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Just buy a S&P500 tracker or VWRL

General discussions about growth strategies which focus primarily on investing for capital growth
TopOfDaMornin
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Just buy a S&P500 tracker or VWRL

#472453

Postby TopOfDaMornin » January 12th, 2022, 5:02 pm

I have about 5 or 7 years before I need to access my funds.

About 20 years ago I started as a HYP investor. I did not realise then that there was to be limited growth within the HYP which mainly limited to FTSE100.

About 2 or 3 years ago, I moved into some ITs and index trackers. My own record of trying to beat the market is not too successful.

As time goes by, I find the simplest and most efficient hands off approach to growth investing in via a S&P500 tracker or indeed a world tracker such as VWRL.

The S&P500 offers diversity, growth, a proven tracker record, low fees and wide market exposure.

I ask myself would many people in USA buy an FTSE100 tracker? I doubt it.

TDM

jackdaww
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Re: Just buy a S&P500 tracker or VWRL

#472477

Postby jackdaww » January 12th, 2022, 5:42 pm

.

but be aware the top 20 companies , probably account very roughly for 80% of the fund .

these companies are almost all big americans with a few chinese thrown in .

so VWRL is hardly a world tracker .

some US people may buy a ftse100 tracker , many of whose constituents are internationals, as part of a group of funds tracking various geographical areas .

:)

dealtn
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Re: Just buy a S&P500 tracker or VWRL

#472494

Postby dealtn » January 12th, 2022, 6:23 pm

TopOfDaMornin wrote:I have about 5 or 7 years before I need to access my funds.

About 20 years ago I started as a HYP investor. I did not realise then that there was to be limited growth within the HYP which mainly limited to FTSE100.

About 2 or 3 years ago, I moved into some ITs and index trackers. My own record of trying to beat the market is not too successful.

As time goes by, I find the simplest and most efficient hands off approach to growth investing in via a S&P500 tracker or indeed a world tracker such as VWRL.

The S&P500 offers diversity, growth, a proven tracker record, low fees and wide market exposure.

I ask myself would many people in USA buy an FTSE100 tracker? I doubt it.

TDM


Why would they even consider it? It's a tiny part of the global market and hardly likely to be a good match for their future liabilities which would be heavily $ based and reflect US economy events. In hindsight it might turn out to an inspired choice though.

Even a UK investor investing in the S&P, or a world tracker exposes themselves to the risk of (positive) UK idiosyncratic outcomes. Should the UK have outperformance, or the UK cost of living to rise in line with UK (or FTSE) earnings and stock markets, but are undershot by the US (or World) that is a poor result for those that ignore the UK alternative.

GeoffF100
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Re: Just buy a S&P500 tracker or VWRL

#472973

Postby GeoffF100 » January 14th, 2022, 8:17 am

dealtn wrote:Even a UK investor investing in the S&P, or a world tracker exposes themselves to the risk of (positive) UK idiosyncratic outcomes. Should the UK have outperformance, or the UK cost of living to rise in line with UK (or FTSE) earnings and stock markets, but are undershot by the US (or World) that is a poor result for those that ignore the UK alternative.

What about the UK investor who ignores the alternative of investing all his money in Mexico? The Mexico market may do well and rise in line with the UK cost of living, whereas the global market may do worse.

An argument in favour of investing globally is that you will probably be fine if your home economy does well, and it your overseas assets under-perform that probably will not matter too much. If your local economy does badly, you will be glad to have overseas assets that do relatively well.

dealtn
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Re: Just buy a S&P500 tracker or VWRL

#472981

Postby dealtn » January 14th, 2022, 8:41 am

GeoffF100 wrote:
dealtn wrote:Even a UK investor investing in the S&P, or a world tracker exposes themselves to the risk of (positive) UK idiosyncratic outcomes. Should the UK have outperformance, or the UK cost of living to rise in line with UK (or FTSE) earnings and stock markets, but are undershot by the US (or World) that is a poor result for those that ignore the UK alternative.

What about the UK investor who ignores the alternative of investing all his money in Mexico? The Mexico market may do well and rise in line with the UK cost of living, whereas the global market may do worse.

An argument in favour of investing globally is that you will probably be fine if your home economy does well, and it your overseas assets under-perform that probably will not matter too much. If your local economy does badly, you will be glad to have overseas assets that do relatively well.


Yes but how far is that argument a good one when it is only "probable"? There might only be rare occasions but there are potential outcomes where not investing in your domestic market (or disproportionately underinvesting in it) are problematic. It's the basis of why pension funds are compelled to think, and act, on a liability matching basis, and individuals should consider, particularly if they are risk averse and protecting the downside is more important to them than maximising the upside, whether they should invest accordingly too.

Personally I don't limit my investments to UK only businesses (although presently they are all listed there), but I can see an argument around the riskiness of having a disproportionately small UK "pension" pot when the growth and proceeds from that pot are likely to be used to live a UK lifestyle in the future.

I think any UK investor that ignores an alternative of 100% investing Mexico will be fine. I can't imagine anyone even considering it, let alone adopting it. That sounds an extremely risky position to take on any timeframe for a non-Mexican. If Mexico turns out to be an investment dream I think even in hindsight most investors would accept missing that upside. The alternative end of the spectrum for Mexico would be disastrous I would suggest, especially for a non-Mexican.

GeoffF100
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Re: Just buy a S&P500 tracker or VWRL

#472992

Postby GeoffF100 » January 14th, 2022, 9:28 am

dealtn wrote:Yes but how far is that argument a good one when it is only "probable"? There might only be rare occasions but there are potential outcomes where not investing in your domestic market (or disproportionately underinvesting in it) are problematic. It's the basis of why pension funds are compelled to think, and act, on a liability matching basis, and individuals should consider, particularly if they are risk averse and protecting the downside is more important to them than maximising the upside, whether they should invest accordingly too.

I am not suggesting under-investing in the home market, just not over-investing. The FTSE 100 is a motley collection of companies that found it advantageous to incorporate in the UK. About two thirds of FTSE 100 earnings come from overseas. Does that match my liabilities? (How much of my spending is on imported items? What is the geographical spread of my personal imports? I do not know.) Does a UK company selling bouncy castles in the UK match my liabilities? Probably not.

Actually, my liabilities are more than covered by my defined benefit pensions, and I do have some UK bias in the equity part of my portfolio, but that is besides the point.

Hariseldon58
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Re: Just buy a S&P500 tracker or VWRL

#473116

Postby Hariseldon58 » January 14th, 2022, 4:35 pm

jackdaww wrote:.

but be aware the top 20 companies , probably account very roughly for 80% of the fund .

these companies are almost all big americans with a few chinese thrown in .

so VWRL is hardly a world tracker .

some US people may buy a ftse100 tracker , many of whose constituents are internationals, as part of a group of funds tracking various geographical areas .

:)

VWRL tracks the investable World market, the top 20 holdings comprise 22.35% of the value of the 3805 holdings.
The top 100 holdings comprise about 45% of the portfolio, its very diverse.It’s a good starting point for a diverse equity portfolio.

1nvest
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Re: Just buy a S&P500 tracker or VWRL

#473471

Postby 1nvest » January 16th, 2022, 11:50 am

Consider one stock, Cisco.

Would you be better placed holding that via the US CSCO, Mexico CSCO.MX or Germany CIS.DE ?

The US levy a 30% dividend withholding tax (reduced to 15% under US/UK tax treaty if the UK investor is made known to the US IRS via a W8BEN form filing).

Mexico up until 2013 levied no dividend withholding taxes, but have since applied a 10% rate

Using recent 2.5% dividend yield as a assumed historic rate then the difference between a 30% and 0% withholding rate = 0.75%/year lag from holding CSCO compared to CSCO.MX

In all other respects .. they're the same.

A concern for me is that the likes of FCIT global investment fund incurs something like a 1.2% fund expenses that when supplemented with 0.5% stamp duty, platform/brokers fees, market makers spread, dividend withholding taxes ...etc. sum to a considerable amount. There are lots of top slicing into other peoples pockets. And that's before HMRC comes looking for its cut. In some cases you will have taken all the risk whilst all of the reward lines other peoples pockets leaving you with 0% or maybe worse in real (after inflation) terms.

Some indexes such as the FT250 including holding Investment Trusts, so you end up paying multiple layers of costs/fees. Pocket lining that enables the financial sector to occupy expensive buildings and pay high wages.

Prior to index funds it was quite common for investors to pick 8 or so individual stocks, bought and held. Trading was expensive so changes were kept to a minimum. Diversity was often sought by holding large companies with a global presence. Some mega caps have economies larger than some countries. The financial sector however would rather you bought funds, as that is a source of their earnings/profits.

scrumpyjack
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Re: Just buy a S&P500 tracker or VWRL

#473488

Postby scrumpyjack » January 16th, 2022, 12:25 pm

Note that the withholding taxes can be offset against UK higher rate tax if in a taxable account, though of course that is lost when you hold ETF or ITs where the dividend withholding tax is not 'passed' on to the investor. The VWRL dividend voucher could be quite lengthy if the underlying amounts of withholding tax paid in each country was shown :D

Spet0789
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Re: Just buy a S&P500 tracker or VWRL

#473619

Postby Spet0789 » January 16th, 2022, 7:59 pm

1nvest wrote:Consider one stock, Cisco.

Would you be better placed holding that via the US CSCO, Mexico CSCO.MX or Germany CIS.DE ?

The US levy a 30% dividend withholding tax (reduced to 15% under US/UK tax treaty if the UK investor is made known to the US IRS via a W8BEN form filing).

Mexico up until 2013 levied no dividend withholding taxes, but have since applied a 10% rate

Using recent 2.5% dividend yield as a assumed historic rate then the difference between a 30% and 0% withholding rate = 0.75%/year lag from holding CSCO compared to CSCO.MX

In all other respects .. they're the same.

A concern for me is that the likes of FCIT global investment fund incurs something like a 1.2% fund expenses that when supplemented with 0.5% stamp duty, platform/brokers fees, market makers spread, dividend withholding taxes ...etc. sum to a considerable amount. There are lots of top slicing into other peoples pockets. And that's before HMRC comes looking for its cut. In some cases you will have taken all the risk whilst all of the reward lines other peoples pockets leaving you with 0% or maybe worse in real (after inflation) terms.

Some indexes such as the FT250 including holding Investment Trusts, so you end up paying multiple layers of costs/fees. Pocket lining that enables the financial sector to occupy expensive buildings and pay high wages.

Prior to index funds it was quite common for investors to pick 8 or so individual stocks, bought and held. Trading was expensive so changes were kept to a minimum. Diversity was often sought by holding large companies with a global presence. Some mega caps have economies larger than some countries. The financial sector however would rather you bought funds, as that is a source of their earnings/profits.


How do you get expenses of 1.2% for FCIT? I would have thought nearer to 0.6%. Unless perhaps you're including interest costs on debt which I don't think should be included.

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Re: Just buy a S&P500 tracker or VWRL

#473629

Postby 1nvest » January 16th, 2022, 8:44 pm

Spet0789 wrote:
1nvest wrote:Consider one stock, Cisco.

Would you be better placed holding that via the US CSCO, Mexico CSCO.MX or Germany CIS.DE ?

The US levy a 30% dividend withholding tax (reduced to 15% under US/UK tax treaty if the UK investor is made known to the US IRS via a W8BEN form filing).

Mexico up until 2013 levied no dividend withholding taxes, but have since applied a 10% rate

Using recent 2.5% dividend yield as a assumed historic rate then the difference between a 30% and 0% withholding rate = 0.75%/year lag from holding CSCO compared to CSCO.MX

In all other respects .. they're the same.

A concern for me is that the likes of FCIT global investment fund incurs something like a 1.2% fund expenses that when supplemented with 0.5% stamp duty, platform/brokers fees, market makers spread, dividend withholding taxes ...etc. sum to a considerable amount. There are lots of top slicing into other peoples pockets. And that's before HMRC comes looking for its cut. In some cases you will have taken all the risk whilst all of the reward lines other peoples pockets leaving you with 0% or maybe worse in real (after inflation) terms.

Some indexes such as the FT250 including holding Investment Trusts, so you end up paying multiple layers of costs/fees. Pocket lining that enables the financial sector to occupy expensive buildings and pay high wages.

Prior to index funds it was quite common for investors to pick 8 or so individual stocks, bought and held. Trading was expensive so changes were kept to a minimum. Diversity was often sought by holding large companies with a global presence. Some mega caps have economies larger than some countries. The financial sector however would rather you bought funds, as that is a source of their earnings/profits.

How do you get expenses of 1.2% for FCIT? I would have thought nearer to 0.6%. Unless perhaps you're including interest costs on debt which I don't think should be included.

2021 annual report ... "Total Costs - these total 1.19%"

If you go to BMO's pre-sales costs disclosure https://www.bmogam.com/uploads/2021/07/ ... losure.pdf for FCIT it indicates for Product : ongoing costs 0.81%, transactional costs 0.39%, incidental 0.01%. For Service : ongoing 0.72% and transaction 0.5%. I interpret that as being £60 + VAT/year for their ISA service (£72/year and based relative to £10K investment amount) and the 0.5% being stamp duty. That aside and just looking at Product costs and 0.81% + 0.39 + 0.01 = 1.21%

Split the difference between 1.19% as per the annual report and 1.21% as above and ... 1.2%

Around 90% of FCIT's holding are foreign. Assuming a broad average 2% dividend and broad average global dividend withholding tax rate of 20%, and that's a background 0.4% additional drag factor. Combined 1.8% there alone lining other peoples pockets. Add on 0.5% stamp duty and a small investor paying 0.72% in service fees ... and 4%+.

MrFoolish
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Re: Just buy a S&P500 tracker or VWRL

#473884

Postby MrFoolish » Yesterday, 6:36 pm

I think there's a place for FCIT, but I would only buy it when it sits at a decent discount to NAV.

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Re: Just buy a S&P500 tracker or VWRL

#473954

Postby 1nvest » Yesterday, 11:10 pm

BGSC, their small cap offering, comparing NAV based total return changes to the FT250 since 1997 and the two aligned. Suggestive that after all the active management, availability of gearing ...etc. that it was a closet index fund, all of the benefits in effect lining their pockets not the investors. So yes the only reasonable stance might be to try and time the discount to NAV, however that might just reflect the degree of gearing being employed at the time.

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Re: Just buy a S&P500 tracker or VWRL

#473972

Postby 77ss » 43 minutes ago

MrFoolish wrote:I think there's a place for FCIT, but I would only buy it when it sits at a decent discount to NAV.


Currently 8%. A decent discount for a solid performer, in my view. Top-up time?

I have held for over 20 years and when considering buying anything else I routinely compare its total return to that given by FCIT. Only one of a number of factors of course.

FWIW, the 5 year TR of FCIT is 79.43%

That of VWRL is 70.43%.


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