Why British shares?

[mc2fool]

The logical implication of your thinking mc2fool is that a US investor in an S&P index fund can expect a higher return than a UK investor, which is absurd!

No, that's not the point, although from the dot com crash up to the global financial crisis that is what happened, the USD investor did get a higher return from an S&P index fund than a GBP investor. As to what they'd expect, I doubt the US investor gives a hoot as to what returns the UK investor gets from their home market.

But you have entirely missed the overall point I was making, which was not about getting the highest return per se but about a reason for matching the currency of investment to the currency you live and spend in -- and, once again, I refer you to my own personal positions and equivocation about that in both the preamble and final sentence of my original post in the thread.

[MrUnsure]

You would have thought that given the FTSE 100 is significantly undervalued compared with the S&P 500, that you would have been safer in a FTSE 100 tracker than a S&P one. But the S&P is not much lower than it was a year ago, yet over the same period the FTSE 100 is down substantially.

The FTSE 100 is now lower than it was in 1997. If such poor performance is possible over such a long time frame, surely the British market is too unreliable for long term investment?

[TahiPanasDua]

You would have thought that given the FTSE 100 is significantly undervalued compared with the S&P 500, that you would have been safer in a FTSE 100 tracker than a S&P one. But the S&P is not much lower than it was a year ago, yet over the same period the FTSE 100 is down substantially.

The FTSE 100 is now lower than it was in 1997. If such poor performance is possible over such a long time frame, surely the British market is too unreliable for long term investment?

I can't help thinking that the UK markets will trail most others as, in addition to coping with the absolutely horrendous economic aftereffects of the national shutdown due to the virus, we will have to simultaneously negotiate new markets post You-Know-What. Prior to the virus, and Irrespective of political views, most people expected some adverse consequences of the big change. The combined effect looks extremely alarming to me...… but what do I know?

TP2.

[MrUnsure]

I can't help thinking that the UK markets will trail most others as, in addition to coping with the absolutely horrendous economic aftereffects of the national shutdown due to the virus, we will have to simultaneously negotiate new markets post You-Know-What. Prior to the virus, and Irrespective of political views, most people expected some adverse consequences of the big change. The combined effect looks extremely alarming to me...… but what do I know?

Brexit is obviously highly undesirable from an economic point of view, but surely the market was already expecting negative consequences from it? Therefore it should already have been priced into the pre-lockdown share values. It appears that the British market appears to be vulnerable to worse falls compared to the US market despite the already bargain basement valuations. The high yielding giants in the FTSE were supposed to offer a cushion in the event of a correction.

[colin]

The logical implication of your thinking mc2fool is that a US investor in an S&P index fund can expect a higher return than a UK investor, which is absurd!

No, that's not the point, although from the dot com crash up to the global financial crisis that is what happened, the USD investor did get a higher return from an S&P index fund than a GBP investor. As to what they'd expect, I doubt the US investor gives a hoot as to what returns the UK investor gets from their home market.

But you have entirely missed the overall point I was making, which was not about getting the highest return per se but about a reason for matching the currency of investment to the currency you live and spend in -- and, once again, I refer you to my own personal positions and equivocation about that in both the preamble and final sentence of my original post in the thread.

I spend money in a wide variety of currencies, like most UK residents I buy significant amounts by value of imported goods the cost to me is converted to GBP from whatever currency was used to produce it which again was probably multiple currencies in this globalised world , your argument makes no sense to me and given that you hold shares in other currencies you can't take it any more seriously than I do.

[dealtn]

You would have thought that given the FTSE 100 is significantly undervalued compared with the S&P 500, that you would have been safer in a FTSE 100 tracker than a S&P one. But the S&P is not much lower than it was a year ago, yet over the same period the FTSE 100 is down substantially.

The FTSE 100 is now lower than it was in 1997. If such poor performance is possible over such a long time frame, surely the British market is too unreliable for long term investment?

Make sure you are using a Total Return Index whenever making such comparisons.

[swill453]

You would have thought that given the FTSE 100 is significantly undervalued compared with the S&P 500, that you would have been safer in a FTSE 100 tracker than a S&P one. But the S&P is not much lower than it was a year ago, yet over the same period the FTSE 100 is down substantially.

The FTSE 100 is now lower than it was in 1997. If such poor performance is possible over such a long time frame, surely the British market is too unreliable for long term investment?

Make sure you are using a Total Return Index whenever making such comparisons.

Yes, the FTSE100 today is about the same level as it was 10 years ago (give or take a percent or two), but the FTSE All Share Total Return (the only one I happen to be tracking) is nearly 60% higher than April 2010.

Scott.

[TahiPanasDua]

I can't help thinking that the UK markets will trail most others as, in addition to coping with the absolutely horrendous economic aftereffects of the national shutdown due to the virus, we will have to simultaneously negotiate new markets post You-Know-What. Prior to the virus, and Irrespective of political views, most people expected some adverse consequences of the big change. The combined effect looks extremely alarming to me...… but what do I know?

Brexit is obviously highly undesirable from an economic point of view, but surely the market was already expecting negative consequences from it? Therefore it should already have been priced into the pre-lockdown share values. It appears that the British market appears to be vulnerable to worse falls compared to the US market despite the already bargain basement valuations. The high yielding giants in the FTSE were supposed to offer a cushion in the event of a correction.

Hi MrUnsure.

You're almost certainly right that Brexit was priced in before the virus came along. My thoughts are that the perceived scale of the Brexit problem changed with the onset of the viral shutdown. It became much harder to resolve. The government had not apparently made too much progress prior to the pandemic but now their resources to deal with almost anything are stretched to the limit and arguably beyond. Other governments involved in our future trade talks are likely to be equally distracted.

Just a thought.

TP2.

[TwmSionCati]

Surely the main idea is to invest in what is most likely to make you the most money?

From TrustNet:
		5y%		 10y%		Index
		55.8		158.8		FTSE World ex UK
		23.7		 79.7		FTSE Eurofirst 300 ex UK
		19.1		 58.6		FTSE Europe ex UK
		-7.7		 38.4		FTSE 350 Higher Yield

TSC

[dealtn]

Surely the main idea is to invest in what is most likely to make you the most money?

From TrustNet:
		5y%		 10y%		Index
		55.8		158.8		FTSE World ex UK
		23.7		 79.7		FTSE Eurofirst 300 ex UK
		19.1		 58.6		FTSE Europe ex UK
		-7.7		 38.4		FTSE 350 Higher Yield

TSC

Is that Total Return?

[TwmSionCati]

Is that Total Return?

No; index value. But I should have included the FTSE 350 (the FTSE 350 Higher Yield isn't comparable with the others, although of interest to HYPistas). Sorry.

The point remains: British is Worst.

From TrustNet:
		5y%		 10y%		Index
		55.8		158.8		FTSE World ex UK
		23.7		 79.7		FTSE Eurofirst 300 ex UK
		19.1		 58.6		FTSE Europe ex UK
		 1.6		 53.9		FTSE 350
		-7.7		 38.4		FTSE 350 Higher Yield

TSC

[dealtn]

Is that Total Return?

No; index value. But I should have included the FTSE 350 (the FTSE 350 Higher Yield isn't comparable with the others, although of interest to HYPistas). Sorry.

The point remains: British is Worst.

From TrustNet:
		5y%		 10y%		Index
		55.8		158.8		FTSE World ex UK
		23.7		 79.7		FTSE Eurofirst 300 ex UK
		19.1		 58.6		FTSE Europe ex UK
		 1.6		 53.9		FTSE 350
		-7.7		 38.4		FTSE 350 Higher Yield

TSC

How do you know if you don't measure it properly as Total Return?

[1nvest]

Is that Total Return?

No; index value. But I should have included the FTSE 350 (the FTSE 350 Higher Yield isn't comparable with the others, although of interest to HYPistas). Sorry.

The point remains: British is Worst.

... Sometimes!

For end of March years, 5th April fiscal years for TJH accumulation HYP, from April 2008 to end of March 2020 I'm seeing annualised total returns of

FT100 4.38%
FT All Share 4.92%
S&P500 12.23% (for UK investor (£), 8.3% for US investor ($))
TJH Accum 5.20%
4-way 8.16%

i.e. FT100 and FT All Share have compared relatively closely (in practice the FT All Share is pretty much 90% of FT100 + 10% of FT250, so the FT100 and FTAS tend to track each other moderately closely).

Stronger US gains have around 4% of the gain being a consequence of declines in the Pound, which has fallen from around $2 per £1 in April 2008 down to $1.24 per Pound more recently.

Many firms hedge their foreign currency exposure, to better stabilise reporting in the country/currency they are domiciled. So even though the FT100 might have 70% of earnings from foreign, if that's largely being hedged then any domestic currency decline benefits are lost (as are any losses from domestic currency relative appreciation also hedged away).

Most will already be familiar with TJH HYP and the accumulation (dividends reinvested) figures Terry reports. The 4-way in the above is a asset allocation of 25% S&P500, 25% gold, 25% FT All Share, 25% UK cash deposits. Fundamentally along the lines of Markowitz ... "I visualised my grief if the stock market went way up and I wasn't in it -- or if it went way down and I was completely in it. My intention was to minimise my future regret." ... 50/50 allocation, but extended to also include ... if the Pound went way up, or down ....

50 50 each of ...

50/50 US stock/gold (gold is a form of global currency)
50/50 UK stock/Pounds (cash)

Murphy's law and quite likely if you opt to overweight US stock based on the above history you'll subsequently see a reversal. Perhaps British listed stocks doing better than US stocks and/or the Pound rising/recovering. Better to just diversify, stick with your asset allocation and accept what the market provides.

Yes over the very long term the £ has tended to decline relative to the US$, however historical fluctuations in the £/$ since 1975 indicate that longer term trend is far from stable/consistent.



Not much of a stretch that in 5 years time the Pound might have rebounded back up to $2 per Pound levels and/or UK stocks might have relatively outperformed others.

[TwmSionCati]

... The point remains: British is Worst.

... Sometimes!

Yes: sometimes. Specifically: in the last 10 years, but particularly since 23 June, 2016.

One can get a sense of how much worse by graphically comparing six indexes: Developed Europe v. Developed Europe ex-UK; Europe v. Europe ex-UK; and All-World v. All-World ex-UK.*

Do it first for the latest decade; then for the latest quinquennium; then for its predecessor (23Apr10-22Apr15); observe that in the predecessor the UK slightly outperformed the others; but that in the latest the others massively outperformed the UK.

TSC

* These are Financial Times Actuaries Share Indexes: FTAWDEURSP v. FTAWDEXUKSP; FTAWEURSP v. FTAWEXUKSP; and FTAWORLDSP v. FTAWXUKSP; the GBP versions (but of course the EUR, USD & JPY versions show exactly the same phenomena). I start at https://markets.ft.com/data/search.

[dealtn]

... The point remains: British is Worst.

... Sometimes!

Yes: sometimes. Specifically: in the last 10 years, but particularly since 23 June, 2016.

One can get a sense of how much worse by graphically comparing six indexes: Developed Europe v. Developed Europe ex-UK; Europe v. Europe ex-UK; and All-World v. All-World ex-UK.*

Do it first for the latest decade; then for the latest quinquennium; then for its predecessor (23Apr10-22Apr15); observe that in the predecessor the UK slightly outperformed the others; but that in the latest the others massively outperformed the UK.

TSC

* These are Financial Times Actuaries Share Indexes: FTAWDEURSP v. FTAWDEXUKSP; FTAWEURSP v. FTAWEXUKSP; and FTAWORLDSP v. FTAWXUKSP; the GBP versions (but of course the EUR, USD & JPY versions show exactly the same phenomena). I start at https://markets.ft.com/data/search.

Again, are those indices Total Return? If not the comparison is invalid.

[1nvest]

fxtop.com chart for £ and Euro since 2013

and clearly both have declined against the US$. Uncertainties induce investors to flight to safety (primary reserve currency/US$)

Priced in US$ and both Europe and the UK stock total returns are down compared to US stocks https://tinyurl.com/y8vonpqk

At some point, fear will subside and investors will seek out 'better value/higher reward potentials', such that things flip around (outflow of selling US stock/US$ to buy Pounds/UK stocks (or whatever)).

You can either try to predict/time those rotations, or buy the entire haystack (world), or a sample based subset (US, UK, whatever), or stick with one or another alone (that will over the mid/longer term tend wash). Personally I don't like a all-world choice as it has lots of hidden costs/lag involved, such as 20% average dividend withholding taxes (so even if a fund has a low 0.2%/year expense ratio, if dividends are 4% and 20% are being withheld then that pushes actual drag up to 1%/year).

A risk with comparing what worked best in the rear view mirror is that it tempts you to switch lanes, often at around the worst time. Momentum works, until it doesn't - and gives back most/all of its prior gains. Jumping into momentum often has you having missed some of the upside, but being exposed to the full downside.

[Lootman]

Priced in US$ and both Europe and the UK stock total returns are down compared to US stocks

The gap is so large that you don't really need detailed graphs and data to show it. The FTSE-100 has doubled since the 2008/2009 low and the S&P 500 has quadrupled. It's even more pronounced when you take FX moves into account. The higher dividend yield in the UK doesn't come close to offsetting that. Of course you could argue that is exactly why the UK index does so much worse in capital terms.

The main reason is surely that the handful of global mega-stocks that dominate the global index are all US. There is no UK share that comes close to the domination of Apple, Amazon, MicroSoft, Google etc in building market cap.

[scotia]

Since there seems to be some concern on whether or not total return was being reported, I have had a look at the 5-year total return on a few representative ETFs - data from Hargreaves Lansdown at 00:05am 24/4/2020 - rounded to nearest percent.

FTSE 100 tracker XDUK 1%
FTSE 250 tracker VMID 1%
S&P500 tracker CSP1 78%
All World tracker VWRL 45%
Developed Europe ex-UK tracker VERX 21%

Note that the All World tracker will have a heavy weighting in US shares.

I didn't expect the differences to be so dramatic.

[TwmSionCati]

... The higher dividend yield in the UK doesn't come close to offsetting [the UK/US gap since 2008/9]

I agree entirely — and the same goes for the UK/DevEur, UK/Eur and UK/All-World gaps that I mentioned.

Of course you could argue that is exactly why the UK index does so much worse in capital terms.

I sense that the argument doesn’t impress you, and again I agree. It might explain the US' outperformance of the UK since 2008/9, and maybe even Europe’s outperformance of the UK in the latest quinquennium, but not, surely, the UK’s outperformance — even tho' slight — of Europe in the preceding quinquennium: for the UK’s higher dividend yield is a constant?

The main reason [for the UK/US gap] is surely that the handful of global mega-stocks that dominate the global index are all US.

Perhaps; but there’s a quite different reason for the UK/All-World gap in the latest quinquennium, wouldn’t you say? Namely, the same reason as that for the UK/Eur and UK/DevEur gaps in that period.


TSC

[1nvest]

Multiple measures have US stocks and Dollar at relative highs (Tobin-Q ..etc.), around comparable levels to pre 2008/9 financial crisis. The financial crisis issues weren't really resolved, just can-kicked further out, with some scaling (entire countries now playing the game that Bankers played in the run up to 2008 - but where unlike banks that had states to bail them out, countries don't have that upper/higher tier). Recent relative gains in US$ and stock further confirm that. Monetary easing has boosted economies but as per 2008/9 that ultimately will be paid for. I could quite easily see a decade of US stock relatively low performance along with rising gold prices (declines in $).

Similarly once Brexit is out of the way the Pound could rise, as might UK stock valuations. Should you underweight US to overweight UK stocks however ??? Historically its relatively rare for UK stocks to outperform US stocks over 5 year periods. I'm more content to just leave things as-is, 50/50 US stock and gold and take whats given. My suspicions are that 2019 pairs with 2003 and that the next 6, 8, 10 years or so will have gold as the better yearly asset on average compared to US stock in a similar vein to 2004, 2005, 2006, 2007 ...



The bottom part in that image is for 50/50 yearly rebalancing between stock total returns and gold (nominal values), which tend to follow slow/prolonged trends, and that shows the increase/decrease in total return stock index shares/ounces of gold held. For example 1980 to 2000 was predominately a period of stock good returns, accumulating more ounces of gold (ending those two decades with around 7 times more ounces of gold than at the start - which more than offset the -30% declines in gold prices (and inflation)).

I wont however be making such a bet (by tilting/modifying the target weightings or changing the assets). Sticking with 50/50 - neutral and just take what's given from holding a substantial amount in UK home value (£), liquid assets split between primary reserve currency (US$ invested in stocks) and global currency (gold), as just as equally the stretching of the elastic (high valuations) could be stretched further yet (US stocks/$ continue to extend even further into 'richly' priced territory). Fundamentally all that matters are the rightmost figures in that Callan Table, where the average of the yearly best performing asset counters and more the average of the yearly worst asset (after inflation/costs) - and where the average of those two (rightmost figure in the Callan) is positive by a reasonable amount. That is after all the fractal nature of all investment gains (losses) - when ranked worst (left tail) to best (right tail) we want the set at the rightmost to counter and more the leftmost.