Time to stop dithering badger09

#1
I'm mainly invested in VLS 100%, VGSC & VEM (77%, 13% & 10% respectively). I have a chunk of cash transferred from a cash ISA which has been sitting in my S&S ISA for several months while I dithered. I'm in grave danger of 'paralysis by analysis' (again)



I've been looking at the new Vanguard FTSE Global All Cap fund as a way of adding Mid Caps, and reducing the UK bias of the VLS. I realise there would some duplication of holdings between the VLS & FTSE Global All Cap.



Does this make sense, or would I be better adding a purely Mid Cap fund? Or do you think that Mid Caps are sufficiently covered by some the component funds which make up VLS 100%?



My ISA is with IWeb who offer the Inc version of the FTSE Global All Cap, but apparently not the Acc version. Any thoughts on why that might be?

#2



I'm mainly invested in VLS 100%, VGSC & VEM (77%, 13% & 10% respectively). I have a chunk of cash transferred from a cash ISA which has been sitting in my S&S ISA for several months while I dithered. I'm in grave danger of 'paralysis by analysis' (again)



I've been looking at the new Vanguard FTSE Global All Cap fund as a way of adding Mid Caps, and reducing the UK bias of the VLS. I realise there would some duplication of holdings between the VLS & FTSE Global All Cap.
Originally posted by badger09


You are right there would be a great deal of duplication as all of the big companies you already have will be there all over again (given all cap is probably 70% large cap,i haven't checked exact ratios).




Does this make sense, or would I be better adding a purely Mid Cap fund? Or do you think that Mid Caps are sufficiently covered by some the component funds which make up VLS 100%?


The Mid caps, particularly lower mids are not particularly well covered by the VLS components. I mean, they will be in there at some level but it is heavily large cap dominated which is the problem with a size weighted index.



A $2bn company is literally a third of a percent of the allocation given to a $600bn giant such as Apple. So, even though they might aim to offer a good mix when building the lifestrategy from regional building block funds, don't kid yourself that mid caps are going to be well represented by a US index used in the process.



If the goal is to get a good chunk more mid cap it seems pretty inefficient to try to achieve that through adding a fund which is mostly large cap again and just a bit better at 'mid' than your main holding.



Perhaps consider something like the iShares Edge MSCI World Size Factor index ETF. It's a bunch of globally diversified mid caps using the MSCI equal weight index. The rationale for the index is simple: cut out the massive companies, cut out the small companies, and then give everything else equal weight. From day to day those weights will start to depart from equal so rebalance every couple of quarters. Cost ratio of about 0.3%.



It trades on LSE with ticker IWSZ (USD priced) or IWFS (GBP priced), so your broker should be able to get it easily. Fund size is over $100m, so (probably) not one of the tiny niche ETF funds in danger of being discontinued. Accumulating so no messing about reinvesting divs. Lower in both US and UK content than the products you already have.



http://www.ishares.com/uk/individual/en/products/270057/IWSZ






My ISA is with IWeb who offer the Inc version of the FTSE Global All Cap, but apparently not the Acc version. Any thoughts on why that might be?


Fund has only been going a couple of months and IWeb are not a massive provider. Perhaps nobody has asked them for the ACC version yet. If you want it, give them the Sedol or ISIN from the Vanguard website and ask.

#3



You are right there would be a great deal of duplication as all of the big companies you already have will be there all over again (given all cap is probably 70% large cap,i haven't checked exact ratios).



The Mid caps, particularly lower mids are not particularly well covered by the VLS components. I mean, they will be in there at some level but it is heavily large cap dominated which is the problem with a size weighted index.



A $2bn company is literally a third of a percent of the allocation given to a $600bn giant such as Apple. So, even though they might aim to offer a good mix when building the lifestrategy from regional building block funds, don't kid yourself that mid caps are going to be well represented by a US index used in the process.



If the goal is to get a good chunk more mid cap it seems pretty inefficient to try to achieve that through adding a fund which is mostly large cap again and just a bit better at 'mid' than your main holding.



Perhaps consider something like the iShares Edge MSCI World Size Factor index ETF. It's a bunch of globally diversified mid caps using the MSCI equal weight index. The rationale for the index is simple: cut out the massive companies, cut out the small companies, and then give everything else equal weight. From day to day those weights will start to depart from equal so rebalance every couple of quarters. Cost ratio of about 0.3%.



It trades on LSE with ticker IWSZ (USD priced) or IWFS (GBP priced), so your broker should be able to get it easily. Fund size is over $100m, so (probably) not one of the tiny niche ETF funds in danger of being discontinued. Accumulating so no messing about reinvesting divs. Lower in both US and UK content than the products you already have.



http://www.ishares.com/uk/individual/en/products/270057/IWSZ





Fund has only been going a couple of months and IWeb are not a massive provider. Perhaps nobody has asked them for the ACC version yet. If you want it, give them the Sedol or ISIN from the Vanguard website and ask.
Originally posted by bowlhead99


Thanks for sharing this info. The part I have highlighted has raised a question. Does this happen often? (fund closures)



Should this ever happen to a fund, what happens to the money that have been invested by lots of people?

#4
When the assets are sold, the money left over still belongs to the owners of the fund so they just get it as a return of capital. Obviously if the reason they are winding it up is that all the assets became pretty much worthless, then you would not expect to get very much back after liquidation costs.



The only reason I mentioned the size was because there are some little funds around that sound quite interesting but don't really have much invested in them so if a big cornerstone investor wants out, the ongoing practical running costs of the fund are going to create a relatively high cost per pound invested for everyone else who's left, and they may shut up shop.



There was a thread a while back iirc, with someone frustrated that a little fund he was in was closing because it had under £10m invested and wasn't worth the manager spending any time on it. But really he should have done his due diligence before buying in the first place, as it was under £15m at that time and so the manager fees wouldn't be enough to keep the lights on and the transaction costs would be relatively high.



The new vanguard one mentioned by OP was also pretty small at the last count but that's because it's new, and vanguard have a big marketing engine and plenty of economies of scale from their other products.

#5



You are right there would be a great deal of duplication as all of the big companies you already have will be there all over again (given all cap is probably 70% large cap,i haven't checked exact ratios).



The Mid caps, particularly lower mids are not particularly well covered by the VLS components. I mean, they will be in there at some level but it is heavily large cap dominated which is the problem with a size weighted index.



A $2bn company is literally a third of a percent of the allocation given to a $600bn giant such as Apple. So, even though they might aim to offer a good mix when building the lifestrategy from regional building block funds, don't kid yourself that mid caps are going to be well represented by a US index used in the process.



If the goal is to get a good chunk more mid cap it seems pretty inefficient to try to achieve that through adding a fund which is mostly large cap again and just a bit better at 'mid' than your main holding.



Perhaps consider something like the iShares Edge MSCI World Size Factor index ETF. It's a bunch of globally diversified mid caps using the MSCI equal weight index. The rationale for the index is simple: cut out the massive companies, cut out the small companies, and then give everything else equal weight. From day to day those weights will start to depart from equal so rebalance every couple of quarters. Cost ratio of about 0.3%.



It trades on LSE with ticker IWSZ (USD priced) or IWFS (GBP priced), so your broker should be able to get it easily. Fund size is over $100m, so (probably) not one of the tiny niche ETF funds in danger of being discontinued. Accumulating so no messing about reinvesting divs. Lower in both US and UK content than the products you already have.



http://www.ishares.com/uk/individual/en/products/270057/IWSZ





Fund has only been going a couple of months and IWeb are not a massive provider. Perhaps nobody has asked them for the ACC version yet. If you want it, give them the Sedol or ISIN from the Vanguard website and ask.
Originally posted by bowlhead99


Thanks Bowlhead



As usual, you've clarified my thinking. So far, I've avoided ETFs because I haven't quite got to grips with them, or rather their disadvantages compared to OEICs/UTs. I will have a look at the one you mention.



I'm sure you're right about the new Vanguard fund on IWeb, just surprised they already offer the Inc but not the Acc version though

#7
Thanks Superscrooge



I had read that article some time ago. Time to read it again



I've had a look at the iShares ETF mentioned by bowlhead99 and was a bit concerned by the very small trading volumes.

#8
just looking at morningstar's data about what is held by the ishares edge msci world size factor ETF (IWFS) - http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P00014E8B&tab=3 - and comparing that to the data for vanguard global small cap index fund (VGSC) - http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F000005OPT&tab=3 ...



VGSC holds smaller companies on average: $2bn average market cap, compared to $7bn for IWFS.



VGSC holds more different shares: 4282, compared to 916 for IWFS.



the largest 10 holdings for each fund are c. 1.5% of the total value. VGSC will hold a lot less in each of its smaller holdings, since it's cap-weighted (and those will be the smaller companies). whereas IWFS is equal-weighted, so everything has about the same weighting (except due to values of holdings changing since the last rebalance).



i don't think the logic of the method - equal-weighting vs cap-weighting - matters in itself. but i tend to prefer VGSC, because it holds smaller-cap shares. in general, the smaller-cap you go, the more likely the result is that you'll get something that performs differently than big-cap shares (and perhaps even with a higher return). which is presumably the idea.



VGSC has a higher OCF (0.38%, compared to 0.30%), but IWFS will have higher internal trading costs (because of the need for it to rebalance back to equal weight). no idea what those trading costs will come to, but it could be bigger than the difference in OCF.



a possible reason to prefer IWFS is the geographical spread. if you want less USA (36% instead of 59%) and more japan (21% instead of 12%), then IWFS has an advantage.



personally, i do prefer the geographic spread of IWFS, but i prefer the relative simplicity and the smaller-cap focus of VGSC.



to make it more complicated, i also prefer to go for funds aiming at small-cap value companies, not just small-cap companies. for instance, vanguard global value factor ETF (VVAL) - http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001798Y&tab=3 - is a bit small-cap focused - average market cap of $8bn (similar to IWFS, not as small as VGSC), and also gives you a "value" focus. and it's cheap at 0.22% OCF, though it will have higher internal trading costs than VGSC (perhaps more like IWFS?). but the geographic spread has a lot of the USA (similar to VGSC). it's also currently quite concentrated in financial services at 36% (this is likely to change over time, depending on what sectors look cheap).



i'm actually thinking of combining VVAL with some european and asian funds, which might complement it. but i guess i'm making it far too complicated, as usual

#9



just looking at morningstar's data about what is held by the ishares edge msci world size factor ETF (IWFS) - http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P00014E8B&tab=3 - and comparing that to the data for vanguard global small cap index fund (VGSC) - http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F000005OPT&tab=3 ...
Originally posted by grey gym sock





VGSC holds smaller companies on average: $2bn average market cap, compared to $7bn for IWFS.





i don't think the logic of the method - equal-weighting vs cap-weighting - matters in itself. but i tend to prefer VGSC, because it holds smaller-cap shares.


Yes, the smallcap one is small cap. While IWFS is bigger than small cap because it's mid cap. Which is in turn smaller than large cap.



The OP already has stuff focused on largecap (LifeStrategy) and stuff focused on smallcap (Vanguard Global Small Cap that you mention), so the specific bit which was being sought by her was mid cap, which is why I suggested a mid cap fund...



I don't think you'd really call VVAL a 'small cap value fund' though. I mean, average holding size of $8bn is (at current exchange rates) bigger than what you get from the bottom third of the FTSE100 - so if that's the average then you are going to be getting a bunch of big companies as well as lots of mids, on top of the smalls.



If you're trying to use a passive approach to get a fund that's really focussed on smalls, and looking for something interesting about them such as 'value' - you would struggle, because the few passive products that exist in the small company space are really just trying to do it cheaply through cap-weighted indexes (which, as mentioned here from time to time, seems a bit funny trying to put most of your money into the biggest companies of those small companies because you like small companies). There aren't really any alternately-weighted passive index products that limit themselves to the smallco space - if you want something other than cap weighting (like perceived value or whatever) you have to use active funds, ITs etc.



In the mid cap space there is more choice, you can find equal weight funds like the I one mentioned (to stop you putting all your money in the big global giants just because they're big) or value funds like the one you mentioned (which stop you putting all your money in big global giants that don't meet criteria for good value). Either of those methods pull money away from the biggest companies that the cap-weighted world trackers would give you by default, so if someone like the OP was looking to 'downsize' and get more mids alongside the bigs, would seem to help.

#10
@ grey gym sock & bowlhead99



Thanks guys, as always its interesting to read your thoughts even if I feel almost as confused after doing so



Should I be concerned by the low trading volumes of IWFS?

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