What a difference three vaccines, a trade deal, and the imminent eviction of a narcissistic would-be despot can make!
For five years readers have asked us in comments and over email whether they should reduce their exposure to UK assets.
Doing a Brexit will tend to have that effect.
But in the past few weeks we’ve been getting new queries. Readers asking whether – given the stronger UK pound – British investors are taking undue risk by having so much money invested overseas?
Just this week Bob wondered on our Slow & Steady Passive Portfolio update:
I have become increasingly aware recently of the the pound strengthening against the dollar.
Given this portfolio is heavily invested in US equities, would you be concerned about currency risk? (Especially now the immediate impact of Brexit has taken its course…).
Could some of the gains over the past 10 years be attributed to the weakening pound? And would you be concerned about the opposite effect now?
(I haven’t come across any hedged equity funds in my platform, but I believe they do exist elsewhere…)
These are all valid concerns. But should we do anything in response to the answers we come up with?
The short answer: probably not.
Are you George Soros?
Passive investors with a diversified global portfolio signed on for ups and downs on their way to enrichment.
Getting there with the minimum of mishap and hassle means striving not to second guess the market at every turn.
Even active investors should be wary of churning their portfolios on currency speculation. Stock picking skill is rare, and most people who think they have it likely don’t.
And even if you can select outperforming shares, the chances of you also being able to outsmart the highly liquid and capricious currency markets are slim.
With that said, UK shares on their own merits might be worth an extra look if you’re a naughty active sort.
If UK shares were battered by global capital having put UK PLC into the loony bin, then emerging signs of sanity – such our avoiding a no-deal Brexit – could prompt a revaluation.
Then again the trade deal is hardly breaking news. So it may already be in the price.
Why British shares are rallying
Big UK shares have spent years in the doldrums – topped off by London being one of the worst markets in the world for most of 2020.
Our poor performance against the US market was particularly stark:
Source: Nasdaq
Against this backdrop, the recent strength of UK shares is notable.
- In 2021 alone an ETF that tracks the FTSE 100 total return1 is up 5.2%
- In contrast a global tracking ETF2 has delivered just 1.6%
This is after barely a week of trading of course, but it comes on the back of a similar trend in recent months.
Brexit resolution is part of the reason for UK shares moving higher. But there are other factors, too.
Made in Britain
It’s important to understand the UK market is dominated by its largest firms.
Many of these are big, international behemoths in established industries like banking, energy, pharmaceuticals, and mining.
This style of company has been out of fashion for years. They’re typically what we call ‘value’ stocks. As a group they’ve offered little prospect of growth in low return world.
Sectors such as High Street banks and oil companies have faced their own particular headwinds, too.
Even the ‘growthier’ large caps the UK does boast – consumer giants such as Diageo and Unilever – have found the going tough in a global pandemic. Consumers have spent far less time in pubs or even in the supermarkets.
Recently though there have been signs of some of these factors abating.
The Covid vaccines should eventually mean a way out of the global pandemic. With it will come a sharp jump in global economic growth.
Such an economic upturn would be good news for UK giants that can profit from a cyclical recovery, such as energy and mining firms.
Meanwhile the Democratic victory in the US presidential race could also be positive for global growth.
A Biden administration is likely to favour more stimulus, even at the (potential) risk of higher inflation.
That’s good for value shares, too.
The very recent news – overshadowed by this week’s lunatic insurgency in Washington – that the Democrats had won control of the US Senate only reinforces this narrative.
These factors have lately seen yields on US government bonds creep higher. All things equal, higher yields should be good for big financial firms like UK banks.3
Last month’s trade deal between the UK and the EU shouldn’t be discounted as a factor too, of course.
In fact it has a double whammy benefit.
First and foremost it means the UK avoided a no-deal crash out of the EU, with all the attendant chaos.
Lorry jams at Dover and the Cava running out at Sainsbury’s wouldn’t have mattered too much for our big multinationals. But it would have dinged more domestically-orientated UK stocks.
Perhaps more importantly, the deal signals that the UK is ‘investible’ again.
Without wanting to turn this into a piece about the rights and wrongs of Brexit, it’s undeniable that global financial managers voted with their feet and ditched UK assets in the wake of the Referendum in 2016:
Source: Schroders
The UK-EU trade deal, skimpy as it is, demonstrates the UK hasn’t completely lost the plot.
Remember, global fund managers buying big UK multinationals aren’t professionally much concerned about whether Brexit is good for factory workers in Sunderland, fisherman in Hull, or even bankers in the City.
They want to know that their investments are safe from the prospect – however remote – of anti-capitalistic populist moves, exchange controls, or a currency crisis on the back of economic chaos.
The trade deal took that off the table in practical terms. It also proved the UK establishment hasn’t fatally succumbed to fantasy.
The UK’s legal framework and shareholder protections have long been admired around the world.
With the orderly resolution of Brexit at last, global investors can again buy into companies like Vodafone, HSBC, and Unilever and sleep soundly at night.
Reasons to do nothing
Of course none of this really addresses the concerns of our reader Bob or other UK passive investors.
Properly diversified passive investors only have a small allocation to UK assets, reflecting the modest size of the UK market as part of the global whole.
Such investors aren’t worried about how well the FTSE 100 will do, but rather how poorly their world index fund could fare if the pound continues to climb.
This is a very valid short-term concern.
Currency risk is the prospect of your overseas assets losing (or gaining) value as a result of changes in foreign exchange rates.
If the pound strengthens against the US dollar, then all else equal the value of your US funds in sterling will fall.
US shares make up more than half of the world index. And that isn’t the end of the story, as the pound could rise against other currencies, too.
Remember it doesn’t matter what currency your fund is denominated in. Your exposure is to the currency of the underlying assets it holds.
Given everything I said above, it might seem a no-brainer to sell your global shares and load up on British stocks.
However nothing is so easy in investing. Let’s count the reasons why most passive investors are best off doing nothing.
Strategic ignorance The whole point of passive investing is you know you don’t know better than the market. Why do you now think you understand the prospects for the UK pound and stock market better than the combined wisdom of the world’s investors? You probably don’t. Stick with the plan.
Easy come, easy go UK passive investors with global trackers enjoyed a big windfall back in 2016 when the pound devalued on the surprise vote to Leave. If some of that now reverses, well, so what? There will always be wins and losses in a diversified portfolio. It’s unrealistic to hope to only grab the gains.
You already have lots of UK exposure A diversified passive portfolio would usually have a big slug of British assets in the shape of UK government bonds. You may well own your own home in Britain, too. Nearly all of us are paid in pounds. Overseas exposure can arguably be a counterweight to all this.
A strong pound can be bad for British shares Suppose you do dump your global tracker and switch it into one that follows London’s FTSE All-share or FTSE 100. Are you aware that at least 70% of the earnings of UK-listed firms are generated overseas? This means that as the pound rallies, those earnings are worth less. That in turn could cause UK share prices to fall. See? Swings and roundabouts.
We don’t know where the pound will go This is important to reiterate. It may seem obvious that the pound go higher from here, especially against the US dollar. When I used to visit the US a lot for work 20 years ago, I always felt rich. That topped out with the the pound buying more than $2 in 2007! But there’s no law that says we have to revisit those exchange rates. A UK pound bought $5 in the early 1900s. It’s been weakening for more than a century. Even in the short-term, rising yields in the US could support the dollar over a more moribund UK outlook for rates.
The time to switch might have passed The market looks into the future, to the confusion of many. For example rapidly rising share prices after the crash in early 2020 seemed preposterous to some. But the clever market had weighed the evidence and decided Covid wouldn’t cause a depression, especially not with all the money being thrown at it. Similarly the picture for UK assets began to brighten months ago, as the market foresaw a trade deal and liked the look of the vaccines. By the time most investors think about something, it’s already happened.
As always it comes down to this: what do you know better than the market?
Pay your pound of flesh
With all that said, I happen to believe markets are not totally efficient.
There is strong evidence for momentum in share prices, and some evidence that investors are slow to discount all the changes from news events.
The pound could have further to go even on the back of what we already know – and UK shares could continue to do better, too.
One option for passive investors who do decide to meddle would be to hedge out a portion of their overseas exposure using hedged ETF tracker funds. There are various options out there.
You should be doing this already with any overseas fixed income you own. (If you’re not then take a look at this roundup of cheap index trackers, which includes some hedged bond ETFs).
Alternatively, if you really, really must you could increase your allocation to UK shares. But don’t go all-in! Switch say 25% of your global fund into a UK tracker, not 100%. (And do remember that you’ve now given yourself the problem of having to decide when to switch back…)
As a naughty active investor I’ll admit to speculating on the back of Brexit, exchange rates, and much else besides. But I was doing this five years ago, too, and I expect to be doing it in another five years’ time.
Do you honestly want to sign up to that? Are you prepared to pay for being wrong?
Most passive investors should just keep on keeping on.
Be glad we’ve avoided the worst that Brexit might have thrown at us, and focus on the long-term big picture, even if UK assets do get their moment in the sun.
Comments on this entry are closed.
The question I continue to have nagging doubts over is Vanguard LifeStrategy vs the Vanguard All world ETF (a very common one I believe). I started investing at a time when there the all world ETF did not exist and have my holdings are in Lifestrategy. As a passing investing purist, I don’t like the UK bias, but I can’t bring myself to change due to time out the market and the fact I would need to add in another fund, putting in another level of complication. I guess my question for others, would you consider the home bias of Lifestrategy an acceptable trade-off for its ease of use? Any others grappling with this?
Some platforms allow you to switch – sell a fund and buy another on same day – to avoid being out of the market.
I regularly see comments that investors/individuals don’t like Vanguard LifeStrategy due to “UK bias”. I’ve been invested in 60/40 Portfolio for many years and can’t really see this “bias”, or am I missing something?
The current assets appear to be:
USA 46%
UK 21.7%
Eurozone 8%
Japan 6%
Asia/EM 5%
While this particular fund has a “bias” of 21.7% in the UK of my overall portfolio it’s only 8.6% in total, as I have a well diversified portfolio. Surely, if you don’t want a “UK bias” then surely the answer is to buy some complementary funds to offset this.
Short answer, no, Brexit isn’t done, all the hard questions have been kicked in to the long grass.
Bigpat, I did grapple with exactly that question a year or so ago and ended up making the switch from Lifestrategy to an all world tracker. In my case I wasn’t too worried about briefly being out of the market as I’m still very much in the accumulation stage and took the view that any missed return is likely to be insignificant in the long run – better to be invested in a way that I’m happy to stick to for the next 15-20 years (all being well).
I don’t know how much of a difference the Lifestrategy home bias would actually make in practice, but as TI notes above I feel like I already have more than enough exposure to the UK economy through my property, job and emergency fund all being in the UK, so diversifying my investments more globally seemed like a helpful counterbalance.
With all that said, I’m now moving away from trying to continually optimise everything and instead adopting a ‘satisficing’ approach (i.e. pick something that seems reasonable / good enough and then choose to spend my time and mental energy elsewhere).
Hope that helps!
It’s been quite funny over the last few weeks watching the back-pedalling of remainers who’ve spent the last 4 and change years banging on about the end of the world such as our Mr.Monevator has whenever he’s seen an opportunity.
Not that they’ll ever admit to it. Not quite sure what will replace the “But Brexit hasn’t happened yet” when claims of doom failed to materialise but I’m sure something will come up when they finally get over the shock of the country not resembling a failed state like Somalia as they predicted after 31st December.
@Conor:
I’ve never said that or anything like it.
It’s true ‘no deal’ would have caused a lot more grief than we’ve seen but we fortunately avoided that stupidity. And full disclosure I did expect a recession immediately after the Brexit result in 2016. (I put our avoiding of that down to Article 50 not being triggered for a long time, which wasn’t what we were told would happen).
What I have been saying for years is that Brexit will reduce GDP growth for (I’d guess) around 0.25% for the foreseeable future — at least the next 10 years. So if we’d have grown in a year at 1.75%, say, then we’d grow at 1.5%. Over a decade this will make a big difference, especially as we also have to tack on the weaker than otherwise performance of 2016 to 2020.
In fact I’ve reiterated this several times recently to the boredom of myself and others — precisely because I knew I’d get comments like this. (One reason Internet publishing is making the world worse is commentators like yourself can make any old claim and disappear, whereas authors/site owners have to stick around and repeat and defend themselves, ad nauseum).
Slower growth won’t turn us into a failed state. It’ll just mean we’ve a smaller economy with less money to spend on healthcare, old age and whatnot, for no benefit at all for 90% of British citizens, compared to if we’d stayed in the EU.
All this is aside from the nailed-on cultural/social damage of the move, from my point of view.
I do agree that many Remainers have been predicting instant ruin from Brexit (and I’ve warned them against it, especially in my real/social life).
Please don’t lump me in with them.
Bigpat I am in a similar position in that I hold LS80. I will be selling this and putting the proceeds into a Vanguard global equity tracker and a Vanguard global bond tracker. Like you, I’m not keen on the U.K. overweight and I want to save a smidgen on fees too.
My concern is FTSE-100 != UK economy, as TI says, it’s a banking-heavy, mining and oil-heavy collection of multinational conglomerates who happen to list in London. FTSE All-Share isn’t a decent proxy either due to the weight of the 100 in that.
If I wanted more exposure to the actual UK economy – FTSE-250? And/or something else?
As a non-index investor with 40% in UK shares (plus 15% in UK bonds and property) that’s enough UK exposure for me. I reduced UK exposure in favour of the global and Asia Pacific sectors in recent years but will likely pause that for now.
What to do about bonds is my big issue. Topped up gold and global I/L and bought some China , EM and japanese smaller companies stuff last month but still am 40% in hedged global sovereign and commercial bonds. With luck I’ll reaffirm my personal limitations and do nothing.
The FT did a review of top 100 tech companies who have done well during Covid. I saw one British company: Ocado.
Chances are your house, income and some pensions are dependent on the UK, why not diversify.
“Many of these are big, international behemoths in established industries like banking, energy, pharmaceuticals, and mining”
I think you missed the word ‘declining’ before industries 🙂
The trouble with the UK FTSE 100 is most of it (or at least the first 50%) is largely full of dross and probably isn’t coming back…BT anyone. Or at least that’s perceived wisdom, which I largely agree with. Having said that I’m a little overweight passively mostly because relatively speaking its so ‘cheap’. In a ‘dash for trash’, I feel UK might do well over the next few years. It also feeds the active itch to tinker without causing much damage to my overall equity returns. It’s a bit of a ‘value’ index and value has massively underperformed relatively speaking. But if software continues to eat the world as people say then maybe value is a permanently poor trade.
@Conor – The Investor has never said any thing like that. Ever. I’m a somewhat reluctant remainer but recognise the debate on both sides.
As a big believer in value, I’m heavily overweight UK and also emerging and asian markets. Yes the UK has had a tough time in recent years but this cumulated in 2020’s underperformance which gave us the sort of valuation opportunities that only present themselves every decade or more.. and should deliver several years of very good performance, rather than just several months.
On the advice of John Templeton you should not sell until you have something very firmly and obviously better in mind to replace it with. Right now, swapping cheaper UK for stocks for more expensive global stocks doesn’t seem like a clearly better play to me.
‘tend to have that affect’
(cough)
effect?
(cough)
@vano you may be right you may be wrong but the truth is over the last 20 years the ftse 100 has been a poor investment. Compare it to bonds or the SAP500 who knows how long the trend continues and if you will be able to keep the faith? Good luck
@TI spot on as ever both in sense of timing and commentary
My issue is having been overweight UK (50%) at the beginning of the year and at that stage taken the decision to go mainly global/passive, I then decided to wait until the £ and/or my UK shares rallied once the US tech boon bubble burst – doh. However I have no intention now to do anything sudden – the current plan is to gradually move away from the UK so potentially partly benefit from any rerating in the UK. As an aside I am going to also gradually sell down my remaining holdings of bonds because I don’t like the inflation prospects and duration risk ( but then I do have an undrawn offset mortgage for my comfort blanket).
I didn’t expect a reply, let alone a whole post. Thanks.
Surely the USA’s antics is an example that we’re not the only lunatics in the asylum so it’s more about being relatively stable going forward, also everything is small beer vs covid so the world might see us doing relatively well.
Our news is overly focussed on our own country which gives us a falsely exaggerated impression of our own incompetence or lunacy, but in reality every country faces the same internal questioning and reflection – france, new zealand, brazil, india, etc, etc. – they all have their own controversies, many have their own separatist movements, wild typical patriotic citizens wearing horned fur hats, etc
If trump is removed from office who’s going to stop the Satan worshippers? Surely not police or the church, you need presidential authority to do that!
Interesting comments that folk are concerned about the UK bias of LifeStrategy now…..
For those thinking of changing it may be a contrarian signal for the rest of us
It’s worth remembering that the US performance has been great the last 10 years but was rubbish the prior 10 years..
UK Equity Income Investment trusts from 1990 to 2007 allowed me to retire in my 40’s. UK performance over the long term has been ok, it may well be so in the future… it’s certainly been beaten down over the last decade or so and is not expensive.
I’d agree with the article that UK performance could well be looking up, time will tell…
Thank you all for the thoughtful responses to my query of LS vs all world tracker. Enjoyed the concept of ‘satisficing’: perfection is the enemy of good. Staying in analysis paralysis for now I think…
On a value related note, I saw on the Vanguard website that their factor ETFs (https://monevator.com/vanguard-factor-etfs/) are closing at the end of February. I hate being forced to think of what to do but having funds in VVAL means I’ll have to do something… Any suggested alternatives?
The dull suggestions from me would be something like VWRL/LS100/HSBC FTSE All-world. It seems just as easy to pick the wrong factor as the wrong share…
(he says, glancing nervously at a pile of IAG shares in the corner 😉 )
@Dave
iShares do a “world value” ETF. Search for IWVU (distributing) or IWVL (accumulating), though my broker uses slightly different tickers.
On the LS vs VWRL debate, I too was concerned the LS was a touch UK overweight. My lazy approach has been to keep the pension in LS80 and shift the ISA to VWRL and the Global Bond Index. In the long run I’m sure it will have marginal effect, however it satisfied a growing yearning to tinker. Now my conundrum is on the balance of equities and bonds. I should probably re-read that Investing Statement post soon…
“With all that said, I happen to believe markets are not totally efficient.”
Efficiency depends on your setup. A stat arb hedge fund populated by eggheads analysing petabytes of data can pull substantial profits from the market, thereby removing most inefficiencies for the remaining participants.
My equity holdings are currently overweight UK, have about a third in a FTSE All Share fund, and FTSE100 and 250 ETFs across a couple of pension pots. Versus two thirds in international equity, and even that is split up between VWRL and more dividend/value biased funds.
So hoping for a bit of mean reversion driven by the factors discussed above a) UK being undervalued vs S&P500 b) rotation into value stocks, c) in particular commodity stocks like oil and miners recovering – now well underway, d) banks and others restoring their dividends later this year.
Obviously that means I’m somewhat underweight the S&P500 and tech when compared to your average global tracker fund. Which hurt me in 2020.
I certainly have enough in GBP-denominated assets overall that I don’t feel the need to currency hedge any global equity, which I had done previously last year from the end of March (when the pound/dollar was 1.18) through to the autumn.
Re: “(And do remember that you’ve now given yourself the problem of having to decide when to switch back…)”
As for the dilemma of switching back from a strong UK equity bias to a lesser one, I intend doing that gradually over time by drip feeding new contributions and dividends into international funds.
In theory, apparently, yes. In practice, not so much. 🙂
For example:
https://www.factorresearch.com/research-hedge-fund-battle-discretionary-vs-systematic-investing
Ever since I got into active investing (early 2000s) people have popped up to tell me it was worth paying up for clever hedge funds (pre-2010) and more recently for quant funds (2010-2020).
In practice it’s been 20 years of dwindling hedge fund returns and ignominious fund closures.
To be clear I don’t really disagree that systematic funds can harvest and deplete inefficiencies. It’s more the ‘substantial profits’ corollary I’m pushing back at. 🙂
Of course (a minority of) all kinds of individual funds and investors can outperform over the short or long-term, whether through skill, an exploitable factor/edge, or luck.
@ Conor: I rarely comment on Brexit as it’s so divisive. But in terms of what you’ve raised, it might be more productive to not lose sight of some actual current and future impacts. I’ll leave aside new employment costs and barriers to recruiting EU citizens with the end of free movement, as some would simply reply “good”. Even if that means fewer staff in care homes or other businesses (Covid will mask the migration statistics impact for a period). Some examples rippling thru GB business and consumers with particular impact on smaller ones: 1) new customs declarations, processes and costs exporting to the EU. 2) Overseas businesses (EU and non EU) incurring added costs which have caused some to cease selling to GB consumer addresses. This is also causing some GB businesses to cease selling to EU customers via GB. Some have or are considering setting up in the EU to export to the EU or have been priced out entirely. 3) No tariffs to export to the EU from GB the PM promised? Not so simple. Leaving aside Brexit non-tariff barriers, and ignoring services, one big new issue for goods is the impact of rules of origin. Standard in a trade agreement. To export from GB to the EU tariff free, it must, under the TCA, be a British product, more or less. Eg Welsh lamb. Food grown here. What impact do you think rules of origin is having on UK exporters of tea, coffee and other products predominantly comprised of non British components? Then there’s electrical cars…. Brexit impacts for business and the consumer will ripple and grow. Question is where that will lead a future GB electorate. Investing wise, interesting article.
Another well reasoned article with some real contributions btl. Thank you.
My thoughts were the opposite of seeking profit. Protecting assets from our own government was only very briefly touched on. Although I am a very passive convert, (thanks MV) I am now almost at the divestment stage. I would like to have a safety net independent of the UK. To that end I have moved about 25% totally out of the country.
Yes. There is a currency risk. Yes. There are transaction costs. But I feel better.
Bob – surely by simply owning a global tracker, even one where the price is shown as £ does the same thing. you dont actually have to move your money out of the country and exchange it for $. or am i missing something?
@Investor
“Ever since I got into active investing (early 2000s) people have popped up to tell me it was worth paying up for clever hedge funds (pre-2010) and more recently for quant funds (2010-2020). In practice it’s been 20 years of dwindling hedge fund returns and ignominious fund closures. To be clear I don’t really disagree that systematic funds can harvest and deplete inefficiencies. It’s more the ‘substantial profits’ corollary I’m pushing back at.”
That’s not true most of these hedge funds do make substantial profits *before fees and expenses*. Its just that after the owners and staff have extracted their millions of pounds every year there is not usually enough profit left for the investors to make an acceptable return. 2 and 20 doesn’t work in a low interest rate environment.
There is nothing ignominious about a fund closure if you walk away with a seven figure sum. Ask Neil Woodford.
Same goes for private equity. Expect a blood bath for investors in that asset class over the next 2-3 years. But the management still do well. I can think of one private equity outfit that last raised money in 2007, but only closed down and stopped paying management fees out to its owners last year.
@Conor
Don’t read the news much, do you chum? “Brexit: Firms warn of problems as new EU trade rules kick in”
https://www.bbc.co.uk/news/business-55583244
@Investor
“To be clear I don’t really disagree that systematic funds can harvest and deplete inefficiencies. It’s more the ‘substantial profits’ corollary I’m pushing back at. :)”
I don’t think we are necessarily in disagreement, and to clarify
The firms that genuinely have an edge are unlikely to accept your (or my :)) money – given scalability constraints of their strategies, once they have generated a sufficient pot to push against these limits they can give money back to investors.
Regarding the factor research link, I would suggest the profits aren’t uniformly distributed in the stat arb world, with the lions share going to the Renaissance type firms (or many smaller, similar equivalents).
That’s not to say that the Medallion fund won’t blow up one day….
Am rewatching Billions at the moment – love it, but would be surprised if a similar real-world operation could make money in today’s world (legitimately :))
You could take a look at a multi-factor ETF e.g. iShares World Multifactor
@Neverland
That’s not true most of these hedge funds do make substantial profits *before fees and expenses*. Its just that after the owners and staff have extracted their millions of pounds every year there is not usually enough profit left for the investors to make an acceptable return. 2 and 20 doesn’t work in a low interest rate environment.
The strategies I am referring to aren’t really interest-rate sensitive, and I am aware of one firm charging 3 and 30 in recent years. (before they returned client money).
@mbamba Good point from an investment view. I’ve done that too. However a safety net/escape /emergency fund should be outside the influence or control of the government you are concerned about. I’m not a survivalist but just lack confidence in the current incumbents. I worked, at a very junior level, for two of them and it was chaos.
There is an old but very true saying , Never bet against the US or go long Sterling.
I have never seen any point in overweight UK shares. What is so special about multinationals listed here compared with multinationals listed in the US, Europe, Japan, etc.? I do hold various regional trackers, but weight them according to the FTSE World Index. They do drift a little, but never anything to worry about.
@Naeclue
They’re cheaper. I agree that they are basically the same companies, but UK companies “suffer” from the generally depressed valuations of the overall UK market whereas US companies, in particular, “benefit” from the generally overheated valuations of the overall US market. From the perspective of an accumulating investor, you can reverse the words in quotes. Obviously this depends on mean reversion happening down the line, but it’s enough reason for a UK tilt in my view (though I have all sorts of valuation-based tilts, so am far from a passive purist).
See for instance: https://www.hl.co.uk/news/articles/are-uk-shares-undervalued.
PS I said the benefit depends on mean reversion, but that isn’t quite right. Paying a low price for earnings is a good thing in itself, provided valuation multiples don’t compress further (i.e. you’re not buying a value trap). Valuation multiple expansion, if it occurs, is the icing on the cake.
@Bob – you mean as a civil servant? I did too. Chaos, dysfunctional, inefficient etc etc
Hmm maybe i should have kept my Vanguard 500 dollar based ETF instead of reinvesting in a £ based vangaurd global all cap tracker
@ c-strong – paying a low price is a good thing if it actually is a *low* price. As opposed to a fair price because those companies are no longer as strong as they were.