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Total world equity trackers 4 U

A total world equity index tracker simulates the global investment market.

There’s a compelling case to be made that the only equity fund you need is a total world equity tracker, as ex-hedge fund manager turned passive investing champ Lars Kroijer has explained.

But which total world equity index tracker should you actually buy?

The issue is clouded by the usual fog of choice that swirls around every investment decision we make. As many Monevator readers have already noticed, there’s no ACME total world tracker emblazoned with the blurb “Your problems are solved! Buy Me!” to make things easy for you.

Instead there’s a muddy great bank of products that potentially fit the bill.

So let’s cut through the confusion with a quick round-up of the main players and a hoedown on what matters most.

Remember, there is no perfect solution. Rather, there’s a row of me-too products lined up like identical sextuplets.

If you want a white shirt then buy a white shirt. The differences between them are marginal, and mostly a matter of personal comfort.

Total world equity trackers – what really matters?

The idea is to invest in a tracker that mimics the global investable market as far as is practicable.

This strategy is the ultimate expression of the wisdom of the crowd, or, as Lars puts it:

Since the millions of investors who make up the global markets have already moved capital between various international markets efficiently, the international equity portfolio is the best one for anyone without edge.

But notice that word above: practicable.

You can tie yourself in knots fretting that an equity index is not the same as the global investable market – they lop out countries, illiquid small caps, private investment and so on.

Plus most global trackers sample their indexes rather than copying them faithfully.

All true, but a total world equity index tracker is still the cheapest, most diversified, most efficient proxy of the real thing we’ve got.

If you want something better then you’ll end up wasting your days trying to simulate planet Earth like the mice in The Hitchhiker’s Guide To The Galaxy.

And whatever you come up with is going to fall short or get blown up by the Vogons at the vital moment.

So, what matters:

All-World – Most of the products labelled world trackers only encompass developed world countries. They skip the emerging markets, including the likes of China and India. Hardly a dead ringer for the total world then.

So make sure your tracker includes the emerging markets. If you choose a developed world solution then you should also add an emerging market tracker to your portfolio.

Diversification – Following on from the above, check how many equities the rival products include. The more the better, as your tracker will be doing a better job of fulfilling the total part of the brief.

Cost – This is one factor that will definitely impact your returns and it is knowable in advance. In a market where there’s little real difference between products, pick the cheapest. That goes for total world equity index trackers as much as it goes for toothpaste.

But don’t sweat small changes in the cost pecking order. An Ongoing Charge Figure (OCF) differential of 0.1% on £10,000 = £10. That will cost you £50 a year on a £50,000 investment if, for example, your fund’s OCF is 0.35% instead of 0.25%.

Only you know your personal hassle threshold, so try to work out whether the impact of costs over your investing lifetime is worth switching for.

Take a look at tracking difference, too, as part of cost.

ETFs vs index funds – If you’re only investing a few hundred pounds a month then plump for an index fund rather than an Exchange Traded Fund (ETF). Then you can choose a broker that offers commission-free trades and avoid a nasty cost headwind. This is especially important if you want to invest monthly.

Investor compensation – You’re covered for up to £50,000 of loss if your tracker is based in the UK. If it’s based in Ireland – as most ETFs are – then you’re looking at €20,000 max. Note, investor compensation schemes only kick in if your broker or tracker provider goes up in smoke and your money disappears. Stock market losses are not covered!

The index – You should Google the tracker’s index to make sure it’s total world or, if it isn’t, that you know what’s missing. Check your product’s factsheet too.

To quickly check the difference between trackers then try this fund comparison tool. (Sign up required). It lets the curious and diligent drill down into holdings, countries, market caps, sectors and performance. I’ve used it as the basis of the comparison table below.

I wouldn’t worry about the differences between comparable indexes like MSCI World vs FTSE Developed World. Or at least only do so if you know what difference having an extra 1.55% in South Korea or 0.02% in Greece will make to your returns in 10 years time. (And if you know that then you should be running a hedge fund not a DIY passive investing portfolio.)

Total world equity trackers – the rivals

Tracker Cost = OCF (%) Index Emerging Markets (%) No of holdings Domicile
Vanguard FTSE All-World ETF 0.25 FTSE All-World 7.89 2,889 Ireland
SPDR MSCI ACWI ETF 0.4 MSCI All Country World 6.61 915 Ireland
Fidelity Index World W Fund 0.2 MSCI World 1,644 UK
Vanguard LifeStrategy 100 Fund 0.24 LifeStrategy Equity Composite 7 5,894 UK
iShares Core MSCI World ETF 0.2 MSCI World 1,574 Ireland
Vanguard FTSE Developed World ETF 0.18 FTSE Developed 1,970 Ireland

Source: Funds Library

The top two funds are genuine total world equity index trackers and one is considerably cheaper and better diversified than the other.

The Fidelity and LifeStrategy funds are your UK based options. Neither is a true total world index tracker (see below for more on LifeStrategy) but the Vanguard fund holds emerging markets and on most measures is a very strong contender.

The final pair are cheap but developed world only; I’d knock them out on that basis.

Other choices:

  • L&G Global 100 Index Trust – UK based, developed world fund, only 103 stocks.
  • SPDR MSCI ACWI IMI ETF – Very similar to the SPDR ETF above and has actually performed better over five years, though it’s less diversified. Worth checking.
  • db x-trackers MSCI World ETF – OCF 0.19%, very similar to the iShares product but much newer and therefore has a shorter track record.

Read up on how to compare index trackers if you need a refresher.

A world of difference

Funds-of-funds – Technically Vanguard’s LifeStrategy fund shouldn’t be in the table. That’s because Vanguard rebalances its asset allocation according to its own proprietary view rather than giving the market free rein. It’s also a den of home bias, with UK holdings three times greater than the other trackers in the table.

I’ve included it however because it’s still extremely well diversified and is a good UK based fund option. You can also buy LifeStrategy funds with a built-in government bond allocation. It’s truly a one-stop shop portfolio, as Vanguard handles all the rebalancing while you get on with life.

Fixed income – Adding high quality government bonds into the mix is crucial if you’re not to freak out during a stock market crash. Understanding how to build your asset allocation will help you work out how much you need to put in safer assets. You can find some leads on bond funds via our cheap index tracker picks.

Income versus accumulation – All the funds come in both flavours. Things are more patchy with the ETFs but concentrate on getting the right product first, don’t let the tail wag the dog.

Dev world ex-UK – I knocked out these trackers, as it makes no sense to skip the UK when you’re trying to mimic the world. The same is true for emerging markets.

KISS

The beauty of the one-tracker strategy is its simplicity.

Yes, you could shave away a little cost by building a similar portfolio from separate regional trackers.

But is that worth the time and dealing fees aggro?

Can you trust yourself to stay in line with whatever the world market dictates?

Or will you justify trimming back on Japan or the US or wherever because you can apparently spot the bubble that everyone else has missed?

Fill your boots if you need the control, but don’t do it because you feel you have to.

Nobody can predict which strategy will win over your investment lifetime. But putting a total world index equity tracker at the core of your asset allocation is a rational choice in an insane world.

Take it steady,

The Accumulator

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{ 120 comments… add one }
  • 51 The Investor March 28, 2015, 2:39 am

    @Hjones: You write:

    but if you took the time you waste debating the minutiae of passive investing and focused it on creating an additional income source to then invest, you’d be a lot richer fairly quickly!

    But then we wouldn’t have a website! 🙂

    I agree with the rationale of your general sentiment, but then I agree passive investing makes the most logical sense yet invest actively myself. Some of us do love this stuff (luckily for those who write about it! 😉 )

  • 52 woody085 March 28, 2015, 10:21 am

    Magneto, re rebalancing. I have back-tested performance data going back to 2005 from Vanguard. In 2008, the average of the Mixed Asset 40% to 85% sector was -19.95%. Vanguard Lifestrategy 60% would have lost 12.47%. Conversely, in 2009 the 40% to 85% sector gained 19.48% but the Vanguard Lifestategy 60% gained 15.62%. Therefore, a sector that can tactically rebalance between 40% and 85% in equities lost to daily rebalancing over the two calender years. This is exactly the same story for all the Lifestrategy funds throughout 2008 and 2009. They all beat their Mixed Asset Peers.

    Annual rebalancing is more risky than shorter-term rebalancing, purely because you are not smoothing out the peaks and troughs as much. Much the same as monthly investing versus annual. A lot can happen in markets in one year, and it then becomes an active call whether to rebalance or not, given market conditions at that time. You have to be more disciplined with an annual rebalancing strategy. It certainly becomes more of an active investment call.

  • 53 magneto March 28, 2015, 11:49 am

    @woody
    Good insights. Issue certainly not black or white.
    Would be interested to develop further, but subject declared off-topic.
    Maybe we can pick this up and move it forward in a later thread?
    All Best

  • 54 The Accumulator March 28, 2015, 12:45 pm

    Most rebalancing studies I’ve read conclude that results are highly dependent on time-frame. In other words, you don’t know in advance if rebalancing will improve your results or not, nor how often you should rebalance. Therefore DIY investors are best of thinking of rebalancing as a tool to maintain asset allocation not as a method of optimising returns. Annual rebalancing is absolutely fine.

  • 55 Lorenzo April 4, 2015, 9:02 am

    If you look at costs as a primary driver for your choice and have an IWeb account, they offer the Fidelity Index World I Fund (institutional) with OCF 0.08%. No point to go anywhere else for more expensive ones, even Vanguard.

  • 56 Tim G April 4, 2015, 11:10 am

    @Lorenzo – Fidelity Index World I Fund “No point to go anywhere else for more expensive ones, even Vanguard.”

    Except that it doesn’t include emerging markets. From the KIID: “The MSCI World Index captures large and mid cap representation across Developed Markets countries.” This is the index this fund tracks.

    Secondly, charges in the KIID are given as 0.15% (rather than the 0.08% given in the iWeb info). Not sure which is correct, but iWeb info generally strikes me as a bit patchy.

  • 57 Lorenzo April 4, 2015, 12:10 pm

    @Tim G:
    not keen exposure to Emerging Markets therefore for me it is a no-brainer for global investments. Whether global or non-global means only developed or developed+ emerging markets it really goes back to your investing style and preferences. With regards to OCF, I’ve checked with them and it is 0.08% (although the fact sheet reports 0.15%) as it is the institutional version. Hope this dispels your doubts.

  • 58 woody085 April 5, 2015, 1:22 pm

    Lorenzo. Fidelity Index World W is available across most platforms @ 0.20%. If you buy it via Fidelity you get it for 0.18%. The 0.15% Institutional version is only available for £10,000,000 minimum. If you click on the KIID it gives you the correct charges, or google it and look at their own, morningstar’s or trustnet’s website.

    Fidelity’s tracking performance is also pretty woeful.

  • 59 Lorenzo April 5, 2015, 2:45 pm

    @Woody085: as I said, the Fidelity Index World I (not W) is available with IWeb at 0.08% although the factsheet reports 0.15%. They allow you to invest in the institutional one and in many institutional others you wouldn’t have access to; I’ve done the same with the HSBC All-Share tracker (OCF 0.02%). If you buy it with IWeb, at the end of the procedure they highlight that the OCF is the one I’ve reported. Regarding the tracking performance, I agree with you, but I’m not going to waste 3 times the money to buy Vanguard (OCF 0.24%)

  • 60 woody085 April 5, 2015, 9:21 pm

    Google “GB00B7LWFW05”, you will not find the I class at 0.08%. It is 0.15% across all major research tools and Fidelity’s own website. FE Analytics lists all available share classes and there is not a 0.08% version. iWeb has it wrong.

    Vanguards tracking errors/net excess returns are so tight that they can, and do, easily negate marginal differences in cost. Morningstar have also given them the best ratings based on tracking and cost.

  • 61 Lorenzo April 5, 2015, 9:33 pm

    @woody085: log onto the IWeb website, market research and look up for it; as an alternative call them, that is my only suggestion, I can’t convince you if you do not believe me, sorry. Moreover, HL has special agreements with fund managers (see Woodford) to decrease fees, I imagine this is just another an example but with IWeb.
    I see that you’re a Vanguard super-fan so I’m not continuing the conversation if you’re so biased. Have a great Easter.

  • 62 woody085 April 5, 2015, 10:14 pm

    Looking at this further a few website’s have reported an AMC of 0.08% for the I share class, which is obviously not the same as the OCF. I would be inclined to contact Fidelity directly rather than trust iWeb’s word, after all, they do not run the fund.

    Whenever a special deal is done, a new share class is created. You cannot have two different OCF’s for one share class. Rebates are still possible but I cannot see iWeb having the scale to negotiate a better deal than anyone else.

    Just trying to help. Happy Easter.

  • 63 Chyreene April 20, 2015, 1:04 pm

    a neewbie , your opinion please if investing in these two:
    L&G interntaional index trust class c and L&G uk index classic, how would you weight these if just running these two together .I have read some of your ideas I am debating Hargreaves but note some of your favourates not available so grateful for best buying paltform too thanks

  • 64 eagleuk May 8, 2015, 5:07 pm

    Hi
    You can breakdown them as per vanguard life strategy 100% .You can check this at hl.co.uk .The uk component in the LS is about 22.96%.
    They have further divided uk into 3 sub categories 1) all share -17.87%
    2) vanguard ftse 250etf-1.11% 3) vanguard ftse 100 etf -5.74%.

    The UK home bias is bit higher in Vanguard LS series than vanguard etf (vwrl) range for some reason .

    Similarly , you can check i shares ,fidelity funds ,etc for breakdown ratios and compare their performance.P

  • 65 eagleuk May 8, 2015, 5:17 pm

    Chyreene: also read this post on monevator .

    http://monevator.com/asset-allocation-construct/

    The following global etf’s can also be compared against vanguard series which are listed on justetf.co.uk

    https://www.justetf.com/uk/find-etf.html?tab=documents&from=search&isin=IE00B6R52259&index=MSCI%2BAll%2BCountry%2BWorld%2B%2528ACWI%2529

  • 66 Jonny March 31, 2016, 9:00 pm

    re. the Fidelity, I’m struggling to understand your opinion of it. You mention it’s not a ‘true total world index tracker’, but don’t say why. Could you explain further?

    I’m looking for non-ETF, non-Vanguard (for diversification reasons) equity index trackers to invest in. The Fidelity might make things simpler (i.e. it would prevent me having to research/endlessly deliberate over the various funds required to cover the world), though I realise I’d need to add some emerging markets exposure, and potentially boost the UK bias too.

    Given I’m trying to avoid Vanguard and ETFs, would Fidelity be a poor choice here?

  • 67 Tim G March 31, 2016, 9:45 pm

    @Jonny

    Fidelity is “not a true total world index tracker” because it doesn’t include emerging markets. It’s up to you whether that matters and, if so, if you address it by adding a separate EM fund or going for a single fund that covers everything. Just as it’s also up to you whether you tilt towards UK. In fact, as it’s your money – everything is up to you!

  • 68 Jonny March 31, 2016, 10:36 pm

    @Tim G

    The emerging markets was my initial thought too, though the same paragraph says the LifeStrategy fund has emerging markets exposure (unless that isn’t considered a true total world tracker due to the additional UK bias).

  • 69 Tim G March 31, 2016, 10:56 pm

    @Jonny

    Yes – the “objection” to the LifeStrategy 100 fund is precisely that – that it has UK bias. I also think the LS fund is put together on a slightly different basis, so that it isn’t tracking an index per se but is instead a basket of ETFs that gives you broad equity exposure.

    To put it very simply, there are two reasons for going for the world tracker approach: one is the efficient market hypothesis (that it represents the collective judgement of investors and we are therefore unlikely to outperform it); the other is that it offers diversity.

    If you’re a disciple of the efficient market hypothesis, then you should ensure that you have a true world tracker (or that you replicate any missing elements in a dev. world tracker by adding emerging markets). If you’re less theological about these things, then a reasonably diverse equity holding is sufficient to meet your needs, in which case LifeStrategy or Fidelity (and possibly others, too) are eligible.

  • 70 The Accumulator April 1, 2016, 6:23 pm

    The Life Strategy fund on top of the UK bias allocates according to Vanguard’s formula rather being a true market cap tracker. So if the world’s investors valued the US at 60% of the global market the LifeStrategy fund would necessarily follow whereas the others would.

    As others have said the Fidelity tracker doesn’t included emerging markets – see the bit about World vs All World in the post.

  • 71 Woody085 April 5, 2016, 8:58 pm

    According to its fact sheet VWRL “covers more than 90% of the global investable market” including Large, Mid Cap and Emerging Markets. It holds more than 2900 stocks which is more than any other ETF as far as I can see. If inclined to do so this could be complemented by a holding of up to 10% in the Vanguard Global Small Cap Index with 4160 stocks to give yourself a truly global tracker.

    The Lifestrategy funds actually cover Large, Mid and Small cap along with emerging markets, albeit with a home bias. The 100% fund currently holds 6428 stocks. Obviously its a different animal to VWRL. However, it is extremely diverse because it holds All Share Trackers including the Vanguard US Equity Index which uses the S&P Total Market Index (over 3600 stocks).

    Mr Bogle is very keen on investing in the whole market. Unfortunately we can only do it in one fund via Lifestrategy in the UK. Who knows, maybe we will have an ETF one day.

  • 72 Woody085 April 5, 2016, 9:22 pm
  • 73 Hollow April 7, 2016, 9:31 am

    Hi All

    I’ve read through all of these replies and don’t really see the following covered.

    What are your views on holding a bunch of Index funds as opposed to a single world indexer.

    I hold funds tracking US, UK, Japan, Pacific excluding Japan and Emerging markets.

    These make up the world equity part of my portfolio and seem to be tracking the FTSE World Index tightly.

    So far as I can work out my costs are lower than if I was using a single world index. I’ve also split across three providers (Vanguard, Legal & General and Blackrock) which makes me feel a bit better for some reason.

    The only downside is re-balancing, it’s more of a hassle with so many individual funds.

  • 74 The Accumulator April 8, 2016, 12:24 pm

    Hi Hollow,

    I think you’ve covered most of the issues right there. Slightly cheaper cost for a lot more hassle? Is it worth it? If you pay dealing charges then the cost savings may not pan out either.

    The biggest issue of all though is psychological. With an all-world tracker, you can trust it to faithfully track the market. But can you trust yourself to rebalance into a losing fund for the tenth year in a row? Might you think that the US looks a bit overvalued so I’ll make a few tweaks to the asset allocation the rest of the world is presenting me with? It takes a great deal to resist those temptations, especially when the pressure is really on.

  • 75 NMcG April 8, 2016, 12:43 pm

    @TheAccumulator — well that’s a timely comment… I’ve been trying to understand something here about rebalancing and I fear I am about to ask something very stupid…

    I get the idea of rebalancing between asset classes (e.g. equities / bonds), but I don’t understand rebalancing *within* an asset class (e.g. a set of geographical funds used to make up a home-brew world tracker).

    Surely the relative values of the funds reflects the markets view of current value and rebalancing the funds back to your original distribution is the same as claiming “edge”? Shouldn’t you allocate new money in proportion to the funds’ current values (rather than in the original proportions that you first thought of).

    As an extreme example, if the US economy went completely off a cliff due to a fundamental change in circumstance (I dunno… think force majeur on an an extreme scale…) I assume you wouldn’t keep pouring money into a burning hole in the ground while repeating “but that’s what my asset allocation says”.

    Happy to be pointed to one of your (excellent) explanatory posts if I’ve missed something, but my interpretation of them to date is that they focus on the equity / bond rebalancing (e.g. http://monevator.com/rebalancing-asset-allocations/) , but then apply it to rebalancing within equities (e.g. http://monevator.com/how-to-rebalance-portfolio/).

    What am I missing…?

  • 76 The Accumulator April 9, 2016, 9:09 am

    @ NMcG – you make a great point. Re: equity rebalancing, there’s a distinction to be drawn here between subscribing to the total world view and between tilting your portfolio in certain ways and then maintaining that asset allocation through rebalancing.

    So if you decided to buy individual funds to replicate a Total World strategy then you are quite right, you would leave it to run and not rebalance between your equity funds. You would also adjust new cash inflows to reflect changing balances between the US and Japan or wherever.

    But in reality, people tend to tilt their asset allocations. e.g. 20% in the UK because of currency risk, 10% in emerging markets because I want some diversification but less volatility then a full-blooded allocation would incur, 10% in small caps (hoping to outperform large caps) and 10% in property (greater diversification) and so on.

    In the latter instance, you’ve adjusted your asset allocation for specific reasons, based on sound investment practice, and rebalancing is the discipline that keeps you on track. With any luck you might even get a performance bonus out of it too by buying low and selling high.

    In truth you would choose individual country funds because you wished to depart from the total world view.

  • 77 italianoleone April 12, 2016, 2:22 am

    @the accumulator

    You said:

    “SPDR MSCI ACWI IMI ETF – Very similar to the SPDR ETF above and has actually performed better over five years, though it’s less diversified.”

    How can the IMI version be less diversified when it holds 9,000 stocks and 99 % of world’s investable market? I can’t believe you made a mistake so it must be me that’s missing something?

    Thanks.

  • 78 The Accumulator April 14, 2016, 8:24 am

    Hi Italianoleone – the index holds 9000 stocks but the SPDR ETF doesn’t. The IMI version holds about 800 while the non-IMI holds 1200.

  • 79 Italianoleone April 14, 2016, 12:35 pm

    Thanks, Accumulator. I have a lot to learn.

    Please give me your opinion – if you had to choose SPDR IMI ETF (800 holdings – IE00B3YLTY66) or SPDR non-IMI ETF (1200 holdings – IE00B44Z5B48) for your single long-term retirement savings ETF, which one would you choose? Thanks.

  • 80 The Accumulator April 14, 2016, 4:19 pm

    Personally, I’d probably go with the IMI because it has a slight slant to small cap. Don’t sweat it though, it won’t make much difference over the long term.

  • 81 Italianoleone April 25, 2016, 2:44 am

    @Accumulator

    Couple of more questions about these two SPDR ETF’s please:

    1. Both ETF’s started at the same time (may 2011) but the non-IMI version fund size is 12x times bigger ($380 mil) than the IMI version ($30 mil). Should that influence my decision on which one to choose?

    2. How come the non-IMI version of the ETF holds much more stocks (1200) than the IMI version (800) despite the fact that the non-IMI index holds only 2500 stocks and the IMI 9000? My logic would be that the IMI version would hold much more stocks given that its index holds much more stocks than the non-IMI index.

    Thank you for helping me get my life in order.

  • 82 The Accumulator April 25, 2016, 8:36 pm

    The larger one is likely (but not guaranteed) to have more liquidity and lower spreads. The smaller one has a greater chance of being closed because it’s not attracting enough assets. You wouldn’t lose your money but you would be out of the market if your ETF closed. I suspect the IMI index has more stocks because it tracks more small cap firms which are too expensive for the ETF to buy so are optimised out. I can’t explain why they only track 800 stocks though. Try emailing them and let us know what you find out – it would be interesting to know.

  • 83 Italianoleone April 26, 2016, 12:39 am

    Accumulator, I have sent them an email. There was no “private investor” option on the contact form so I had to enter something under “company name” and “investor type” (I entered consultant). Hopefully they “buy it” and answer me and I will copy their answer here.

    On all forums I asked this comparison question, everybody prefers the IMI fund vs. non-IMI because it also covers small stocks – just like you. But now you got me concerned with the possibility of IMI fund closing because of lack of assets. You think $30M is not enough after five years?

    Let’s assume it closes. You say I won’t lose money but I don’t understand what you mean by “you would be out of the market. Can you explain?

  • 84 Italianoleone April 26, 2016, 3:00 pm

    So I got this response from SPDR Europe:

    “All SPDR ETFs are physically replicated and both the SPDR® MSCI ACWI UCITS ETF and SPDR® MSCI ACWI IMI UCITS ETF use optimisation to track the performance of their respective benchmarks. Therefore, the portfolio managers of the funds have the discretion to decide how many stocks they need to obtain in order to replicate performance.

    The difference between the two indices is that the ACWI IMI included small cap stocks. These however make up an extended tail end of the index, and thus form a small portion of overall index performance. For efficient portfolio management, many of these constituent names would not need to be held in order to best replicate index performance. We hope this helps.”

    What do you make of it and what are the chances that this fund will be closed in the future? I don’t want to put all my money monthly for the next 20 years in a fund that seems to be suffering.

  • 85 The Accumulator April 26, 2016, 6:24 pm

    Not very helpful, eh?

    Here’s a post I’ve written about being out the market:
    http://monevator.com/what-are-the-risks-of-being-out-of-the-market/

    It’s impossible to know if the ETF will be closed but this is a decent piece on the topic: http://www.etf.com/etf-education-center/21032-managing-and-avoiding-etf-closures.html

    Choose your trackers on the basis of whether its rationale to have that asset class in your portfolio. Big tick here. If you’re particularly worried about the impact of the fund closing after reading the above then choose the bigger fund.

    You can’t predict in advance which will perform better anyway and the difference is unlikely to be particularly important at the end of the day.

  • 86 Italianoleone April 27, 2016, 12:11 am

    Thank you, very valuable articles.

    I am not at all bothered by time out of market.

    I’ve read the piece on etf.com you linked and based on it here are my conclusions about chances of SPDR MSCI ACWI IMI ETF being closed:

    – AUM: The good “assets under management” size is $50 million. This ETF is not close with $31 million but it’s not too far for my comfort either.

    – The strength of the issuer: State Street Global Advisors (SSGA) is the third largest asset management firm in the world (second looking at only ETFs). I think it is reasonable to expect strength and stability there.

    – Fund Rank In Segment: There are not a lot of ETFs that offer the same strategy of covering 99 % of world’s investable market. Certainly far less than ETFs covering S&P500. So I expect it’s less likely to close as the market is not oversaturated with such funds.

    Please correct me if I’m wrong on any of my conclusions.

    My last puzzle is your statement in this article (we are commenting now) that the IMI fund is “less diversified”. What do you mean by that?

  • 87 Italianoleone April 27, 2016, 6:54 pm

    I responded to SPDR expressing further bafflement about the smaller number of stocks in the IMI fund (which obviously tracks a much larger index) as well as my concern about the relatively low assets under management hence the danger of a fund closure. This is their response:

    “From a portfolio management perspective, it is not enough to look only at the number of names held in the ETF. Working alone on that basis will steer the fund towards unnecessary additional trading costs, which will then inherently compromise the funds ability to track the benchmarks performance.

    Secondly, on an investment level, the broader universe included in the ACWI IMI index has contributed to a fairly small difference in performance terms versus the ACWI index. Over 5 and 10 years, the returns difference on an annualised basis equates to 0.02% and 0.20% respectively. (Benchmark returns sourced from Bloomberg).

    Acknowledging the latter point, if your clients are most comfortable with a larger fund, the SPDR® MSCI ACWI UCITS ETF has significantly more assets under management and has provided close returns to the IMI index over the long term.”

    Everybody I talked to prefers the IMI fund because it includes small stocks. So I’d like to start automatic monthly investing for my retirement with this single fund. But also because the ACWI IMI index has outperformed the ACWI index 146 % vs 127 % cumulatively over the past 15 years as seen in this chart: https://www.msci.com/resources/factsheets/index_fact_sheet/msci-acwi.pdf

    But in this same PDF the annual return since 1994 is virtually the same for both indexes…

    I nit-pick this much because I’d like to pick one ETF for the next 20-30 years and never look back. Never touch it. That’s how passive (lazy!) I am. Now I’m stuck between the IMI and non-IMI fund. First world problems, right? 🙂

    If nothing else, I’d like to learn from you Accumulator as to why you think the IMI fund is not as diversified as the non-IMI fund?

  • 88 The Accumulator April 27, 2016, 8:51 pm

    I wouldn’t get too hung up on the returns. If small cap has a bad 10 years then you can expect non-IMI to outperform IMI. Otherwise IMI should edge it but is likely to be slightly more volatile. It’s not likely to make a huge difference and it’s not forecastable.

    IMI is less diversified because it contains a third less stocks.

    I’ve just remembered this post that might be helpful while you ponder: http://monevator.com/how-to-read-a-fund-fact-sheet/

    All your comments in 86 above seem rationale to me.

  • 89 Italianoleone April 28, 2016, 3:53 pm

    If by volatility you mean standard deviation that is listed in the fact sheet, the IMI fund is better over the last three years but I’m not sure if I’m reading this correctly?

    – Fact sheet ACWI IMI: https://www.spdrseurope.com/library-content/public/SPYI%20GY_factsheet_en.pdf

    – Fact sheet ACWI: https://www.spdrseurope.com/library-content/public/SPYY%20GY_factsheet_en.pdf

    Based on your and opinion of others I’ll pick the IMI one and stick with it for couple of decades until the retirement.

    I’ll also recommend it to my young nephews and cousins who are in their twenties and need to start saving as soon as possible.

  • 90 Charles May 28, 2016, 7:59 am

    One option that hasn’t been suggested in this thread is the possibility of using US based Vanguard ETF funds. All their significant funds have HMRC reporting status and are therefore subject to capital gains tax rather than income tax. They may be subject to withholding tax on income of 15% (with an appropriate W8-BEN in place), but this is offsetable against your tax bill so in overall terms does not have an impact. As mentioned in another excellent Monevator post it works out better than an Irish based ETF such as VWRL where the significant US portion will be subject to withholding tax on its income of 15% which is never recoverable (http://monevator.com/etfs-and-the-peculiar-effects-of-withholding-tax/).

    You could go with VT Total World Stock ETF which has an expense ratio of 0.14% and 7510 stocks. Personally I am partial to the idea of a combination of the Total US market VTI with an expense ratio of 0.05% and 3668 stocks and VXUS Total International Stock ex-US with an expense ratio of 0.13% and 6050 stocks. This gives massive diversification with over 9000 stocks at an average cost of less than 0.1%. It also gives you the option of slightly lowering the US portion if you struggle having over 50% in the US.

    The two main issues are exchange costs and being caught by punitive US estate taxes if you die. You can obviously minimise the former using foreign currency accounts and exchange rate specialists, or a platform like Degiro charges 0.1% on FX. I believe the buy/sell spreads for these huge funds are tighter than for VWRL so there is a saving there. The estate taxes I am personally less concerned by and I believe there is a concession that these can be avoided when an estate passes to a spouse. I prefer the option of staying alive.

  • 91 Floatboy March 12, 2017, 11:03 am

    I recently spotted a new fund from Vanguard – the Vanguard FTSE All Cap Index Fund – GB00BD3RZ582.

    At first glance this looks like a great global tracker comprising both developed and emerging market markets all in one place. It seems to provide an alternative to both VWRL, Vanguard’s global tracking EFT (downside it’s an ETF and makes it more expensive for me to invest on my platform) and b) Vanguard’s 100% lifestrategy fund (downside – considerable UK bias). My thought was that combined with a global hedged bond tracker that this would provide an excellent, simple and easy way of achieving Lars Kroijer’s two fund investment strategy.

    Two questions:

    1. I can’t see any real downsides to this fund. It seems to have a relatively high number of securities and the global diversification I am looking for in a fund rather than an ETF. I haven’t seen anything similar in the market. Am I missing something I should be aware of?

    2. The fund is obviously new, is quite small and appears to have some tracking error. Is there anything to be aware of when investing in newly established funds?

    All thoughts gratefully received.

  • 92 Alex Poole March 13, 2017, 9:36 pm

    I am not an expert, but I *think* you can achieve a global tracker for a bit less, by combining 3 Vanguard funds/etfs.

    1. Developed World Ex UK (OCF 0.15%): https://www.vanguard.co.uk/uk/portal/detail/mf/overview?portId=9210&assetCode=EQUITY##overview

    2. Emerging Markets: VFEM (OCF 0.25%): https://www.vanguard.co.uk/uk/portal/detail/etf/overview?portId=9507&assetCode=EQUITY##overview

    3. FTSE 250 ETF (VMID, OCF 0.10%): https://www.vanguard.co.uk/uk/portal/detail/etf/overview?portId=9525&assetCode=EQUITY##overview

    The rationale for doing this is that you get the Dev World portion for cheaper. That’s about half the total at about 0.1% less per annum, so perhaps not much of a saving to be honest – a weighted saving of c. 5 bps? Also, VFEM is not all-cap, so you would need something else for your small cap EM exposure.

    HMWO is a global tracker for 0.15%. Also I think no small-cap element and I do not know how you would go about allocating a proportion of your funds to a small-cap etc/fund to go with it.

    Others have pointed out you can get a US tracker and couple it with an ex-US fund or two. By getting them all in one you overpay for the US segment. Someone with a lot more seeming naus than me wrote an interesting post about it on this site, but I can’t recall where.
    Accumulator, maybe do a piece on building a global tracker with the aim of paying less than the going rate for an all-in-one job?

  • 93 The Accumulator March 15, 2017, 9:49 pm

    @ Floatboy – I don’t think you’re missing anything. HSBC FTSE All-World Index Fund C will be similar – it doesn’t cover small cap but the impact of that is likely to be marginal. Newly established funds sometimes take a while to settle down re: tracking error but Vanguard’s funds are normally excellent in this regard. They can also fail to attract enough assets and be closed but that normally happens to niche products – which this isn’t – and I can’t recall Vanguard closing a single fund in the UK so far.

  • 94 uhm April 16, 2017, 5:36 pm

    I haven’t read every single comment so please forgive me if my point has already been covered, which is to do with the Vanguard Life Strategy 100 fund compared to their All World ETF VWRL. Whilst I am aware of the differences between the two – UK bias and lack of emerging markets in the LS100 – I can see how that relatively minor difference can account for the big difference in performance over the last four years. To clarify:
    2012-13 2013-14 2014-15 2015-16 2016-17
    LS100 16.71% 7.24% 16.41% -1.6% 30.29%
    VWRL —– 18.09% 7.78% -12.24% 22.25%

    It looks like a big difference in performance between what are both meant to be ‘All World Trackers’. Can the difference be just due to the UK bias and Emerging Markets?
    LAST SECOND UPDATE: Just checking the fact sheet for LS100 it DOES now include Emerging Markets (7.2%) – I don’t know when they started including that. VWRL doesn’ seem to break down its weightings in this way – just by countries and sectors.

  • 95 uhm April 16, 2017, 5:39 pm

    Typo – I can see how that relatively minor difference – should be….. “I can’t see”

  • 96 Alex P April 16, 2017, 6:32 pm

    @uhm.

    Hi,

    Vg LS100 isn’t an all-world tracker; it’s just a 100% equity product that follows a marketable set of indices.

    Anyway, VG have a new index fund now that should interest you: the FTSE global all cap index fund. It’s unde a year old. It’s broader than VWRL and you don’t have the same bid/offer spread problem as with an etf. Buy it and hold it.

    Best,

    Alex

  • 97 HollowAxis April 16, 2017, 6:49 pm

    I opened a Lifetime ISA and dropped a lump into that new FTSE global all cap index fund (and the Vanguard global bond tracker).

    It has only been a few days but that new tracker is matching my existing ISA portfolio very closely. (Existing portfolio is made up of 9 index trackers, covering the whole world in proportion, and the bond tracker).

    I thought it would be interesting to compare them.
    We will see how it goes I suppose, so far so good.

  • 98 uhm April 16, 2017, 8:14 pm

    @Alex – Thanks for your reply.
    I suppose you’re right, although I’d always thought of it as an all world tracker, it’s really just a collection of other trackers.
    Yes I was also looking at the Vanguard fund you mention when writing my first comment here. I like the fact it includes small caps as well – I think this is the one for this year’s ISA .

    Vanguard seem to have added a number of new funds recently – the Global Equity Income fund was not there when I was looking for such a fund around a year ago, just the UK equity income.

  • 99 Little Bogle May 13, 2017, 12:01 am

    HSBC has a similar global index with ongoing charge of 0.20pc, but according to the FTSE index it tracks it would only have Large and Mid Cap stocks.
    ISIN code: GB00BMJJJF91
    HSBC FTSE All World Index Class C –

    Vanguard’s global all cap, which I own in my SIPP, only samples the constituents (c.4k of c.7k), so Vanguard’s global small cap has about the same *number* of underlying shares (c.4k). So a combination of HSBC global (c.2k of large and mid cap) and VGs global small cap (c.4k) might be closer to full replication.
    However, VGs small cap fund is strangely domiciled in RoI.

    I sometimes regret that there is no global mid cap index fund (FTSE does have an index for that, as well as only large only and shall only), because with three funds according to index, one could potentially balance the volatility according to ones taste.

  • 100 Adrian July 18, 2017, 3:02 pm

    Is a world tracker really better than one that tracks US equities? World indexes seem to suffer the same losses as the US but with less growth in the good times. Also US-only tracker funds tend to charge less. Does it essentially come down to a bet on whether or not the US remains the dominant world power? With their enormous economy, the reliance of emerging markets on the US buying their stuff, and the colossal power of the US military, I’m inclined to think the US are going to continue to dominate for at least another 50 years plus.

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