Global markets, after decades of under-performing. Is this because developing markets are developed, or we are about to reap the rewards of Brexit?

Paul

DrFfybes wrote:My teabag burst this morning (bloody recyclable pyramids seem to fail for fun).

Having stared (and stirred) forlornly into my mug, I think this is an Omen, and I should apply for a job as an economic forecaster.

The only interesting things to me is they predict the UK to outperform Global markets, after decades of under-performing. Is this because developing markets are developed, or we are about to reap the rewards of Brexit?

Paul

Reversion to mean, perhaps?

mc2fool wrote:

GeoffF100 wrote:

mc2fool wrote:How so? It's just forecasting/crystal-balling what markets are likely to do given currently known factors. I can't imagine they think it's cast in stone....

The founding philosophy was to ignore the news and any predictions and hold a tracker (it would have been a US one in the early days) through thick and thin. It was also to minimise costs. Hiring economists is not very consistent with that.

Yes, but I don't see how expectations on where markets are likely to go alters that, I think they'd still say hold a tracker through thick and thin anyway -- the last section of the article is titled "Stay diversified and stay the course".

What I had in mind here is the different expectations for the UK and world ex UK. That should not matter if the advice is to buy a global tracker. LifeStrategy has a UK bias. In a recent interview, two of the Vanguard UK chiefs said that was for marketing reasons, and they would not have a UK bias. There is a case for a domestic bias based on lower taxes and reduced volatility, but they did not seem to be convinced by that.

DrFfybes wrote:Is this because developing markets are developed, or we are about to reap the rewards of Brexit?

It is because Vanguard's model predicts higher growth when the valuation is lower. The market clearly believes that the lower valuation is justified by the prevalence of old technology stocks in the UK market, Brexit, broken political system etc.

GeoffF100 wrote:

mc2fool wrote:

GeoffF100 wrote:The founding philosophy was to ignore the news and any predictions and hold a tracker (it would have been a US one in the early days) through thick and thin. It was also to minimise costs. Hiring economists is not very consistent with that.

Yes, but I don't see how expectations on where markets are likely to go alters that, I think they'd still say hold a tracker through thick and thin anyway -- the last section of the article is titled "Stay diversified and stay the course".

What I had in mind here is the different expectations for the UK and world ex UK. That should not matter if the advice is to buy a global tracker. LifeStrategy has a UK bias. In a recent interview, two of the Vanguard UK chiefs said that was for marketing reasons, and they would not have a UK bias. There is a case for a domestic bias based on lower taxes and reduced volatility, but they did not seem to be convinced by that.

Hmmm ... so is it your view that Vanguard offering country and region specific ETFs/funds, let alone part-country ones (e.g. FTSE 100), doesn't square with Vanguard's founding philosophy either?

That is, do you think that -- to be consistent with their founding philosophy -- they should offer only a global mkt cap weighted tracker and that's it?

(Or maybe two core ones, an equity global mkt cap weighted tracker and a bond global mkt cap weighted tracker, and then a series of 20/80, 40/60, 60/40, 80/20 etc funds?)

mc2fool wrote:

GeoffF100 wrote:

mc2fool wrote:Yes, but I don't see how expectations on where markets are likely to go alters that, I think they'd still say hold a tracker through thick and thin anyway -- the last section of the article is titled "Stay diversified and stay the course".

What I had in mind here is the different expectations for the UK and world ex UK. That should not matter if the advice is to buy a global tracker. LifeStrategy has a UK bias. In a recent interview, two of the Vanguard UK chiefs said that was for marketing reasons, and they would not have a UK bias. There is a case for a domestic bias based on lower taxes and reduced volatility, but they did not seem to be convinced by that.

Hmmm ... so is it your view that Vanguard offering country and region specific ETFs/funds, let alone part-country ones (e.g. FTSE 100), doesn't square with Vanguard's founding philosophy either?

That is, do you think that -- to be consistent with their founding philosophy -- they should offer only a global mkt cap weighted tracker and that's it?

(Or maybe two core ones, an equity global mkt cap weighted tracker and a bond global mkt cap weighted tracker, and then a series of 20/80, 40/60, 60/40, 80/20 etc funds?)

Perhaps. Vanguard's founder John Bogle hated ETFs. He believed that we should all buy a tracker and hold it for life. ETFs were for trading and he hated that. As a result, Vanguard did not market ETFs, which became a huge market. Vanguard eventually did start marketing ETFs, but they still have not caught up with State Street and Black Rock in that market.

GeoffF100 wrote:

mc2fool wrote:

GeoffF100 wrote:What I had in mind here is the different expectations for the UK and world ex UK. That should not matter if the advice is to buy a global tracker. LifeStrategy has a UK bias. In a recent interview, two of the Vanguard UK chiefs said that was for marketing reasons, and they would not have a UK bias. There is a case for a domestic bias based on lower taxes and reduced volatility, but they did not seem to be convinced by that.

Hmmm ... so is it your view that Vanguard offering country and region specific ETFs/funds, let alone part-country ones (e.g. FTSE 100), doesn't square with Vanguard's founding philosophy either?

That is, do you think that -- to be consistent with their founding philosophy -- they should offer only a global mkt cap weighted tracker and that's it?

(Or maybe two core ones, an equity global mkt cap weighted tracker and a bond global mkt cap weighted tracker, and then a series of 20/80, 40/60, 60/40, 80/20 etc funds?)

Perhaps. Vanguard's founder John Bogle hated ETFs. He believed that we should all buy a tracker and hold it for life. ETFs were for trading and he hated that. As a result, Vanguard did not market ETFs, which became a huge market. Vanguard eventually did start marketing ETFs, but they still have not caught up with State Street and Black Rock in that market.

Vanguard are actually ahead of State Street re ETFs in USA with a 27.8% market share vs State Street at 22.7% , both trail Blackrock iShares at 33.2%

bluedonkey wrote:Reversion to mean, perhaps?

What? Not more austerity!