Investing in US beyond S&p 500
Discussion
Hi, I am thinking abt some diversification away from tech heavy S&P 500. I don't know enough abt individual shares so looking at a fund or ETF. There are some small cap or mid cap funds as well as "Total Stock Market" ETF by Vanguard. However this ETF still has quite high big tech. Obviously political situation after Jan 20 is unknown but any thoughts on investments outside of S&p 500.
Thanks
Thanks
This is what you're after:
https://www.vanguardinvestor.co.uk/investments/van...
Most of my pension is in this or the HSBC equivalent, which has slightly lower fees.
The US market is still dominant, but the concentration risk to the few US tech stocks isn't quite as high as just with the S&P500. This means it's also underperformed against it over the last decade, but who knows what the future holds. The global fund will adjust accordingly if there is a global shift away from the US.
https://www.vanguardinvestor.co.uk/investments/van...
Most of my pension is in this or the HSBC equivalent, which has slightly lower fees.
The US market is still dominant, but the concentration risk to the few US tech stocks isn't quite as high as just with the S&P500. This means it's also underperformed against it over the last decade, but who knows what the future holds. The global fund will adjust accordingly if there is a global shift away from the US.
Jiebo said:
This is what you're after:
https://www.vanguardinvestor.co.uk/investments/van...
Most of my pension is in this or the HSBC equivalent, which has slightly lower fees.
The US market is still dominant, but the concentration risk to the few US tech stocks isn't quite as high as just with the S&P500. This means it's also underperformed against it over the last decade, but who knows what the future holds. The global fund will adjust accordingly if there is a global shift away from the US.
Thanks. I will look into the vanguard fund. Is this the HSBC equivalent?https://www.vanguardinvestor.co.uk/investments/van...
Most of my pension is in this or the HSBC equivalent, which has slightly lower fees.
The US market is still dominant, but the concentration risk to the few US tech stocks isn't quite as high as just with the S&P500. This means it's also underperformed against it over the last decade, but who knows what the future holds. The global fund will adjust accordingly if there is a global shift away from the US.
https://www.hl.co.uk/funds/fund-discounts,-prices-...
If you're looking for something smaller companies in the US, take a look at this - SPDR RUSSELL 2000 US SMALL CAP UCITS ETF.
Alternatively, if you're wanting to retain S&P exposure but reduce mag7 / tech risk, have a look at ISHARES III PLC S&P 500 EQUAL WEIGHT UCITS ETF or, if you don't want to run currency risk, ISHARES PLC S&P 500 EQUAL WEIGHT UCITS ETF HEDGED (ACC).
Alternatively, if you're wanting to retain S&P exposure but reduce mag7 / tech risk, have a look at ISHARES III PLC S&P 500 EQUAL WEIGHT UCITS ETF or, if you don't want to run currency risk, ISHARES PLC S&P 500 EQUAL WEIGHT UCITS ETF HEDGED (ACC).
Derek Chevalier said:
I saw this suggested in the FT. 
Quite why you'd opt for this over a global market cap alternative is beyond me.
With something like ISHARES III PLC CORE MSCI WORLD UCITS ETF, which is a typical global market cap tracker, it has about 1400 holdings but the mag7 make up 16% just by themselves.Quite why you'd opt for this over a global market cap alternative is beyond me.
If it was an equal weight based tracker, the mag7 would make up only 7/1400th, or 0.5%.
If (and its deffo an if still) these mega tech firms see a big correction at some stage in the near future, there's definitely an argument for having equal weight rather than market cap tracker exposure.
Ezra said:
If you're looking for something smaller companies in the US, take a look at this - SPDR RUSSELL 2000 US SMALL CAP UCITS ETF.
The R2K might be a good shout, but you have to understand that it is often a very sluggish market and can sit there for multi years doing not a lot. That said when the DJ/S&P underperform you often see the R2K pushing ahead and outperforming so it might not be a bad hedge.
gotoPzero said:
The R2K might be a good shout, but you have to understand that it is often a very sluggish market and can sit there for multi years doing not a lot.
That said when the DJ/S&P underperform you often see the R2K pushing ahead and outperforming so it might not be a bad hedge.
I've been riding an S&P500 and a NASDAQ tracker for a good few years and decided to sell these just before xmas. I'm a bit concerned about the tech bubble in the US, but still think the US exceptionalism is a thing thats got legs. So, think I'm going to switch into the R2K tracker this week. If the bubble doesn't burst, I've still got a decent position in a global tracker anyway.That said when the DJ/S&P underperform you often see the R2K pushing ahead and outperforming so it might not be a bad hedge.
Ezra said:
With something like ISHARES III PLC CORE MSCI WORLD UCITS ETF, which is a typical global market cap tracker, it has about 1400 holdings but the mag7 make up 16% just by themselves.
As an aside, I don't see MSCI World as truly global as it's only developed, large and mid. I'd consider Global All Cap or ACWI as a starting point. Ezra said:
If it was an equal weight based tracker, the mag7 would make up only 7/1400th, or 0.5%.
I'd be very wary of accepting that much tracking error from the overall market, as I'd suggest it would lead to a greater risk of investor misbehaviour. You can significantly reduce exposure to US large caps just by holding a diversified portfolio (I've posted this image before). Portfolio 5 employs light factor tilts (attempting to find the tradeoff between regret minimisation and large cap bubble bursting protection)..
Ezra said:
If (and its deffo an if still) these mega tech firms see a big correction at some stage in the near future, there's definitely an argument for having equal weight rather than market cap tracker exposure.
Portfolio construction should be based on what has always worked rather than what might or might not happen. If you think the "No Brainer" portfolio runs the risk of being exposed to U.S large cap growth bubbles, factor exposure is something that can be looked at.
https://www.advisorperspectives.com/articles/2023/...
"Alternatively, investors can create their own version of an equal-weight strategy by owning a total market fund and then adding exposure to the other factors that Swade, Nolte, Shackleton and Lohre identified that explain the EW−VW spread. For example, adding exposure to Dimensional, Avantis, or Bridgeway’s small value mutual funds or ETFs would provide greater exposures to the size and value factors while also avoiding the negative exposures to the profitability, quality and momentum factors (which act as drags on returns) that the EW strategy include."
https://www.northerntrust.com/content/dam/northern...
"we suggest here that an efficiently constructed,actively managed strategy that targets compensated sources of risk and intentionally controls for uncompensated sources of risk has significantly more benefits than an equal weighted index, but without the many drawbacks discussed herein."
Check out Dividend Aristocrats, which are companies in S&P500 that have raised their dividends every year for 25 years.
They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
sideways sid said:
Check out Dividend Aristocrats, which are companies in S&P500 that have raised their dividends every year for 25 years.
They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
Do you have examples of any that are boring and low volatility?They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
I love these threads.
Everyone front/-running something, including the logic that “it’s always worked”
Well “it’s always worked” didn’t work for bonds and stocks in late 21 when rates rose, bonds fell, and stocks fell.
Now we have QT and easing in the USA.
And GDP at -4% vs deficit, but not in a recession, with tech more concentrated than 1999.
It’s all over the shop.
GLWS!
Everyone front/-running something, including the logic that “it’s always worked”
Well “it’s always worked” didn’t work for bonds and stocks in late 21 when rates rose, bonds fell, and stocks fell.
Now we have QT and easing in the USA.
And GDP at -4% vs deficit, but not in a recession, with tech more concentrated than 1999.
It’s all over the shop.
GLWS!
xyz123 said:
Hi, I am thinking about some diversification away from tech heavy S&P 500.
There are, unsurprisingly, 500 companies in the S&P although it's dominated by the biggest 7 companies. All you need to do is build a portfolio around the other 493 companies.If I was doing that I'd still buy the Mag 7 but reduce their weighting by, say, 70% and buy everything else in line with their actual index weighting. Job done.
Beyond that you need to look at other geographic markets or find funds operating in non-tech sectors.
Panamax said:
xyz123 said:
Hi, I am thinking about some diversification away from tech heavy S&P 500.
There are, unsurprisingly, 500 companies in the S&P although it's dominated by the biggest 7 companies. All you need to do is build a portfolio around the other 493 companies.If I was doing that I'd still buy the Mag 7 but reduce their weighting by, say, 70% and buy everything else in line with their actual index weighting. Job done.
Beyond that you need to look at other geographic markets or find funds operating in non-tech sectors.
It will all be done for you and rebalanced when required.
Derek Chevalier said:
sideways sid said:
Check out Dividend Aristocrats, which are companies in S&P500 that have raised their dividends every year for 25 years.
They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
Do you have examples of any that are boring and low volatility?They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
Do you have the same table over the same timeframe for the Mag7 for reference?
gotoPzero said:
Just buy an equal weight S&P ETF.
It will all be done for you and rebalanced when required.
Your point is a good one insofar as it avoids the need to faff about with lots of different investments. However, I feel equal weighting would put too much into the smaller companies for my taste.It will all be done for you and rebalanced when required.
Perhaps the "easy answer" would be put 50% into market weighted and 50% into equal weighted, essentially halving the exposure to Mag 7.
Panamax said:
Your point is a good one insofar as it avoids the need to faff about with lots of different investments. However, I feel equal weighting would put too much into the smaller companies for my taste.
Perhaps the "easy answer" would be put 50% into market weighted and 50% into equal weighted, essentially halving the exposure to Mag 7.
That's a fair point but its worth noting that the S&P500 index is made up of 500 of the largest co's listed in the US, irrespective whether the tracker fund is market cap or equal weight constructed....I suspect none of that index would be remotely classed as 'smaller companies'Perhaps the "easy answer" would be put 50% into market weighted and 50% into equal weighted, essentially halving the exposure to Mag 7.
sideways sid said:
Derek Chevalier said:
sideways sid said:
Check out Dividend Aristocrats, which are companies in S&P500 that have raised their dividends every year for 25 years.
They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
Do you have examples of any that are boring and low volatility?They tend to be boring, low volatility etc, obviously paying dividends, so the antithesis of (and not closely correllated to) Mag7.
There are ETFs that invest in all of them if you prefer:
https://www.dividendinvestor.com/best-dividend-ari...
Do you have the same table over the same timeframe for the Mag7 for reference?
Not as bad as....
54% 1973-1974
54% 2000-2002
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