UK Investors - simplified strategy

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 4:02 am

Hello UK investors. A thought has bubbled up to the surface, on the back of perusing all these bogley forums.

Seems to me that predicting what is likely to work in future isn't really possible. No matter what the past says, you can only use it to make assumptions about the future until it stops working. Which it always does. Or seems to, anyways.

So...

the typical bogle fund seems to me to be massively skewed towards the US, which is to use faith to predict the US will continue to outperform the rest of the world in exactly the way it hasn't for long stretches of time, especially when it isn't being propped up with trillions in 'funny money' to further the ends of the ruling US elite.

Given this state of affairs, is it not simply more sensible to grab a general whole world etf tracker with low fees, and just sit on that? VWRL for example. Perhaps balance it a bit to reduce volatility with GLAB or AGGG etc? (whole world aggregate bond funds)

That would be a 'fire and forget' two fund rational portfolio. In fact, if the latest musings from BOA are correct, and bonds are losing their inverse correlation with stocks, as well as yielding very little, is it not even more rational to simply hold nothing but VWRL? If the major currency risk is an issue, hold two world trackers, one, such as VWRL denominated in sterling, the other denominated in USD...

Thoughts?
Last edited by ukbogler on Wed Oct 16, 2019 7:31 am, edited 2 times in total.

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 4:18 am

ukbogler wrote:
Wed Oct 16, 2019 4:02 am
If currency risk is an issue, hold two world trackers, one, such as VWRL denominated in sterling, the other denominated in USD...

Thoughts?
That actually does nothing to alleviate currency risk. It's the currency of the underlying holdings that matters, not the fund denomination. So VWRL has the same currency exposure whether in Sterling or USD.

User avatar
BeBH65
Posts: 1555
Joined: Sat Jul 04, 2015 7:28 am

Re: UK Investors - simplified strategy

Post by BeBH65 » Wed Oct 16, 2019 4:58 am

The typical Boglehead approach is to:
1- choose your equity/bond split according to the risk you need, are able, and willing to take.
2- for bonds: choose something that is stable in your currency; this can be hedged.
3- for equity: diversify; a world fund is a neutral starting position; aligning on the combined wisdom of all current investors. "Nobody knows nothing"


( See wiki page on Bogleheads principles for more info)

For info on the currency volatility see "index funds for non-US investors"
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 5:02 am

typical.investor wrote:
Wed Oct 16, 2019 4:18 am
ukbogler wrote:
Wed Oct 16, 2019 4:02 am
If currency risk is an issue, hold two world trackers, one, such as VWRL denominated in sterling, the other denominated in USD...

Thoughts?
That actually does nothing to alleviate currency risk. It's the currency of the underlying holdings that matters, not the fund denomination. So VWRL has the same currency exposure whether in Sterling or USD.

This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 5:02 am

ukbogler wrote:
Wed Oct 16, 2019 4:02 am
In fact, if the latest musings from Goldman are correct, and bonds are losing their inverse correlation with stocks
Where can I read these musings?

Schlabba
Posts: 154
Joined: Sat May 11, 2019 9:14 am

Re: UK Investors - simplified strategy

Post by Schlabba » Wed Oct 16, 2019 5:04 am

What ruling elite are you talking about exactly?

I don’t know what Goldman said, but I do know he also cannot predict the future.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 5:05 am

BeBH65 wrote:
Wed Oct 16, 2019 4:58 am
The typical Boglehead approach is to:
1- choose your equity/bond split according to the risk you need, are able, and willing to take.
2- for bonds: choose something that is stable in your currency; this can be hedged.
3- for equity: diversify; a world fund is a neutral starting position; aligning on the combined wisdom of all current investors. "Nobody knows nothing"


( See wiki page on Bogleheads principles for more info)

For info on the currency volatility see "index funds for non-US investors"
1. There seems to be some debate as to whether bonds can perform that function of reducing volatility anymore. Don't blam e me, that's what BOA said. AFAIR.
2. GLAB is hedged to GBP
3. Like it. Although it means you're essentially 50% or more in US markets already. Omelettes, eggs.
Last edited by ukbogler on Wed Oct 16, 2019 5:13 am, edited 1 time in total.

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 5:09 am

Schlabba wrote:
Wed Oct 16, 2019 5:04 am
What ruling elite are you talking about exactly?

I don’t know what Goldman said, but I do know he also cannot predict the future.
The GOP. They're in charge right now, and certainly regard themselves as 'elite' even if nobody else does.

Agree about the future, still, it's a commentary on possible futures for the bond market. The statement is apparently based on research showing that over the last 85 years, bonds have only been negatively correlated with stocks for about 20 years or so. So it's worth taking note of, I'd say. After all, we live in unusual times, where the US market at least appears to those of us outside the USA to be propped up to an extreme valuation measure using buybacks funded by tax cuts, ultra cheap borrowing and outright money printing. Perhaps it looks different over there.

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 5:12 am

typical.investor wrote:
Wed Oct 16, 2019 5:02 am
ukbogler wrote:
Wed Oct 16, 2019 4:02 am
In fact, if the latest musings from Goldman are correct, and bonds are losing their inverse correlation with stocks
Where can I read these musings?
oops. My bad. BOA. These giant evil squid companies are all the same to us non-us peeps.

https://www.marketwatch.com/story/bank- ... =home-page

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 5:14 am

ukbogler wrote:
Wed Oct 16, 2019 5:02 am
typical.investor wrote:
Wed Oct 16, 2019 4:18 am
ukbogler wrote:
Wed Oct 16, 2019 4:02 am
If currency risk is an issue, hold two world trackers, one, such as VWRL denominated in sterling, the other denominated in USD...

Thoughts?
That actually does nothing to alleviate currency risk. It's the currency of the underlying holdings that matters, not the fund denomination. So VWRL has the same currency exposure whether in Sterling or USD.

This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.
You still don't understand.

The currency exposure in VWRL is determined by the underlying holdings. So 54% USD, 7.8% Yen, 5.1% Sterling etc. etc.

So what happens if the pound strengthens dramatically? Well the holdings in VWRL (other than 5.1% Sterling) will be worth less, and the price of VWRL in Sterling will drop. The price of VWRL in USD won't drop. However, if you sell the VWRL in USD and buy Sterling, you will have the same amount as VWRL in Sterling is worth (assuming you can pay no conversion fees moving from USD to pounds). The actual value of VWRL in either Sterling or USD is the same regardless of whether the Sterling appreciates or loses value.

Schlabba
Posts: 154
Joined: Sat May 11, 2019 9:14 am

Re: UK Investors - simplified strategy

Post by Schlabba » Wed Oct 16, 2019 5:18 am

ukbogler wrote:
Wed Oct 16, 2019 5:09 am
Schlabba wrote:
Wed Oct 16, 2019 5:04 am
What ruling elite are you talking about exactly?

I don’t know what Goldman said, but I do know he also cannot predict the future.
The GOP. They're in charge right now, and certainly regard themselves as 'elite' even if nobody else does.

Agree about the future, still, it's a commentary on possible futures for the bond market. The statement is apparently based on research showing that over the last 85 years, bonds have only been negatively correlated with stocks for about 20 years or so. So it's worth taking note of, I'd say. After all, we live in unusual times, where the US market at least appears to those of us outside the USA to be propped up to an extreme valuation measure using buybacks funded by tax cuts, ultra cheap borrowing and outright money printing. Perhaps it looks different over there.
How did the funny money fill the pockets of the GOP?

The most important time for the stock bond correlation to shine is during a recession or crisis. The average of 85years doesn’t mean much to me.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 5:26 am

typical.investor wrote:
Wed Oct 16, 2019 5:14 am
ukbogler wrote:
Wed Oct 16, 2019 5:02 am
typical.investor wrote:
Wed Oct 16, 2019 4:18 am
ukbogler wrote:
Wed Oct 16, 2019 4:02 am
If currency risk is an issue, hold two world trackers, one, such as VWRL denominated in sterling, the other denominated in USD...

Thoughts?
That actually does nothing to alleviate currency risk. It's the currency of the underlying holdings that matters, not the fund denomination. So VWRL has the same currency exposure whether in Sterling or USD.

This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.
You still don't understand.

The currency exposure in VWRL is determined by the underlying holdings. So 54% USD, 7.8% Yen, 5.1% Sterling etc. etc.

So what happens if the pound strengthens dramatically? Well the holdings in VWRL (other than 5.1% Sterling) will be worth less, and the price of VWRL in Sterling will drop. The price of VWRL in USD won't drop. However, if you sell the VWRL in USD and buy Sterling, you will have the same amount as VWRL in Sterling is worth (assuming you can pay no conversion fees moving from USD to pounds). The actual value of VWRL in either Sterling or USD is the same regardless of whether the Sterling appreciates or loses value.
You still don't understand.

In the UK, you buy VWRL in GBP. But everything inside it is priced in USD by the fund. You never see the fluctuations in the ozzy dollar except as changes in their USD equivalent. As the entire fund is priced in USD, and over half of it us american stuff, the fluctuations between the GBP and USD are therefore way more important than any other currency. Get it?

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 5:40 am

ukbogler wrote:
Wed Oct 16, 2019 5:26 am
typical.investor wrote:
Wed Oct 16, 2019 5:14 am
ukbogler wrote:
Wed Oct 16, 2019 5:02 am
typical.investor wrote:
Wed Oct 16, 2019 4:18 am
ukbogler wrote:
Wed Oct 16, 2019 4:02 am
If currency risk is an issue, hold two world trackers, one, such as VWRL denominated in sterling, the other denominated in USD...

Thoughts?
That actually does nothing to alleviate currency risk. It's the currency of the underlying holdings that matters, not the fund denomination. So VWRL has the same currency exposure whether in Sterling or USD.

This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.
You still don't understand.

The currency exposure in VWRL is determined by the underlying holdings. So 54% USD, 7.8% Yen, 5.1% Sterling etc. etc.

So what happens if the pound strengthens dramatically? Well the holdings in VWRL (other than 5.1% Sterling) will be worth less, and the price of VWRL in Sterling will drop. The price of VWRL in USD won't drop. However, if you sell the VWRL in USD and buy Sterling, you will have the same amount as VWRL in Sterling is worth (assuming you can pay no conversion fees moving from USD to pounds). The actual value of VWRL in either Sterling or USD is the same regardless of whether the Sterling appreciates or loses value.
You still don't understand.

In the UK, you buy VWRL in GBP. But everything inside it is priced in USD by the fund. You never see the fluctuations in the ozzy dollar except as changes in their USD equivalent. As the entire fund is priced in USD, and over half of it us american stuff, the fluctuations between the GBP and USD are therefore way more important than any other currency. Get it?
Yeah, sorry. Keep doing your research. Whether you buy VWRL in GBP or in USD, the USD is going to play the biggest role since it's holdings are 54% USD.

If you really think buying VWRL in USD is going to protect you from currency fluctuation - think again. The light will go on at some point I hope.
ukbogler wrote:
Wed Oct 16, 2019 5:09 am
After all, we live in unusual times, where the US market at least appears to those of us outside the USA to be propped up to an extreme valuation measure using buybacks funded by tax cuts, ultra cheap borrowing and outright money printing. Perhaps it looks different over there.
US interest rates are much higher than most other developed nations. In fact, negative rates elsewhere are pushing flows into US assets - both stocks and bonds. It is negative rates that are weird.

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 6:06 am

typical.investor wrote:
Wed Oct 16, 2019 5:40 am
ukbogler wrote:
Wed Oct 16, 2019 5:26 am
typical.investor wrote:
Wed Oct 16, 2019 5:14 am
ukbogler wrote:
Wed Oct 16, 2019 5:02 am
typical.investor wrote:
Wed Oct 16, 2019 4:18 am


That actually does nothing to alleviate currency risk. It's the currency of the underlying holdings that matters, not the fund denomination. So VWRL has the same currency exposure whether in Sterling or USD.

This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.
You still don't understand.

The currency exposure in VWRL is determined by the underlying holdings. So 54% USD, 7.8% Yen, 5.1% Sterling etc. etc.

So what happens if the pound strengthens dramatically? Well the holdings in VWRL (other than 5.1% Sterling) will be worth less, and the price of VWRL in Sterling will drop. The price of VWRL in USD won't drop. However, if you sell the VWRL in USD and buy Sterling, you will have the same amount as VWRL in Sterling is worth (assuming you can pay no conversion fees moving from USD to pounds). The actual value of VWRL in either Sterling or USD is the same regardless of whether the Sterling appreciates or loses value.
You still don't understand.

In the UK, you buy VWRL in GBP. But everything inside it is priced in USD by the fund. You never see the fluctuations in the ozzy dollar except as changes in their USD equivalent. As the entire fund is priced in USD, and over half of it us american stuff, the fluctuations between the GBP and USD are therefore way more important than any other currency. Get it?
Yeah, sorry. Keep doing your research. Whether you buy VWRL in GBP or in USD, the USD is going to play the biggest role since it's holdings are 54% USD.

If you really think buying VWRL in USD is going to protect you from currency fluctuation - think again. The light will go on at some point I hope.
ukbogler wrote:
Wed Oct 16, 2019 5:09 am
After all, we live in unusual times, where the US market at least appears to those of us outside the USA to be propped up to an extreme valuation measure using buybacks funded by tax cuts, ultra cheap borrowing and outright money printing. Perhaps it looks different over there.
US interest rates are much higher than most other developed nations. In fact, negative rates elsewhere are pushing flows into US assets - both stocks and bonds. It is negative rates that are weird.
Yawn. You didn't even read what I wrote. I'm suggesting that it's possible to partially hedge a single fund such as VWRL by buying another equivalent fund that's priced in USD. This works because the major currency risk for a UK investor holding VWRL is the USD. The assets within VWRL are priced in USD because over half of it is American, and so already in USD, but the overall fund, for a UK investor is bought and sold in GBP. That's why VWRL tanked when the pound rose, but an equivalent world fund, priced in USD went the other way for a net change of zero (ish). I have no idea what you mean by 'buy VWRL in USD'. What are you suggesting? AFAIK it's priced in pounds. Still, whatever. Keep doing your research.

User avatar
BeBH65
Posts: 1555
Joined: Sat Jul 04, 2015 7:28 am

Re: UK Investors - simplified strategy

Post by BeBH65 » Wed Oct 16, 2019 6:14 am

ukbogler wrote:
Wed Oct 16, 2019 5:02 am
This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.
A 1% change on a day happens a lot for equity funds. I would not call this a collapse, or tanking.

Both the USD as the GBP fund performed very similarly. An investor holding these lost a similar amount, independent of the currency that it is held in. Just convert the amounts to GBP to see this.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 6:44 am

BeBH65 wrote:
Wed Oct 16, 2019 6:14 am
ukbogler wrote:
Wed Oct 16, 2019 5:02 am
This week, VWRL collapsed over 1% on the back of the pound strengthening. It's priced in GBP (we're talking UK here, remember?) but the underlyings are priced in USD, from what I can gather. So the risk is USD - GBP. The USD priced and denominated funds, sucj as the various ACWI funds, went up proportionately. If you'd held both in equal proportions, you wouldn't have gained or lost anything despite a huge change in the USD GBP ratio. Sorry if I wasn't clear.
A 1% change on a day happens a lot for equity funds. I would not call this a collapse, or tanking.

Both the USD as the GBP fund performed very similarly. An investor holding these lost a similar amount, independent of the currency that it is held in. Just convert the amounts to GBP to see this.
It's all relative. Whatever you choose to call it, the principle is correct. If you hold 2 otherwise identical funds, one priced in USD, one priced in GBP, as the exchange rate between the two currencies fluctuates, the value of one will go up as the other goes down and vice versa. In this case, the major currency risk is the rate of exchange between the GBP/USD pair, because both funds are valued in dollars, but one is priced in pounds. So the GBP value of the 'other' fund goes up as the first goes down. As you say, just convert both into one currency. Anyways, it's not exactly important to the thread, it was only a suggestion. You'd think I'd asked him to sell his first born son or something. The point of the thread is

'should UK investors simplify the bogle philosophy by simply buying a world index tracker etf such as VWRL, along with a global hedged bond fund to minimise volatility'

In other words, can any UK investor see any advantages in not simplifying to a single world tracker / global agg bond fund?

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 6:48 am

ukbogler wrote:
Wed Oct 16, 2019 6:06 am


Yawn.
Wow. You are cheeky. That's great and all but I care more about being correct, and that you are not.
ukbogler wrote:
Wed Oct 16, 2019 6:06 am
You didn't even read what I wrote. I'm suggesting that it's possible to partially hedge a single fund such as VWRL by buying another equivalent fund that's priced in USD.
Yeah, I know you are suggesting that. And I am say "no", that's not how currency risk works.
ukbogler wrote:
Wed Oct 16, 2019 6:06 am
This works because the major currency risk for a UK investor holding VWRL is the USD. The assets within VWRL are priced in USD because over half of it is American, and so already in USD, but the overall fund, for a UK investor is bought and sold in GBP. That's why VWRL tanked when the pound rose, but an equivalent world fund, priced in USD went the other way for a net change of zero (ish).
Nice try but I think you have convinced yourself of something that isn't true and are struggling to see how it's not.
ukbogler wrote:
Wed Oct 16, 2019 6:06 am
I have no idea what you mean by 'buy VWRL in USD'. What are you suggesting? AFAIK it's priced in pounds. Still, whatever. Keep doing your research.
Yeah, I know you have no idea. That's firmly established.

Let's see, VWRL is offered in CHF, EUR, USD, and GBP. Take your pick. Do note that only one of those is priced in pounds.

Schlabba
Posts: 154
Joined: Sat May 11, 2019 9:14 am

Re: UK Investors - simplified strategy

Post by Schlabba » Wed Oct 16, 2019 6:51 am

https://www.bogleheads.org/wiki/Non-US_ ... currencies

Typical.investor is right.

Anyway, How did the funny money fill the pockets of the GOP?
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 7:11 am

Anyway, yeah global cap weighting is a sensible approach, but you either need to hedge the equities or hold bonds in your home currency (or perhaps real estate) to reduce currency risk. Or just accept that you are holding a basket of currencies and come what may.
Last edited by typical.investor on Wed Oct 16, 2019 7:28 am, edited 1 time in total.

User avatar
BeBH65
Posts: 1555
Joined: Sat Jul 04, 2015 7:28 am

Re: UK Investors - simplified strategy

Post by BeBH65 » Wed Oct 16, 2019 7:24 am

ukbogler wrote:
Wed Oct 16, 2019 6:44 am
It's all relative. Whatever you choose to call it, the principle is correct. If you hold 2 otherwise identical funds, one priced in USD, one priced in GBP, as the exchange rate between the two currencies fluctuates, the value of one will go up as the other goes down and vice versa.
I would say the value of the fund changes the same, independent of the trading currency of the fund.
The changes of the price of the fund can be different depending on the currency you trade in.
This difference of price in different currencies is only linked to the changes in the exchange rate. You cannot hedge this by trading in a different currency.

Please have another look at the wiki page already mentioned.
https://www.bogleheads.org/wiki/Non-US_investors_and_ETF_currencies wrote:This page demonstrates why it is that for investors in these ETFs, the only currency exchange rate that impacts long term returns is the one between the investor's home currency and the currency of the ETF's assets
or here : Base_currency, trading_currency_a and currency_of_the_underlying_assets



ukbogler wrote:
Wed Oct 16, 2019 6:44 am
'should UK investors simplify the bogle philosophy by simply buying a world index tracker etf such as VWRL, along with a global hedged bond fund to minimise volatility'

In other words, can any UK investor see any advantages in not simplifying to a single world tracker / global agg bond fund?
The two fund portfolio that you describe is, in my opinion, fully in line with the Boglehead principles.

There are many other portfolios that are aligned with the Boglehead principles: read for instance these wiki pages: Simple_non-US_portfolios or Stock_asset_allocation_for_non-US_investors
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Topic Author
ukbogler
Posts: 68
Joined: Mon Sep 30, 2019 4:38 am

Re: UK Investors - simplified strategy

Post by ukbogler » Wed Oct 16, 2019 7:28 am

typical.investor wrote:
Wed Oct 16, 2019 7:11 am
Anyway, yeah global cap weighting is a sensible approach, but you either need to hedge the equities or hold bonds (or perhaps real estate) to reduce currency risk. Or just accept that you are holding a basket of currencies and come what may.
OK, I'll try and keep this very simple for you.

Imagine you buy two otherwise identical funds. The internal assets of both are valued in USD, primarily because the majority of those assets are already priced in USD. That is used to provide the overall current price of both funds.

However, one price is then converted into GBP.

As the exchange rate between GBP and USD changes, the price of one fund in GBP goes up, the other goes down or vice versa. This far outweighs the individual fluctuations in individual currencies of the minority assets contained within both funds, because they are exactly that, minority assets.

The only way to 'better' this would be to hedge the entire fund. Now do me a favour, stop messing up my thread pointlessly, and go find some other way to amuse yourself.

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 7:32 am

ukbogler wrote:
Wed Oct 16, 2019 7:28 am
typical.investor wrote:
Wed Oct 16, 2019 7:11 am
Anyway, yeah global cap weighting is a sensible approach, but you either need to hedge the equities or hold bonds (or perhaps real estate) to reduce currency risk. Or just accept that you are holding a basket of currencies and come what may.
OK, I'll try and keep this very simple for you.

Imagine you buy two otherwise identical funds. The internal assets of both are valued in USD, primarily because the majority of those assets are already priced in USD. That is used to provide the overall current price of both funds.

However, one price is then converted into GBP.

As the exchange rate between GBP and USD changes, the price of one fund in GBP goes up, the other goes down or vice versa. This far outweighs the individual fluctuations in individual currencies of the minority assets contained within both funds, because they are exactly that, minority assets.

The only way to 'better' this would be to hedge the entire fund. Now do me a favour, stop messing up my thread pointlessly, and go find some other way to amuse yourself.
Nope. You are still wrong.

And I feel a responsibility to point out to anyone who reads the thread that trying to avoid currency risk by holding VWRL in USD isn't going to work. See the wiki linked earlier as to why.

Posting accurate information, which I am doing, is neither pointless nor messing the thread up. Once you stop posting incorrect assertions, I will stop posting corrections.

DJN
Posts: 510
Joined: Mon Nov 20, 2017 12:30 am

Re: UK Investors - simplified strategy

Post by DJN » Wed Oct 16, 2019 7:37 am

Hi,
ukbogler wrote:
Wed Oct 16, 2019 6:44 am
It's all relative. Whatever you choose to call it, the principle is correct. If you hold 2 otherwise identical funds, one priced in USD, one priced in GBP, as the exchange rate between the two currencies fluctuates, the value of one will go up as the other goes down and vice versa.
There is a situation where your principle might be applicable but not as you imply. I believe the advice you have been given is correct.
I think of it as a round trip and you don't want to repeat any leg of that trip.
If you earned some of your money in sterling and some in dollars then it could make sense to crudely "hedge" your investment by investing some in sterling and some in dollars, i.e. the bit that you have earned in dollars in dollars and the other bit via sterling, that way you avoid another leg on your round trip.
DJN
Yah shure

typical.investor
Posts: 1228
Joined: Mon Jun 11, 2018 3:17 am

Re: UK Investors - simplified strategy

Post by typical.investor » Wed Oct 16, 2019 7:52 am

ukbogler wrote:
Wed Oct 16, 2019 6:44 am


It's all relative. Whatever you choose to call it, the principle is correct. If you hold 2 otherwise identical funds, one priced in USD, one priced in GBP, as the exchange rate between the two currencies fluctuates, the value of one will go up as the other goes down and vice versa.
Um, just plain no. That is not correct.

Case 1:
Assume the funds hold US stocks only (for simplicity).

If the USD doubles, the fund priced in USD won't change [US stocks priced in USD don't change value when the USD does]. If you sell it and buy GBP though, you will have 2X as much in GBP.

If the USD doubles, the fund priced in GBP will be worth twice as much.

No difference. In both cases you will have 2X the amount of GBP. Makes sense. You were holding US stocks and the USD doubled, so you'll have twice the amount in either case if you sell the stocks and convert to GBP.

Case 2:
Assume the funds hold UK stocks only (for simplicity).

If the USD doubles, the fund priced in USD will be worth half as much as your underlying holdings are only worth half the amount in USD that they used to be. If you sell it and buy GBP though, you will have your original amount because 1 USD is buying twice the GBP it used to.

If the USD doubles, the fund priced in GBP will not have changed in value.

No difference. In both cases you have your original amount in GBP which makes sense because the USD changed while you were holding UK stocks, and thus there is no effect on the value of your holdings if you sell and convert to GBP.

Case 3:
Assume the funds hold Japanese stocks only (for simplicity).

If the YEN doubles, the fund priced in USD will be worth twice as much. If you sell it and buy GBP, you will have you twice as much.

If the YEN doubles, the fund priced in GBP will have doubled.

No difference. In both cases you have double the amount in GBP which makes sense because the YEN doubled and you were holding Japanese stocks.

Conclusion

The underlying holdings determine currency risk. You can't change currency exposure by changing to a fund with the same holdings but that trades in a different currency.

Again, see the wiki linked in this thread for more info. This point is well established.

andrew99999
Posts: 516
Joined: Fri Jul 13, 2018 8:14 pm

Re: UK Investors - simplified strategy

Post by andrew99999 » Wed Oct 16, 2019 8:48 am

ukbogler, it may be that the explanation was not as clear as it should be, but typical.investor is correct.
Let me take a shot at explaining it, maybe it will help.

An MSCI large & mid caps fund that is reported (ie measured) in USD is not going to give you any different return to an MSCI large and mid capps fund that is reported (ie measured) in another currency.

The reporting currency is nothing more than a measuring stick.
The underlying assets being the same mean the actual underlying value will be the same for both, only the measuring sticks change relative to each other over time.

-------

If you want to hedge a currency, you need a fund that specifically currency hedges the return each period of time and repeats the hedging at the end of each period. Yes this can be done. It has nothing to do with the reporting currency of the fund and all to do with actual currency hedging.
PassiveInvestingAustralia.com

jjface
Posts: 2606
Joined: Thu Mar 19, 2015 6:18 pm

Re: UK Investors - simplified strategy

Post by jjface » Wed Oct 16, 2019 8:54 am

Your strategy isn't currency hedging

Say the exchange rate is 1:1 and you have 1000gbp or VWRL and $1000 in the other.equivalent.fund (initially also worth 1000gbp) lets call that VW.

When the exchage rate goes to 2:1 what happens?

Assets in VWRL denominated in $ are still worth $1000 so VWRL will drop in price to 500gbp. You just lost 500gp.

VW on the otherhand will remain listed as $1000. Just because it remains the same doesn't mean anything to a uk investor. When you convert that back to your home.currency gbp you will also get 500gbp. You also lost 500gbp

In fact you've doubled your risk as you've lost 2 x 500gbp due to currency movements. this is because in both cases the underlying assets are $

glorat
Posts: 280
Joined: Thu Apr 18, 2019 2:17 am

Re: UK Investors - simplified strategy

Post by glorat » Wed Oct 16, 2019 6:26 pm

I think ukbogler needs to suggest what USD fund he's going to use to counterbalance the currency risk. If he's suggesting a balance of VWRL and VWRD, clearly that doesn't work and that's what everyone is trying to point out. If it is VWRL and AGG*, that still doesn't work.

I've no idea what portfolio ukbogler is proposing to reduce currency risk. (nor, like others, do I see how it is even possible with a 50/50 with some other magic fund)

xxd091
Posts: 93
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: UK Investors - simplified strategy

Post by xxd091 » Thu Oct 17, 2019 7:00 am

My penny’s worth
Aged 73-retired 16 years-UK investor- Boglehead since 1999
Use 2 funds -Global Equities Index Fund plus a Global Bond Index Fund hedged to the Pound -Vanguard funds
Cheap, easy to follow-been through 2001-2 and 2008
Seems to work -made my pile so 30 % Equities 65% Bonds and 5% Cash
Pull between 3.5 to 3.8% from Portfolio per annum
xxd09

Valuethinker
Posts: 38983
Joined: Fri May 11, 2007 11:07 am

Re: UK Investors - simplified strategy

Post by Valuethinker » Thu Oct 17, 2019 8:12 am

xxd091 wrote:
Thu Oct 17, 2019 7:00 am
My penny’s worth
Aged 73-retired 16 years-UK investor- Boglehead since 1999
Use 2 funds -Global Equities Index Fund plus a Global Bond Index Fund hedged to the Pound -Vanguard funds
Cheap, easy to follow-been through 2001-2 and 2008
Seems to work -made my pile so 30 % Equities 65% Bonds and 5% Cash
Pull between 3.5 to 3.8% from Portfolio per annum
xxd09
I did not realise you could buy a global index fund (bond or equity) in 1999?

I had L&G index funds, but was paying 0.5% for UK fund, 0.75-1.0% for global funds. Standard Life pension still paying something similar (0.8 to 1.0%). Have now switched L&G to Vanguard, finally - the excess 0.10% is an absolute pain, but at least it is transparent. I found it was very easy to get caught out on any of the platforms.

As under the old rules you had to buy an annuity with your pension presumably you have an annuity income as well? So quasi fixed interest.

Unfortunately bond funds hedged into GBP now pay less than 1% return (assuming no price gain)? So that strategy will start to drain capital?

xxd091
Posts: 93
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: UK Investors - simplified strategy

Post by xxd091 » Thu Oct 17, 2019 4:59 pm

No annuity -living off investments -SIPPs and ISAs
My wife is a retired teacher and has a pension-we both have State Pensions
Vanguard Global Bond Index Fund hedged to pound payed 5% pa over the last 10 years-see Vanguard website-may not be the case going forward
xxd09

User avatar
Forester
Posts: 529
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: UK Investors - simplified strategy

Post by Forester » Sat Oct 19, 2019 11:17 am

Vanguard & iShares both have world Min Vol ETFs which are very similar to their US counterparts. The vanguard Min Vol fund (VMVL) is even a smidgen cheaper than its global index counterpart (VWRL).

Post Reply