US v International (Investing Review) [UK Investor]

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Topic Author
Mr F
Posts: 9
Joined: Wed Jul 29, 2020 7:50 am

US v International (Investing Review) [UK Investor]

Post by Mr F » Wed Jul 29, 2020 10:25 am

Dear Bogleheads,

UK Investor here, and new to Bogleheads forum. I have been reading religiously for the past few months during lockdown, good night time reading. Blown away by the level of detail and help many people on here are happy to assist and bring value to people's lives. Also a huge advocate of the simplicity of its very nature and philosophy. I am pragmatic by nature hence why I am so engaged with the forum.

I would very much appreciate thoughts and input on my current portfolio. Note I do have an emergency fund that gives me a good nights sleep should the worse happen. 

Down to the nuts and bolts:
ISA Investment:
40% Equities
60% Cash 

ISA:
65% — Legal & General US Index (Acc)
The remaining 35% is made up of individual stocks and smaller niche funds, that I will be selling and simplifying the portfolio in line with Bogleheads two/three fund philosophy. Two of these stocks I have purchased are Microsoft and Apple making up 12.5% of the equities in my ISA, hefty I know.

SIPP (Pension)
100% — Legal & General US Index (Acc)

1) Do I continue simplifying my ISA by adding 80% equities to the Legal & General US Index with a 20% remaining in bonds (advice on these please as I am struggling to digest the differing natures bond idexes bring to the table). 

2) Should I be selling the my entire stock and index accumulation into cash and then reinvesting it into a global index.

3) I have been reading a few articles and threads here that discuss the taxation that goes with owning foreign stocks. Should this be a general cause/change of direction for how I continue investing with Legal and General Acc fund?

Thanks for any advice and feel free to be brutal with it.

Valuethinker
Posts: 40605
Joined: Fri May 11, 2007 11:07 am

Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Thu Jul 30, 2020 4:51 am

Mr F wrote:
Wed Jul 29, 2020 10:25 am
Dear Bogleheads,

UK Investor here, and new to Bogleheads forum. I have been reading religiously for the past few months during lockdown, good night time reading. Blown away by the level of detail and help many people on here are happy to assist and bring value to people's lives. Also a huge advocate of the simplicity of its very nature and philosophy. I am pragmatic by nature hence why I am so engaged with the forum.

I would very much appreciate thoughts and input on my current portfolio. Note I do have an emergency fund that gives me a good nights sleep should the worse happen. 

Down to the nuts and bolts:
ISA Investment:
40% Equities
60% Cash 

ISA:
65% — Legal & General US Index (Acc)
The remaining 35% is made up of individual stocks and smaller niche funds, that I will be selling and simplifying the portfolio in line with Bogleheads two/three fund philosophy. Two of these stocks I have purchased are Microsoft and Apple making up 12.5% of the equities in my ISA, hefty I know.

SIPP (Pension)
100% — Legal & General US Index (Acc)

1) Do I continue simplifying my ISA by adding 80% equities to the Legal & General US Index with a 20% remaining in bonds (advice on these please as I am struggling to digest the differing natures bond idexes bring to the table). 
Yes on 80/ 20 but US index is a mistake in my view. However we don't know your age.

Microsoft and Apple are 2 of the top 5 stocks in the world by market capitalisation, so what you have done in effect is *increased* your concentration risk. That is really not a good thing, unless you have some special knowledge about the business prospects of those 2 companies that is not available to analysts and fund managers, generally?

If you are over 50 you should consider holding more bonds. What is your planned retirement date? By that time you should be at least 50% in bonds, probably.

There is a global bond fund, hedged into sterling, with Vanguard. When I was with L&G the fund expense ratios became uncompetitive, so I moved my ISAs to VG. But I hold almost all my bonds in my pension because of the impact of the lifetime limit (£1,050,000) and the way Final Salary pensions are calculated in that limit.

A global bond fund hedged into sterling is probably better than a UK gilts fund (UK govt bonds = gilts) -- I have gone on on this for a long time, it's to do with the duration of the UK fund (the gilt index has a 15 year duration ie much more sensitive to interest rate moves). However it's not really a big thing and you may (in your pension) only have access to various gilts funds?
2) Should I be selling the my entire stock and index accumulation into cash and then reinvesting it into a global index.
If inside an ISA or pension the switch is easy. The global developed market index is 60% US, roughly, and that's plenty of exposure for anyone. Yes the US has done incredibly well relative to other markets in the last 10 years, but that leadership tends to switch, international markets did better from 2000-2008 I believe. One might roughly say that since the 1960s it has been decade on/ decade off for international v US index (although the US index has done so much better when it was "on" that the historic record says "be 100% US).

Outside you could wind up paying capital gains tax and that's generally best avoided.
3) I have been reading a few articles and threads here that discuss the taxation that goes with owning foreign stocks. Should this be a general cause/change of direction for how I continue investing with Legal and General Acc fund?

Thanks for any advice and feel free to be brutal with it.
Ted Swippet is better on this than I am. I have been told a UK domiciled fund is better than an Irish domiciled one from a foreign tax viewpoint?

Topic Author
Mr F
Posts: 9
Joined: Wed Jul 29, 2020 7:50 am

Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Thu Jul 30, 2020 10:10 am

Thanks Valuethinker for taking the time to review and give your thoughts.

Age: Mid 30's so the idea of moving towards 10-20% bonds for both my SIPP and my ISA are probably sound. Re bond investing, I have been searching around Vanguard Global Bond Index Acc (Hedged GBP) OCF 0.15%. Would this be more like a one size fits to a bond allocation? Or should I be breaking it down into Corporates, Short term - intermediates etc? Bonds is my Achilles heel, I have to admit.

Retirement:Retiring by 60 would be an ideal and realistic target for me.

--

1) In terms of the direction of travel with both the ISA and SIPP (currently heavily weighted in the US equities index) would it really be best practise as a UK investor through either a lump sum, or DCA to switch into a global index?

I've noted the following:
Legal & General International Index Trust (C) with an OCF of 0.08. 
Vanguard FTSE Global All Cap Index is 0.23%.

In terms of my Apple and Microsoft stock investments, I have had them both in my folio for approx 3 years, and have both been on a good upside investment (so far). I tend to think of them as long term leave and grow over time stocks. I know they are large concentrated risks, but I see them as quality stocks that are heavily favoured to continue to grow. With such a conservative approach by indexing bringing good diversification, contrasting that with two excellent businesses (keeping them between 5-10% of my ISA folio) is that a risk?

--

As a footnote, regarding the pension side, please can you explain what you mean by the Lifetime limit at £1,050,000?

Look forward to hearing your thoughts again Valuethinker.

Valuethinker
Posts: 40605
Joined: Fri May 11, 2007 11:07 am

Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Thu Jul 30, 2020 11:15 am

Mr F wrote:
Thu Jul 30, 2020 10:10 am
Thanks Valuethinker for taking the time to review and give your thoughts.

Age: Mid 30's so the idea of moving towards 10-20% bonds for both my SIPP and my ISA are probably sound. Re bond investing, I have been searching around Vanguard Global Bond Index Acc (Hedged GBP) OCF 0.15%. Would this be more like a one size fits to a bond allocation? Or should I be breaking it down into Corporates, Short term - intermediates etc? Bonds is my Achilles heel, I have to admit.
That would do you fine. There will be years when it will seem like a stupid idea because interest rates will rise and the value of the bond fund will fall.

There will be fluctuations down in NAV. You lost money. But this is good news! Your future investments will go in at a higher yield to maturity (the price of the bonds in the fund has on average falling, hence lower NAV, therefore the YTM of those bonds has gone up, meaning higher future returns).

However, particularly with Accumulation funds (note *only* in SIPPs & ISAs; in taxable accounts you always use Distribution funds) you will see the NAV of the fund rise slowly, unsteadily, over time, but upwards, reflecting the reinvestment of the bond coupons at higher YTMs.

Retirement:Retiring by 60 would be an ideal and realistic target for me.
When you are 50, start thinking about bonds. Because a bear market can cost you half the value of your equities, and it can take years to recover. A rule of thumb is age-10% in bonds, so be 40% in bonds by age 50. I have also heard of age-20%.

--
1) In terms of the direction of travel with both the ISA and SIPP (currently heavily weighted in the US equities index) would it really be best practise as a UK investor through either a lump sum, or DCA to switch into a global index?

I've noted the following:
Legal & General International Index Trust (C) with an OCF of 0.08. 
Vanguard FTSE Global All Cap Index is 0.23%.
OK can you give me the links to the Factsheets? On the above, the L&G one is superior (I moved all my ISAs, almost, to Vanguard to get transparency. But they charge an extra 0.15% on top -- so it's not necessarily the best economic decision).

If there is no adverse tax consequence (which there would be if, say, you had to pay capital gains tax when selling an investment) then the rule is you should just make the change. Move to your target allocation and arrange your monthly contributions to keep to your target percentages. As some assets do better than others, rebalance frequently back to your target allocation (as long as no extra dealing costs incurred, or taxes).

Psychologically that can be hard to do, so why not do it in 2 steps: half now and half in 3 months time?
In terms of my Apple and Microsoft stock investments, I have had them both in my folio for approx 3 years, and have both been on a good upside investment (so far). I tend to think of them as long term leave and grow over time stocks. I know they are large concentrated risks, but I see them as quality stocks that are heavily favoured to continue to grow. With such a conservative approach by indexing bringing good diversification, contrasting that with two excellent businesses (keeping them between 5-10% of my ISA folio) is that a risk?
Yes it is a risk. Anything you do which is not index weighted exposes you to risk.

Risk can be on the upside, too. The stocks can outperform the index as well as underperform.

The main issue is these are already 2 of the largest companies in world markets. From memory if you put £100k into a global index fund, you get about £2000 in each (it's more than that for Microsoft, and a bit less for Apple). So you are doubling up.

I am tarred by memory of the dot com crash. Vodafone was 15% of the UK index, Nortel was 25% of the Canadian index. The former is now less than 5% (having paid quite a big dividend a few years ago, though, the largest dividend in corporate history I believe) and Nortel dropped to 0%. Microsoft and Apple are far stronger companies in their fundamentals than either Vodafone or Nortel were. But the question is always not whether they are good, strong companies that will probably keep growing (they are) but whether the stock market will continue to place such a high valuation on their future prospects (it might not).

If they are between 5-10% of your ISA portfolio, they are a risk, but they are probably not an excessive risk. I really would switch from an S&P 500 index fund towards a global equity index fund (including USA) though to reduce the concentration risk on those stocks somewhat.

--
As a footnote, regarding the pension side, please can you explain what you mean by the Lifetime limit at £1,050,000?

Look forward to hearing your thoughts again Valuethinker.
Currently under UK law your maximum lifetime value (contributions plus investment return) in all your personal pensions combined is £1,050,000. Currently indexed to RPI inflation. It was £1.8m, then £1.5m and it was cut to £1m (with transitional arrangements for those with more than £1m value then). It was one of the biggest stealth tax rises any Chancellor in recent memory has pulled - £1m sounds like a lot of money, but would buy a Final Salary pension (inflation linked, 50% survivor benefit) of around £21k per year right now, I believe. Not riches.

When you draw your pension, currently, you still get a 25% lump sum tax free (I expect future Chancellors to kill that off) but you will pay 55% tax rate on any excess above the lifetime amount when you retire.

If you have any Final Salary/ Career Average Salary pensions, I believe they count against the limit at 20x the annual benefit. So a £10k pa annual benefit would count as £200k etc.

This means you want to keep your slower growth investments in your pension if you can - bonds for example. That can make rebalancing tricky, though because in an ISA you can just "raid" your bond fund when equities drop and you are rebalancing back to your target percentages.

Which opens up the question? Are you self employed or do you also have an employer pension scheme? Because they will be contributing 8% of your gross pay to that scheme (5% from you, 3% from them, 1% from government)-- if a Defined Contribution scheme. You need to include those in your investment portfolio picture.

Also a lot of employers "match" employee contributions up to say 5% or 7% of gross salary. So you can get an effective 100% rate of return by taking advantage of this match. Pretty much always worth doing.

TedSwippet
Posts: 3008
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Thu Jul 30, 2020 12:20 pm

Mr F wrote:
Thu Jul 30, 2020 10:10 am
I've noted the following:
Legal & General International Index Trust (C) with an OCF of 0.08. 
Are your accounts at Hargreaves Lansdown?

https://www.hl.co.uk/funds/fund-discoun ... cumulation

If yes, be aware that you will be paying HL's bloated 0.45% platform charge for funds on top of this, and also on top of any other funds you hold with them. This extra charge can take all the shine off otherwise good-value funds.

Topic Author
Mr F
Posts: 9
Joined: Wed Jul 29, 2020 7:50 am

Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Thu Jul 30, 2020 2:29 pm

Valuethinker, really appreciate the time you've taken to go through each of my queries and answered them with true value (pardon the pun).

My pragmatism when I consider my position on Apple and Microsoft is what are the chances of them tanking over the next 20-30 years? Highly likely not, BUT, could they drop significantly in that time frame, possibly. And that risk could coincide with the timeframe I retire. Which means the asset allocation of bonds -10-20% of age is something that will ring true with me come that time, I'm sure.

Added to the definitive decision to ( I think this is the right thing to do, correct me if I am wrong) slowly withdraw all my holdings in the S&P (65%) along with the cash in my ISA (60%) and DCA into the global equity index?

--

With regards to the Factsheet on the L&F fund (same as below from Ted) https://www.hl.co.uk/funds/fund-discoun ... cumulation

I have seriously considered (as Ted rightfully pointed out the bloated 0.45% platform charge) moving away from HL. Vanguard offer the FTSE Global All Cap Index Fund Accumulation which has an OCF of 0.23% (including transactional costs), plus the platform charge of 0.15%, total OCF for the fund is 0.35%. HL platform cost (0.45%) and L&G International Index Trust (ongoing 0.08%), totalling 0.53%.

Difference being 0.18%.

Would this number make huge differences to my investment returns over the long term? Do I also have to consider several prices that I have locked in from previous financial years. Is this worth transferring to cash to invest onto a new platform and fund for the benefit of 0.18%?

TedSwippet
Posts: 3008
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Thu Jul 30, 2020 3:00 pm

Mr F wrote:
Thu Jul 30, 2020 2:29 pm
Would this number make huge differences to my investment returns over the long term?
You don't say how much you hold in your SIPP or ISA, but obviously, the more you hold, the larger the damage from high fees. Although the percentage is of course the same, 10% of £100 matters a lot less than 10% of £1mm.

A quick way to ballpark this is to project compounded returns both ways, and compare the outcome. Using 7% as a possible number for long-term nominal growth from equities (historically, it's been about this, give or take, over the past several decades), and your timescale as 25 years (time to retirement), you can compare the outcome of (1.07 - X) ^ 25, with X being the the annual charge drag.

So ... for X=0.35 (Vanguard), the result is 5.00059, and for X=0.53 (HL) it's 4.79381. If you have £100k in your SIPP, at retirement in 25 years this would be £500,059 at Vanguard, and £479,381 from HL. So you lose £20,678 with HL. 4% less to retire on.
Mr F wrote:
Thu Jul 30, 2020 2:29 pm
Do I also have to consider several prices that I have locked in from previous financial years. Is this worth transferring to cash to invest onto a new platform and fund for the benefit of 0.18%?
You don't have to consider prices, contributions, or any other historical data for ISAs and SIPPs. It's only in unwrapped general trading accounts where you have to worry about the spectre of capital gains tax. IIRC, Vanguard don't accept 'in specie' transfers, so you'd have to move to cash for any transfer to them, which can take months, during which time the markets could gain and leaving you out of pocket relatively speaking. Other platforms will usually accept your holdings intact, provided both offer the same investment (and so probably excluding HL's 'exclusive' deal on this L&G fund, then).

Also, depending on how much you hold in your ISA and/or SIPP, Vanguard's platform may not be the cheapest option. Their 0.15% charge is the lowest percentage charge in the platform world (whereas HL is the highest), but if your balance is high enough then a flat-fee platform can come out cheaper still. At the extreme end of things, iWeb's ISA -- iWeb is part of Halifax -- costs £25 to open and then literally nothing annually to run. Even a single year's ISA allowance in Vanguard would cost £30 annually. Clearly a huge win for iWeb there. Unfortunately, their SIPP is not quite so cost-effective. But Interactive Investor's might be, again if you have a high enough balance.

The whole landscape of UK platform charges is so convoluted that there's now a tool to help you compare platform prices, based on what you hold, what you plan to trade and how often, and so on. This will give you a good idea of what you'd lose to platform charges. Worth a spin:

http://www.comparefundplatforms.com/

Finally, note that HL charges this bloated 0.45% for funds up to very high portfolio values, but cap it at £45 for ETFs. So you could stay with HL, and put together a set of regional ETFs that mimic exactly the global equities fund that you want to hold, but bypass HL's stupid charging structure. A bit more complex to arrange than the simple one-fund holding, but an option if you have the patience and application to work it through.
Last edited by TedSwippet on Fri Jul 31, 2020 10:49 am, edited 1 time in total.

xxd091
Posts: 182
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: US v International (Investing Review) [UK Investor]

Post by xxd091 » Thu Jul 30, 2020 5:18 pm

Well done for getting your ducks in a row so quickly
Such good advice from Ted and Valuethinker
Just a thought or two from me aged 74-17 yrs retd)-walked the walk!
I used and still use 3 funds only -UK investor
30/65/5- equities/bonds/cash over two SIPPs and 2 ISAs (wife and I)-made enough money
Vanguard Global Fund Index Tracker ex UK -26% and Vanguard FTSE AllShare Tracker Fund-4% for equities ie totalling 30%
Vanguard Global Bond Index Fund hedged to the Pound for bonds-65%
Cash 5%- 2 years living expenses
All on Interactive Investor platform
Simple cheap and easy to understand
A rough rule you might use -your age in bonds
Write down your Investment Plan
Set your Asset Allocation
That’s it
Then concentrate on your day job-half your portfolio growth will come from money added from your job
xxd091

Valuethinker
Posts: 40605
Joined: Fri May 11, 2007 11:07 am

Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Fri Jul 31, 2020 1:49 am

Mr F wrote:
Thu Jul 30, 2020 2:29 pm
Valuethinker, really appreciate the time you've taken to go through each of my queries and answered them with true value (pardon the pun).

My pragmatism when I consider my position on Apple and Microsoft is what are the chances of them tanking over the next 20-30 years? Highly likely not, BUT, could they drop significantly in that time frame, possibly. And that risk could coincide with the timeframe I retire. Which means the asset allocation of bonds -10-20% of age is something that will ring true with me come that time, I'm sure.
I would not confuse the bond weighting with the stock specific risk of Apple and Microsoft. Bonds and bond funds are an offset against equity index. The performance of Apple and Microsoft will be different than the performance of the S&P 500 - if you are lucky, much better.

Having begun my computing career when IBM owned both the corporate space (mainframes) and the desktop (the old PC DOS IBM PC) and was just crushing DEC in the mini space (the AS400 series) I don't believe that any technology or tech company lasts forever. However AT &T (the old Ma Bell) lasted a long time as a monopoly and you could argue that is what Google et al are.


Added to the definitive decision to ( I think this is the right thing to do, correct me if I am wrong) slowly withdraw all my holdings in the S&P (65%) along with the cash in my ISA (60%) and DCA into the global equity index?
Yes. The theory says that when you have a target allocation you move to it instantly - with the exception of taxes & any other incurred costs (don't realise a capital gain unless you have an offsetting capital loss etc).

My switch from L&G ISA to Vanguard ISA took less than 5 days (cash transfer, no transfer-in-kind) - so that is one data point.

The reality says "regret matters" to human beings. You should do this but only at a speed you feel comfortable with - the more automatic you can make it, the better (say equal amounts over 12 months, etc).

If it helps, remember that a developed markets global index is 60% USA. You are not abandoning your relationship with the S&P 500, you are just "seeing other people" ;-).
With regards to the Factsheet on the L&F fund (same as below from Ted) https://www.hl.co.uk/funds/fund-discoun ... cumulation

I have seriously considered (as Ted rightfully pointed out the bloated 0.45% platform charge) moving away from HL. Vanguard offer the FTSE Global All Cap Index Fund Accumulation which has an OCF of 0.23% (including transactional costs), plus the platform charge of 0.15%, total OCF for the fund is 0.35%. HL platform cost (0.45%) and L&G International Index Trust (ongoing 0.08%), totalling 0.53%.

Difference being 0.18%.

Would this number make huge differences to my investment returns over the long term? Do I also have to consider several prices that I have locked in from previous financial years. Is this worth transferring to cash to invest onto a new platform and fund for the benefit of 0.18%?
Yes for 0.18% in my view. Also to not further remunerate HL & its founder for creating a high cost platform. Note on the math above 0.23+0.15= 0.38? So difference is 0.15%. But yes, I'd still do it.

I chose VG because the charges are *transparent*. Not because it is the cheapest platform. ISAs only. My pensions are with plain old boring insurance companies (that were selected by former employers). I am not sure if the Vanguard SIPP is actually up and running (they have been saying it is soon for the longest time)?

I like that Vanguard is stripped down. The user interface is nice (e.g. things like performance tracking). And they fight against our own worse behavioural tendencies - they offer only a limited range of funds.

(you did not reply to my point about employer pension, so I shall assume you are self employed. I would recommend paying Class 4 NICs (although the Chancellor has basically said he will be raising these towards parity with employees).

Topic Author
Mr F
Posts: 9
Joined: Wed Jul 29, 2020 7:50 am

Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Fri Jul 31, 2020 9:13 am

Brilliant feedback from all of you - thank you so much. Your help is really opening my eyes and informing a lot of decisions I am going to make with both my ISA / SIPPs.

Ted – My ignorance (once being bliss) could have cost me in 30 years time. I could not believe the huge amount that one can get in return for a 'measly' 0.18%. Vanguard are very transparent with fees (as commented on in this thread) but am I correct in saying that HL still cap at £45 for the year?

xxd091 – Appreciate the wisdom from someone who has got the T shirt. Well done on the retirement and hope you have been enjoying the fruits of your labour. With most distinguished people I meet, I politely ask if there is something you would always pass down to a relatively young man still cutting his teeth in life... 

I like to think I have got the right philosophy for long term investing. The discipline, the sacrifice (home economy point of view) the asset allocation (through the help of BH wisdom and people happy to give me advice in this thread) and keeping the right balance on work/play. Someone once said to me "A man on his death-bed doesn't ever wish to have worked more in his life".

Valuethinker – (ISA Portfolio) I still can't help but think to myself the solid gains I have locked in from the years previous with my L&G US index will be lost should I sell the holding into cash and transfer into an International index? Yes transferring to another provider would reduce costing, but is it not counter intuitive to toss the units to one side that could prove beneficial on an upside market?

Would it be a scratch both backs scenario, if, with the remaining 60% in cash left in the ISA I will invest that heavily into the international fund. But would it be more appropriate to perhaps have a three fund allocation (therefore keeping my US Index) but breaking it down to something like 60% International / 20% US Index / 20% Global Bonds?

In terms of my SIPP, I recently transferred from AVIVA to HL at the start of the year (before I found Bogleheads and Jack Bogle), and dropped it all into L&G US Index (100%) in a lump sum, based on the advise of Mr Buffet. Since recent events it's actually caught the downside of the market and is now in negative gain territory. 

Therefore, with the aim to have the SIPP also in an international index (80%) and Global bond index (20%) would it be prudent to hold and wait for the upbeat side of the market and then sell before transferring (for argument sake to Vanguard) and drop it all into the VG international fund.
I know timing the market is pointless and a fools game – but not sure if I am actually compounding loss after loss?

TedSwippet
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Location: UK

Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Fri Jul 31, 2020 10:44 am

Mr F wrote:
Fri Jul 31, 2020 9:13 am
Ted – My ignorance (once being bliss) could have cost me in 30 years time. I could not believe the huge amount that one can get in return for a 'measly' 0.18%. Vanguard are very transparent with fees (as commented on in this thread) but am I correct in saying that HL still cap at £45 for the year?
HL cap their fees at £45/year for shares, investment trusts, ETFs and bonds. For fund holdings, though, there is a tiered pricing structure with a cap, but to reach it you need £2m in assets (so the effective cap is a whopping £4,000/year):

https://www.hl.co.uk/help/tax-informati ... ents-in-hl
There is a 0.45% annual management charge for holding shares, ETFs, investment trusts, and bonds within the ISA (capped at £45 p.a.) and SIPP (capped at £200 p.a.). There is no charge to hold these investments within the HL Fund & Share Account.

Our charge to hold funds is tiered within bands and will be 0.45% per annum on the first £250,000 of funds within each HL account, 0.25% per annum on the value of funds between £250,000 and £1m, 0.1% per annum on the value of funds between £1m and £2m, and no charge on the value of funds over £2m.
If this leaves you wondering why HL thinks an investor holding £2m in Vanguard OEICs should pay £4,000/year in platform charges, but another investor holding £2m in exactly equivalent Vanguard ETFs should pay just £45/year, you would not be the only one. Some types of investment might conceivably be a bit more expensive for a platform to run than others, but nearly a hundred times more expensive defies belief.

The only explanation I can come up with for this behaviour is blatant profiteering. It really pays to take a very close look at your platform charges. In many cases, as here, they can dwarf the fund charges. Personally, I even find Vanguard's 0.15% capped at £375 a bit pricey, compared to what I pay elsewhere. But I could swallow it if other options dried up, whereas HL's 0.45% capped at £4,000 is simply outrageous.

This nonsensical charging policy is what prompted me to suggest moving to ETFs if you wish to remain with HL. Personally, I won't touch HL with a 10ft pole, but I understand why others might. And if you're already a customer there, it's very likely to be much simpler to move to equivalent ETFs and so sidestep this boneheaded fee structure than it is to move everything to a different platform entirely. £45/year is very reasonable, but £thousands/year is not.

Topic Author
Mr F
Posts: 9
Joined: Wed Jul 29, 2020 7:50 am

Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Sat Aug 01, 2020 1:32 am

Thanks again Ted. Its pretty clear to a relatively new investor how convoluted the fee structure is with these platforms - let alone the headaches it must cause more seasoned investors.

Having had you show me the brief illustration of the impact such minute (as well as hefty charges) can have on someones portfolio over time.

While I massively appreciate your input Ted, again not your fault, but the structure of these businesses I feel no further forward in my decision to move platform. Yes HL is expensive, but ultimately is it expensive to hold (for instance) the L&G US Index Accumulation? And moving forward a Global Equity Index?

xxd091
Posts: 182
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Re: US v International (Investing Review) [UK Investor]

Post by xxd091 » Sat Aug 01, 2020 2:54 am

Monevator.com has a good comparison table on the various platforms
It is horses for course
Chose a larger-“safer” outfit first
Then one with competitive charges
Then stick with it as it is a very competitive field and charges of the big boys will stay in sync
Chopping and changing could cause you to be out of the market and very often significant stockmarket changes occur over a few days only-you could seriously miss out
xxd09

TedSwippet
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Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Sat Aug 01, 2020 4:22 am

Mr F wrote:
Sat Aug 01, 2020 1:32 am
While I massively appreciate your input Ted, again not your fault, but the structure of these businesses I feel no further forward in my decision to move platform. Yes HL is expensive, but ultimately is it expensive to hold (for instance) the L&G US Index Accumulation? And moving forward a Global Equity Index?
If a 0.18% fee difference costs you 4% of your retirement income, imagine what an avoidable 0.45% fee will do. Ultimately, of course it is expensive to hold OEICs and funds with HL when vastly cheaper alternatives exist.

Your simplest option is to transition to ETFs instead, but stay with HL if that floats your boat. So VWRL or VEVE say for all-world, or VUSA if you want to stick to your current US bias (if "bias" isn't really to small a word for a 100% allocation). Or similar iShares ETFs; these days, iShares nicely undercuts even some Vanguard OCFs.

Your less simple one is to still hold OEICs, but on another platform -- realistically, any other percentage based one will produce better outcomes for you, but a flat-fee one is also an option. You can smooth the transition by first moving to investment holdings that both HL and the platform you will move to support; that way, you can move the holdings 'in specie' and so avoid any time out of the markets. These types of moves are often done manually by the platform, and so can take a loooong time -- one of my SIPP moves took eleven months(!) to complete, due to platform inefficiencies -- but since money remains invested throughout this cause frustration but no actual financial loss.

Other than that, I don't know what else I can tell you.

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galeno
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Re: US v International (Investing Review) [UK Investor]

Post by galeno » Sat Aug 01, 2020 10:18 am

We are retired USD based non US investors.

We KISS & STC.

50% VWRD + 45% AGGG + 5% CASH.

Or should we use AGUG (USD hedged) instead of (unhedged) AGGG?
KISS & STC.

Valuethinker
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Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Sun Aug 02, 2020 10:49 am

Mr F wrote:
Fri Jul 31, 2020 9:13 am


Valuethinker – (ISA Portfolio) I still can't help but think to myself the solid gains I have locked in from the years previous with my L&G US index will be lost should I sell the holding into cash and transfer into an International index? Yes transferring to another provider would reduce costing, but is it not counter intuitive to toss the units to one side that could prove beneficial on an upside market?
It is valid to worry about how long a transfer takes, and you are out of the market. BUT markets go down as well as up, you might get lucky and buy in at a lower level.

The rest of what you say suggests you have a number of things you need to rethink about markets:

- the market (and fund value) does not care about the past, only the future. "Sunk cost fallacy" is worrying about a past that no longer matters. All that really matters is the future.

So the question is: "Do I think the US index is going to go up more, or a global index (that is about 60% US stocks; I don't know the "international" fund but in the UK that usually means a non-UK equities fund which is about 60%+ US stocks (for a developed markets fund)?" And the answer is no one knows. The US has done far better of late due to the presence of a handful of super tech stocks. That may, or may not, continue in the future. The argument for owning the global portfolio is that it is the most diversified NOT that it will necessarily do the best (there will always be some countries that outperform and some underperform.
but is it not counter intuitive to toss the units to one side that could prove beneficial on an upside market?
You are assuming you (or we) can forecast the future. So who knows? In the long run stocks go up, that is true. The long run can be a very long wait (in Japan they have been waiting over 30 years. In the US the Dow Jones peaked over 1000 in 1966 and did not reach that level again until 1980, in the meantime inflation raged so in real terms (total return) it fell by about 40%. The 1930s were similarly horrible but because there was *deflation* the index fell by more but purchasing power held up.
Would it be a scratch both backs scenario, if, with the remaining 60% in cash left in the ISA I will invest that heavily into the international fund. But would it be more appropriate to perhaps have a three fund allocation (therefore keeping my US Index) but breaking it down to something like 60% International / 20% US Index / 20% Global Bonds?
Double counting? 60% international is c 36% US stocks already? So 36% + 20% = 56%.

Whereas if you hold 80% Global stock fund, you hold c 48% USA (if you use the Vanguard fund that tracks the world index, it's a bit smaller because they include Emerging Markets, which is nice, because then you do not have to rebalance, you just own the world. You will still have to rebalance between stocks and bonds, though).



In terms of my SIPP, I recently transferred from AVIVA to HL at the start of the year (before I found Bogleheads and Jack Bogle), and dropped it all into L&G US Index (100%) in a lump sum, based on the advise of Mr Buffet. Since recent events it's actually caught the downside of the market and is now in negative gain territory. 

Therefore, with the aim to have the SIPP also in an international index (80%) and Global bond index (20%) would it be prudent to hold and wait for the upbeat side of the market and then sell before transferring (for argument sake to Vanguard) and drop it all into the VG international fund.
I know timing the market is pointless and a fools game – but not sure if I am actually compounding loss after loss?
Again you keep assuming you can predict markets. And that stock behaviour has a memory of past prices.

*Except* in a situation where you pay capital gains tax, book cost (purchase price) just does not matter. What matters is getting to the right asset allocation and then sticking to it, especially when it is very tempting to panic - either panic in (Fear Of Missing Out) which causes you to performance chase the latest "hot" stocks or index OR panic out - sell into cash during a bear market. Both are inimical to long term investor success.

A lot of people here recommend reading Lars Krojer's book on personal finance (from a UK/ European perspective).

You would be best to set your target allocation and move to it. If you want to overweight USA then fine, but don't do it "hold and wait for the upbeat side of the market" - you have no way of knowing that is coming. To my mind the US has been on a tear which takes it to 2000 levels of overvaluation (however I don't think this is another 2000 bear market - when it comes it will be its own, very different, bear market - they always are).

Valuethinker
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Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Sun Aug 02, 2020 10:51 am

galeno wrote:
Sat Aug 01, 2020 10:18 am
We are retired USD based non US investors.

We KISS & STC.

50% VWRD + 45% AGGG + 5% CASH.

Or should we use AGUG (USD hedged) instead of (unhedged) AGGG?
Living in a USD linked country probably, yes. US interest rates are (barely) higher than other developed markets so that is helpful.

Or just split the difference 22.5% in each.

I don't tend to count cash in asset allocation, because it is a zero return asset. I count it in my emergency funds.

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galeno
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Re: US v International (Investing Review) [UK Investor]

Post by galeno » Sun Aug 02, 2020 12:52 pm

We include CASH in our FI allocation precisely because it's a zero return asset. It is also a 0% DURATION asset. It's a tool.

We always start the year with 5% of port in CASH. But if we want to decrease our FI allocation's Ave Duration we would just increase the port's CASH percentage.

"I don't tend to count cash in asset allocation, because it is a zero return asset. I count it in my emergency funds."
KISS & STC.

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Mr F
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Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Mon Aug 03, 2020 8:35 am

I know this is possibly now moving away a tad from the initial subject – but still personal to my overall portfolio, so hopefully that is fine.

I have been reading various threads past and present, where various people have suggested not having bonds in an ISA, and instead having them only in your SIPP. Unfortunately there aren't any explanations for why?

Surely any long term investments needs to be off-set by the balance of bonds no matter the wrapper its invested in. An ISA at 100% v SIPP at 80/20 is surely diluted down dramatically?

Thoughts?

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Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Mon Aug 03, 2020 9:00 am

Mr F wrote:
Mon Aug 03, 2020 8:35 am
I have been reading various threads past and present, where various people have suggested not having bonds in an ISA, and instead having them only in your SIPP. Unfortunately there aren't any explanations for why?
The main reason would I think be the presence of the bonkers pensions Lifetime Allowance. Once your pensions grow above some amount, currently a tad above £1m, you pay a 25% excess Lifetime Allowance charge, on top of normal tax, on all future growth inside the pension. Conversely, there's no analagous 'bend point' at any value in the tax graph on unwrapped investments, and obviously none either in ISAs.

So ... given that you perhaps want an overall portfolio, including pensions and ISAs, that is some percentage bonds and some percentage stocks, how best to arrange things while accounting for the stupid way that UK tax can apply to pensions? Generally, returns from bonds will be lower (but steadier) over time than returns from stocks. So by preferring to place lower-growth bonds in the pension, and therefore preferring stocks outside, and especially in an ISA, you reduce your risks from hitting the Lifetime Allowance.
Mr F wrote:
Mon Aug 03, 2020 8:35 am
Surely any long term investments needs to be off-set by the balance of bonds no matter the wrapper its invested in. An ISA at 100% v SIPP at 80/20 is surely diluted down dramatically?
The suggestion is not necessarily to change your asset allocation, only your asset locations. A simple example. Suppose you have a £500k pension and a £500k ISA, and you want to be 60/40 stocks/bonds overall. You could make your pension and your ISA both £300k stocks and £200k bonds. However, the stocks in your pension will (should, historically) contribute to faster growth. Instead, making the pension £100k stocks and £400k bonds, and your ISA £500k stocks and no bonds could mitigate any future Lifetime Allowance problems.

With that said, there's nothing hard and fast about this at all. If you're never going to get close to the Lifetime Allowance, ignorable. Pre-tax pension money is less 'dense' than post-tax ISA money (£1 in an ISA is worth £1 to you, but £1 in a pension might only be worth 80p to you, or 60p, or maybe even less), so factor that in. And you might have different aims for these two things anyway, so different timescales to drawdown.

For what it's worth, because I am close to the Lifetime Allowance, my pensions are now 80% bonds, and my ISAs are 0% bonds. Before the recent drastic Lifetime Allowance reductions, both were about 60/40.

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Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Mon Aug 03, 2020 12:05 pm

Mr F wrote:
Mon Aug 03, 2020 8:35 am
I know this is possibly now moving away a tad from the initial subject – but still personal to my overall portfolio, so hopefully that is fine.

I have been reading various threads past and present, where various people have suggested not having bonds in an ISA, and instead having them only in your SIPP. Unfortunately there aren't any explanations for why?
To my knowledge, I am the poster most associated with that view - here.

And I think I have always stated why - because of the lifetime limit. Indeed, I wrote, above, in my first reply to you on this thread
There is a global bond fund, hedged into sterling, with Vanguard. When I was with L&G the fund expense ratios became uncompetitive, so I moved my ISAs to VG. But I hold almost all my bonds in my pension because of the impact of the lifetime limit (£1,050,000) and the way Final Salary pensions are calculated in that limit.
And then you asked in your next post about the Lifetime limit.

If you consider that your portfolio will return 7% (generous, now, but in line with historical performance if we assume 2% inflation) you can see how easy it is to reach £1.050 m given enough time and reasonable contribution levels (apparently that number is now £1.070m ? check HMRC). Or could do it in real terms. If equities return 5% real in the long run (which they have, and over 6% in the US case as well as Australia and South Africa) then, again, you can see how fast you will reach £1.050m (note that in that case, the future indexation to inflation is not counted, because you have stripped out future inflation by adjusting returns).

In any case, I am sure future Chancellors will tamper with the tax advantages of pensions - there's too many potential ways there to raise effective tax rates, without attracting squeals from the vast majority of voters - who either don't care, or don't understand. I know some pretty sophisticated professionals (not usually in finance) QC barristers, etc, who have to have this explained to them. Mr Osborne carefully at the time allowed those who were already breaching the £1m limit to "protect" their position - this is a huge stealth tax rise on *future* savers and retirees - but it is already beginning to bit (raising several hundred millions for the Treasury).

ISAs, being post tax money, are harder to tamper with in a politically safe way. A future government might reduce contribution limits, or abolish new contributions, or just cause the wrapper to vanish and *from then on* further capital gains and dividends are taxed.
Surely any long term investments needs to be off-set by the balance of bonds no matter the wrapper its invested in. An ISA at 100% v SIPP at 80/20 is surely diluted down dramatically?

Thoughts?
I am not actually sure what your point is there?

What is true is that using the S&P 500 and the US Treasury bond index, the 80-20 (or even the 70-30 portfolio, in fact quite close to 60-40) has significantly lower volatility, but not much lower long run return. The reason is because US Treasury bonds have, historically, a low correlation with equities. Diversification is a "free win" in investing, and about the only free win. You collect that win by rebalancing back to your target allocation*.

(it's also true that, empirically, a 20/80 portfolio had both higher returns and lower risk than a 100% bonds portfolio, and is that "more efficient on a mean-variance tradeoff basis" or "more on the efficient frontier". Again, speaking totally empirically).

I believe that similar studies have been done for other markets (but I am not aware of them).

* that's quite separate from the other argument for holding bonds - to give you something with which to buy equities when they are cheap. That argument rests upon an assumption that equity performance is mean-reverting in the long run, so when equities are low there are future periods of high returns in prospect, and vice versa. Again that's empirically been the case, but that does not mean it always will be.
Last edited by Valuethinker on Tue Aug 04, 2020 3:20 am, edited 1 time in total.

international001
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Re: US v International (Investing Review) [UK Investor]

Post by international001 » Mon Aug 03, 2020 12:54 pm

Valuethinker wrote:
Mon Aug 03, 2020 12:05 pm

* that's quite separate from the other argument for holding bonds - to give you something with which to buy equities when they are cheap. That argument rests upon an assumption that equity performance is mean-reverting in the long run, so when equities are low there are future periods of high returns in prospect, and vice versa. Again that's empirically been the case, but that does not mean it always will be.
Do you have any theoretical/empirical model for this?
I thought the better model was a random walk. If average returns are 7%, if the past decade had returns of 5% doesn't mean the next decade is going to have returns of 9%, just 7% on average.

Of course, you can also consider momentum (i.e. most likely to maintain last year returns) and CAPE (But this is not as much as past returns as of current valuations)

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Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Mon Aug 03, 2020 3:30 pm

international001 wrote:
Mon Aug 03, 2020 12:54 pm
Valuethinker wrote:
Mon Aug 03, 2020 12:05 pm

* that's quite separate from the other argument for holding bonds - to give you something with which to buy equities when they are cheap. That argument rests upon an assumption that equity performance is mean-reverting in the long run, so when equities are low there are future periods of high returns in prospect, and vice versa. Again that's empirically been the case, but that does not mean it always will be.
Do you have any theoretical/empirical model for this?
I thought the better model was a random walk. If average returns are 7%, if the past decade had returns of 5% doesn't mean the next decade is going to have returns of 9%, just 7% on average.

Of course, you can also consider momentum (i.e. most likely to maintain last year returns) and CAPE (But this is not as much as past returns as of current valuations)
Just the long run observation that periods of above average stock performance are followed be below average stock performance.

You get this convergence on 6% real for equities in the long run (USA) and 5% (global). "Weak form mean reversion".

The random walk hypothesis was always only a hypothesis about AFAIK works much better for individual stock prices especially on daily data.

international001
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Re: US v International (Investing Review) [UK Investor]

Post by international001 » Wed Aug 05, 2020 6:50 pm

Yes, you have some momentum in the stocks return. So there is some correlation between one year and the next. When grouping returns by years (let's say groups of 5 years in a row), you get thi-modal distribution (reflecting that each year returns are not independent )

https://klementoninvesting.substack.com ... ock-market

Regardless, you will always tend to go average to your average (if distributions are maintained in the future), within the same mode or accross all modes (over the longer term). Switching across modes I think it's impossible to predict.

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Mr F
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Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Thu Aug 06, 2020 1:13 pm

Aside from Vanguard funds does anyone recommend a low cost International Equity Index?

Having started this thread with a balance between whether to go for International or US - the excellent feedback from both Ted and ValueThinker has really helped me go off onto my own paths of thinking, mainly better ones.

The second part of this question above is - a few global index funds I have researched Ex- UK, which leaves me wondering a) why? and b) which ones out there offer a full index?

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Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Thu Aug 06, 2020 2:37 pm

Mr F wrote:
Thu Aug 06, 2020 1:13 pm
Aside from Vanguard funds does anyone recommend a low cost International Equity Index?
I'd suggest looking at offerings from the following: HSBC, Blackrock/iShares, Fidelity, and Legal&General. I hold funds from all of these, alongside my Vanguard ones, and all work well. If you use your platform's 'fund screener' or similar to find funds in the areas you want to cover, and then sort the results by ascending OCF, all the good ones bubble to the top. Index trackers are almost always the cheaper options, and I suspect you'll find a lot of Vanguard, HSBC, Blackrock, Fidelity and L&G in the first couple of results pages. In general, any of these is likely to be fine.

Out of interest, what are you looking for that Vanguard cannot provide?
Mr F wrote:
Thu Aug 06, 2020 1:13 pm
The second part of this question above is - a few global index funds I have researched Ex- UK, which leaves me wondering a) why? and b) which ones out there offer a full index?
Why do ex-UK funds exist? My guess would be because many UK investors have historically held largely UK focused investments -- FTSE 100 trackers or individual FTSE UK companies -- and so providing an ex-UK offering allows them to diversify into other countries and balance this out a bit but without needing to sell what they already hold (which potentially incurs capital gains tax).

international001
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Re: US v International (Investing Review) [UK Investor]

Post by international001 » Fri Aug 07, 2020 4:50 pm

Uk has 4.5% of total market. What is the big difference between ex-UK fund and world fund?

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Mr F
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Re: US v International (Investing Review) [UK Investor]

Post by Mr F » Thu Aug 13, 2020 6:30 am

Since the start of this thread (Mainly in part to the generous help of both Ted and ValueThinker) I have simplified and strengthened the core positions in my folio and reduced increased positions onto more cost effective platform(s).

This is a more general question having spent a fair bit of time evaluating different global index funds. Why is China so massively underweighted - specifically Vanguard FTSE index fund.

China (we are told) is a significant economic powerhouse, so why the insignificant position on Vanguards index?

Perhaps, a fund that concentrated on China would give more balance and diversification if the answer to the above is ‘yes it is underweighted’?

xxd091
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Re: US v International (Investing Review) [UK Investor]

Post by xxd091 » Thu Aug 13, 2020 6:54 am

Chinese figures are suspect-lack of rule of law,government interference etc etc
A totalitarian state tends to a have a different value system -inimical to a free market
Have to tread carefully
No one appears to want to go there yet
Will situation change? Who knows?
xxd09

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Re: US v International (Investing Review) [UK Investor]

Post by Valuethinker » Thu Aug 13, 2020 6:59 am

Mr F wrote:
Thu Aug 13, 2020 6:30 am
Since the start of this thread (Mainly in part to the generous help of both Ted and ValueThinker) I have simplified and strengthened the core positions in my folio and reduced increased positions onto more cost effective platform(s).

This is a more general question having spent a fair bit of time evaluating different global index funds. Why is China so massively underweighted - specifically Vanguard FTSE index fund.

China (we are told) is a significant economic powerhouse, so why the insignificant position on Vanguards index?
"we are told" - and correctly. Anyone who considers the track of commodity prices and volumes, or the luxury goods market (Burberry, Diageo, BMW, Mercedes) can see that.
Perhaps, a fund that concentrated on China would give more balance and diversification if the answer to the above is ‘yes it is underweighted’?
Generally index funds weight by market cap. But they have to adjust by, for example, a large govt holding in a listed company, which is itself not tradable.

There are issues with foreign investability into Chinese stocks - a lot are not directly accessible by foreign investors. Index providers have different ways of doing that. See also Saudi Aramco, largest oil company in the world by a country mile - but only 1.5% listed on the SA exchange. The "free float" is very small.

There are lots of arguments here about GDP weighting but quite frankly, there's not an easy way to put 20% of your portfolio into China, say.

I would question the whole hypothesis that "China is massively underweighted". It is not if you do it by investible market cap.

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Re: US v International (Investing Review) [UK Investor]

Post by BeBH65 » Thu Aug 13, 2020 7:01 am

Mr F wrote:
Thu Aug 13, 2020 6:30 am
Since the start of this thread (Mainly in part to the generous help of both Ted and ValueThinker) I have simplified and strengthened the core positions in my folio and reduced increased positions onto more cost effective platform(s).

This is a more general question having spent a fair bit of time evaluating different global index funds. Why is China so massively underweighted - specifically Vanguard FTSE index fund.

China (we are told) is a significant economic powerhouse, so why the insignificant position on Vanguards index?

Perhaps, a fund that concentrated on China would give more balance and diversification if the answer to the above is ‘yes it is underweighted’?
Most indexes now tracked by index mutual funds and exchange traded funds (ETFs) are free-float weighted indexes.
https://www.bogleheads.org/wiki/Free-float_methodology

If you hold more then the free-float market cap you are concentrating more of your portfolio in that part of the market, lowering your diversification.
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

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Re: US v International (Investing Review) [UK Investor]

Post by TedSwippet » Thu Aug 13, 2020 7:03 am

Mr F wrote:
Thu Aug 13, 2020 6:30 am
This is a more general question having spent a fair bit of time evaluating different global index funds. Why is China so massively underweighted - specifically Vanguard FTSE index fund.
Vanguard's VWRL currently allocates 4.9% to China. It tracks the FTSE all world index, which is 5.07% China as of 31 July.

So at 96.7% of the index weight, Vanguard's fund cannot be considered "massively underweight" in China. What you are questioning then, is the composition of the FTSE index itself. FTSE publishes their methodology here:

https://research.ftserussell.com/produc ... Series.pdf

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