Global trackers and the Magnificent Seven - diversification?
Discussion
simon800 said:
VR99 said:
Is anyone aware if there are any 'Ex-USA' equity ETF's available in the UK?
Not in the UK, to the best of my knowledge. Most Ex US products are targeted at the US market.According to the first link I found, this would be an Irish domiciled UCITS equivalent. Is that not an option?
https://www.justetf.com/en/etf-profile.html?isin=I...
Panamax said:
Many investors feel they have a well diversified international portfolio when they buy a global tracking fund
Tracking may be low cost but it doesn't look much like diversification. Is there a better way?
I don’t see why it’s not diversification. Assuming you buy into market cap weighting, then of course a relatively large % will be in one region / a small set of companies. They’re massive companies!- USA accounts for 60% of global stock markets by value.
- Seven major technology companies account for around 30% of S&P 500 and 50% of Nasdaq 100.
- Apple, Microsoft, Amazon, Nvidia (chips), Meta (Facebook), Tesla and Alphabet (Google).
Tracking may be low cost but it doesn't look much like diversification. Is there a better way?
The point of passive investing is the thesis that you can’t pick winners. If you think you know they mag7 etc are overvalued, you’re not really buying that thesis.
eyebeebe said:
simon800 said:
VR99 said:
Is anyone aware if there are any 'Ex-USA' equity ETF's available in the UK?
Not in the UK, to the best of my knowledge. Most Ex US products are targeted at the US market.According to the first link I found, this would be an Irish domiciled UCITS equivalent. Is that not an option?
https://www.justetf.com/en/etf-profile.html?isin=I...
VR99 said:
Thanks ,I previously held the distributing version of this ETF (VEVE), the US allocation is still circa 60-65%
That’s strange. The US ETF it’s supposed to be replicating is ex US. Looks like the website has got the comparison wrong. Largest holding in the original is Samsung. 
It's worth mentioning that the European STOXX 600 is similarly achieving most of its growth from just a small handful of companies.
The concept of "concentration risk" is very real. Everything looks fine until these small groups of booming companies have a stumble. That's exactly what happened when markets took a dive after the turn of the millennium following all time highs in early 2000. That so-called dotcom bubble can be seen as similar to other technology related booms including railways (1800s), cars in the early 1900s, transistors 1950s, home computers 1980s. There's no doubt that stock market growth today is just as heavily driven by tech.
The concept of "concentration risk" is very real. Everything looks fine until these small groups of booming companies have a stumble. That's exactly what happened when markets took a dive after the turn of the millennium following all time highs in early 2000. That so-called dotcom bubble can be seen as similar to other technology related booms including railways (1800s), cars in the early 1900s, transistors 1950s, home computers 1980s. There's no doubt that stock market growth today is just as heavily driven by tech.
Panamax said:
It's worth mentioning that the European STOXX 600 is similarly achieving most of its growth from just a small handful of companies.
The concept of "concentration risk" is very real. Everything looks fine until these small groups of booming companies have a stumble. That's exactly what happened when markets took a dive after the turn of the millennium following all time highs in early 2000. That so-called dotcom bubble can be seen as similar to other technology related booms including railways (1800s), cars in the early 1900s, transistors 1950s, home computers 1980s. There's no doubt that stock market growth today is just as heavily driven by tech.
Yep - the inherent momentum bias and potential for concentration risk (particularly given the almost automatic price-insensitive bid from people regularly investing through retirement accounts etc) is really a natural consequence of weighting by market cap, and the concern that smart beta products set out to address as I outlined previously.The concept of "concentration risk" is very real. Everything looks fine until these small groups of booming companies have a stumble. That's exactly what happened when markets took a dive after the turn of the millennium following all time highs in early 2000. That so-called dotcom bubble can be seen as similar to other technology related booms including railways (1800s), cars in the early 1900s, transistors 1950s, home computers 1980s. There's no doubt that stock market growth today is just as heavily driven by tech.
I don't think anyone has made a living from shorting the S & P 500 but........
I added my funds into a Morningstar portfolio. and opened the index tag even though I don't own any index funds I found I have a scary amount of MS (a company I hate.
). If I had index funds I'm sure it would be larger.
An alternative would/could be an equal weighted index fund. Possibly as a companion to a Cap weighted one.
If a little more adventurous possibly a small or mid cap fund that often follow the big boys if their growth is maintained
This would not help your overall diversity, but it would be a start re your US component.
Don't ignore Europe.
I'm older, so I incorporate a little downside protection. which is why I don't have index funs. I do give up a little growth but I counter this with some opportunist sector plays.
I added my funds into a Morningstar portfolio. and opened the index tag even though I don't own any index funds I found I have a scary amount of MS (a company I hate.
). If I had index funds I'm sure it would be larger.An alternative would/could be an equal weighted index fund. Possibly as a companion to a Cap weighted one.
If a little more adventurous possibly a small or mid cap fund that often follow the big boys if their growth is maintained
This would not help your overall diversity, but it would be a start re your US component.
Don't ignore Europe.
I'm older, so I incorporate a little downside protection. which is why I don't have index funs. I do give up a little growth but I counter this with some opportunist sector plays.
It's generally the way of conventional weighted market indices that you end up with half a dozen to a dozen constituents doing all the work and carrying all the risk. That in itself isn't a huge issue. The key is to look at the risk and diversification of those defining constituents.
Something like the FTSE has always had 7/8 core stocks but they're also traditionally well diversified as oils, miners, pharma, banks and the a tech. And then those individual stocks are spread globally in terms of their operations. Conversely, the S&P at the moment is quite tech centric.
The bigger issue is that if we are aware of this skew what, if anything should be done? They are at the top and present because they're delivering lots of positive performance afterall and should they fall back the index will replace them for us with the next big thing as it self cleanses.
Something like the FTSE has always had 7/8 core stocks but they're also traditionally well diversified as oils, miners, pharma, banks and the a tech. And then those individual stocks are spread globally in terms of their operations. Conversely, the S&P at the moment is quite tech centric.
The bigger issue is that if we are aware of this skew what, if anything should be done? They are at the top and present because they're delivering lots of positive performance afterall and should they fall back the index will replace them for us with the next big thing as it self cleanses.
DonkeyApple said:
....should they fall back the index will replace them for us with the next big thing as it self cleanses.
Some people completely miss this point.Anyone who held over this period of continual changes of leadership would have had around 11% p/annum annualised returns;
One falls away, another replaces it.
People were worried about FAANGs not long ago....
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