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Finding diversified Index funds
CGT/Dividend Tax Obsessive
Posted: 19 April 2018 09:06:48(UTC)

Joined: 08/01/2012(UTC)
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Hi all

It's that time of the year again - I'm about to put another £20k into my stocks and shares ISA.

I've already got about £40k in my Charles Stanley Direct account in the Vanguard FTSE Developed World Ex-UK accumulator fund.

Looking at that fund a bit harder, it's obviously very US-concentrated (about 70% I think).

I thought about trying to put this year's £20k into something which isn't particularly correlated, to diversify my investments a bit, but I'm having a hard time doing that.

I've been taking a look at world tracker funds, and also at mid-caps like the FTSE 250 - I've run a compare in Fundslibrary.

What this brings home to me is that many funds are very, very correlated. Obviously historic performance doesn't indicate the future etc etc etc, but the fact seems to be that they move together consistently and that many funds have huge overlaps in terms of their constituents.

Has anyone come up with a diversified set of funds? Or is there no practical point worrying about it, and I might as well stick it all in the lowest fee index fund I can find?

Tim D
Posted: 19 April 2018 13:27:53(UTC)

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The way to escape correlation of equity markets is to invest in other asset classes. The other main ones are bonds and "alternatives"... although each of those then subdivides into their own categories (government bonds, corporate bonds; property, infrastructure, gold...) each with their own quirks and historic degree of correlation with equities. As always, past behaviour is no guarantee of future behaviour, and there's a widespread belief that if QE has inflated all asset classes prices, so they will all go down together as QE is removed.

The issue with the high USA weight in any global tracker was just touched on in another thread: http://moneyforums.cityw...F-launch.aspx#post60820 . Although if you "believe" in the virtues of tracking market cap weighted indices, it's hard to make a case you shouldn't have a high proportion in the US.

CGT/Dividend Tax Obsessive;60875 wrote:
Has anyone come up with a diversified set of funds?

I think L&G's Multi-Index funds are a very nice one-stop-shop. They're not as transparent how the asset allocation is arrived at as the Lifestrategy line's fixed ratios though.
3 users thanked Tim D for this post.
Mr Helpful on 19/04/2018(UTC), CGT/Dividend Tax Obsessive on 19/04/2018(UTC), mcminvest on 19/04/2018(UTC)
Tom Bards
Posted: 19 April 2018 13:38:48(UTC)

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Maybe invest in something that isn't an index tracker? Perhaps a smaller companies fund.

You're missing out on a lot holding just one tracker which is 60% US Large Cap.
1 user thanked Tom Bards for this post.
CGT/Dividend Tax Obsessive on 19/04/2018(UTC)
Law Man
Posted: 19 April 2018 14:30:09(UTC)

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Tim D makes the point.

Equities from all global regions are highly correlated. There is still benefit in geographic diversification.

Until the past 10 years adding bonds on a 60/40 basis reduced volatility while producing a good long term return.

However, for many years bonds have been correlated with equities. Further, when interest rates rise (far more likely than a fall) bond capital prices fall.

So what does that leave for uncorrelated diversification? Possibly gold (but not great performance and no income) TAR funds (but mediocre performance and often rip off charges), real estate or short duration bonds. Best of all for the short term: cash.
2 users thanked Law Man for this post.
Tim D on 19/04/2018(UTC), CGT/Dividend Tax Obsessive on 19/04/2018(UTC)
Alan Sydney
Posted: 19 April 2018 23:21:17(UTC)

Joined: 19/04/2018(UTC)
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I am an Australian and face similar problems. One group of funds which will certainly give you a non US centric investible portfolio are those run by Platinum ......out of Sydney, and which only focus on international equities, not Australian investments.

However, they are definitely stock pickers, have a long track record ( over 20 years) and are not cheap (MER of 1.35% of NAV). You can invest through listed investment companies or their managed funds, and they have Asian and Japanese Funds which would certainly provide you with a different set of investments than those you have currently.

I have been an investor for over 15 years and like their approach and also their performance.
CGT/Dividend Tax Obsessive
Posted: 23 April 2018 09:27:33(UTC)

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Thanks guys,

I went for the HSBC American Index C Accumulation Fund (basically an S&P 500 tracker) with a 0.06% OCF eventually. Maybe next year I'll do something more interesting!
1 user thanked CGT/Dividend Tax Obsessive for this post.
Tim D on 23/04/2018(UTC)
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