Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Welcome to Meren Talks
Speaker 1: Your Money, the personal finance edition of Marin Talks Money,
Speaker 1: and these bonus podcasts we talk about the best reateitudes
Speaker 1: for making the most of your money. I'm merenthums Up
Speaker 1: Web and with me as ever senior reporter and Money
Speaker 1: Distorted for John Staberg.
Speaker 2: Hi John, Hi mel.
Speaker 3: Now we are very lucky.
Speaker 1: Our very kind listeners do keep sending in questions, and
Speaker 1: so we have one we want to answer today, and
Speaker 1: do keep sending them in.
Speaker 3: The only thing I would.
Speaker 1: Say about this question is it is an excellent question.
Speaker 1: I don't want you to think for one second that
Speaker 1: it is not an excellent question. But it'd be easier
Speaker 1: for us to answer with a little more detail.
Speaker 3: And you will see that as I read it out.
Speaker 1: Okay, so here we go, Yeah, Maren, very much, enjoy
Speaker 1: your excellent podcast.
Speaker 3: Thank you very much, Robert. The letter comes from Robert.
Speaker 1: As everyone knows, the more you flatter us, the more
Speaker 1: likely you are to have your question answered, and that's
Speaker 1: exactly the way it should be. So anyway, very much,
Speaker 1: enjoy your excellent podcast. And I have a question that
Speaker 1: maybe of interest to discuss It is much discussion over
Speaker 1: which fund and which market to invest in, But what
Speaker 1: is the actual data, say, from the last forty years
Speaker 1: of picking a mixed bag of funds and ETFs and
Speaker 1: investment trusts versus just putting it all on the low
Speaker 1: cost Vanguard World Tracker or a combination of passive trackers.
Speaker 1: Now you'll see that what I mean by a little
Speaker 1: more detail, What do we mean by a mixed bag
Speaker 1: of funds and ETFs and investment trust I mean we've
Speaker 1: had a random mixed bag. And if you have a
Speaker 1: big enough mixed bag, then in the end it's going
Speaker 1: to pretty much hedge towards the performance of a tracker anyway.
Speaker 1: So it's difficult to look at that and come up
Speaker 1: with a with a clear answer. If you'd send something
Speaker 1: in with the specific funds or a specific type of
Speaker 1: fund or investment trust them, it would be easier to
Speaker 1: be clear.
Speaker 3: But nonetheless the question remains valid.
Speaker 1: So onwards, so much discussion which fund to purchase, But
Speaker 1: maybe it simply isn't necessary as fund managers only ever
Speaker 1: outperform for a few years. If you could send all
Speaker 1: your hate mail on that directly to John, so I
Speaker 1: don't have to deal with that fund managers. Thanks very
Speaker 1: much more from Robert. I'm an avid investor and I'm
Speaker 1: trying to advise my children, and as their timelines are longer,
Speaker 1: I want to give them good advice.
Speaker 3: Thank you from Robert.
Speaker 1: So it is a great question, basically saying, is there
Speaker 1: any point in investing actively when you can just buy
Speaker 1: passively and be done with the whole thing?
Speaker 3: Now, John, what's the answer?
Speaker 2: I mean, this is a really good question. Yeah, So
Speaker 2: Robert was asking about the last forty years, so I
Speaker 2: pulled up the Bloomberg terminal, which is very helpful for
Speaker 2: these things.
Speaker 3: Super helpful. Everyone should have.
Speaker 2: One exactly anything about us allocation in like four points,
Speaker 2: so like boins, cash, golden equities. But if you're talking
Speaker 2: about a young person, yeah, and we're also talking about
Speaker 2: let's just assume that your gold's going to be startic,
Speaker 2: your boins are going to be broadly STATICSH, and your
Speaker 2: cash would be STATICSH. So let's just focus on equities
Speaker 2: for this. So if you go back to nineteen eighty seven,
Speaker 2: so I couldn't quite get back to eighty six, but
Speaker 2: that's like pretty much forty years. So the MSCI world index,
Speaker 2: the one that includes emerging markets, and talking about Sterling terms,
Speaker 2: it's returned roughly nine percent a year in sterling over
Speaker 2: the last forty years, unless park inflation, because that's not
Speaker 2: relevant to the discussion. We're just talking about in nominal terms.
Speaker 2: That's what you would have had to have beaten with
Speaker 2: a mixed portfolio that you chose yourself to beat the
Speaker 2: Global Equity Index tracker. And well, so let's look at
Speaker 2: a couple of good compartitors. If you bought Scottish Mortgage
Speaker 2: Investment Trust in nineteen eighty nine, which is when it
Speaker 2: kind of came out, you'd have done almost thirteen percent
Speaker 2: a year for about eight and a half percent for
Speaker 2: the tracker over that period.
Speaker 3: Well though they would be clear, I have also been
Speaker 3: bad times. Oh god.
Speaker 1: Yeah.
Speaker 2: And if you'd done if you'd bought it, I mean,
Speaker 2: the best investor in the world, or you know, they
Speaker 2: acknowledged the best investor in the world, Warren Buffett. If
Speaker 2: you'd bought Berksher Hathaway in nineteen eighty seven, you'd have
Speaker 2: my sixteen and a half percent a year, which is
Speaker 2: obviously a lot more than nine percent. I mean, that's
Speaker 2: pretty pretty tasty, but I think the basic problem here
Speaker 2: is that there's so many other things. I mean, for
Speaker 2: I don't think I think someone could conceivably have put
Speaker 2: all of their equity money into Barksher Hathaway and not
Speaker 2: felt uncomfortable about that in nineteen eighty seven, because one
Speaker 2: Buffett already had this amazing reputation. I certainly don't think
Speaker 2: any sensible investor would have put on hundred percent of
Speaker 2: their equity allocation into Scottish Mortgage Trust in nineteen eighty nine.
Speaker 2: I can see that might have happened when it hit big,
Speaker 2: and people might have thought, oh, you know, James Anderson Etster,
Speaker 2: just like you know, the best funy manager in the world,
Speaker 2: I'm going to put But I don't. I don't think
Speaker 2: that would be advisable, and I don't think most people
Speaker 2: would have thought like so. I guess I'm making the
Speaker 2: point that beaten nine percent a year through active management
Speaker 2: would have been a challenge I think over the last
Speaker 2: forty years, which is like to say that passav is
Speaker 2: definitely going to do better over the next forty but
Speaker 2: it's quite a high hoddle.
Speaker 3: It certainly is.
Speaker 1: And the only thing I would say about that is
Speaker 1: if you're just buying one passive fund and you're buying
Speaker 1: global index.
Speaker 3: There's a lot going on there.
Speaker 1: That we've talked about a lot of the last few
Speaker 1: years is that first, you're effectively a momentum investor.
Speaker 3: You didn't mean to be, but you are.
Speaker 1: That's worked very well for a period of time, but
Speaker 1: it won't necessarily keep working. You're also very over exposed
Speaker 1: to the US, and you're very over exposed to the
Speaker 1: technology sector in the US in particular. And again, maybe
Speaker 1: that's fine, and it's been fine for a while. But
Speaker 1: one of the things that everybody talks about on the
Speaker 1: POT and John you write about it and I write
Speaker 1: about is this idea that we are now in at
Speaker 1: the beginning in the foothills of a great rotation away
Speaker 1: from tech, probably away from the US being the biggest
Speaker 1: and greatest market everywhere. Not that not that it'll stop
Speaker 1: being great, but that it might stop being less great
Speaker 1: relative to its competitors.
Speaker 3: So it may be that.
Speaker 1: That style of passive, effectively momentum investing doesn't work quite
Speaker 1: as well over the next twenty thirty years as it
Speaker 1: has over the previous. And the other thing say is,
Speaker 1: if you're not doing that you're not being a simple,
Speaker 1: one stop shot passive investor using a global index ETF
Speaker 1: like that. There is no such thing as passive investing. Yes,
Speaker 1: you have to choose your ETFs, you have to choose
Speaker 1: your markets. You still have to do your own acid allocation.
Speaker 1: And once you're doing that, you're already into the whole
Speaker 1: world of active There is no such thing. Well, there
Speaker 1: is a combination of passive trackers, but there's no such
Speaker 1: thing as a passive combination of passive trackers.
Speaker 2: Right, yeah, exactly.
Speaker 1: Yeah.
Speaker 3: Everything is active.
Speaker 1: Everything is active, and even going fully passive is an
Speaker 1: active decision to be a US tech heavy momentum investor.
Speaker 1: That's been a great decision for a long time. Will
Speaker 1: it's still be a great decision. And this is why
Speaker 1: this question is kind of it's fairly unanswerable. It's fairly unanswerable.
Speaker 1: And one thing you can do is to not go
Speaker 1: into a market cap tracker where you've got more in
Speaker 1: the biggest companies, so you are very much a momentum investor,
Speaker 1: and to go into an equal weighted tracker and not
Speaker 1: nearly so easy to get by the way, whereby you're
Speaker 1: not a momentum investor.
Speaker 3: Because you hold.
Speaker 1: Each each constitute of the index in equal weights, a
Speaker 1: different way to do passive, and it's a non momentum
Speaker 1: way to do passive because your holdings are constantly being rebalanced,
Speaker 1: that you are effectively a passive value investor.
Speaker 2: Yeah, And I think the other thing that issues for
Speaker 2: because you're absolutely about the mass allocations, say the things.
Speaker 2: Because I was looking at again the Global index tracker
Speaker 2: we were just talking about, So in nineteen eighty seven
Speaker 2: it had about thirty percent of assassets in the US
Speaker 2: and now it's sixty one percent, whereas in nineteen kind
Speaker 2: of they'll delete. Nineteen eighties it had actually about forty
Speaker 2: percent in Japan and now that's down just over five percent.
Speaker 2: So I think one starting point if you would, if
Speaker 2: we were turning around just now and saying, right, well,
Speaker 2: do I want to go fully you know, fully passive?
Speaker 2: I don't want to go slightly more active? You could
Speaker 2: look at the allocation or the global allocation and perhaps
Speaker 2: also the sector allocation that the global tracker has got
Speaker 2: and then figure out how am I going to be
Speaker 2: different to that? As a starting point, So what is
Speaker 2: it about this? If I think I can beat this?
Speaker 2: What would I do differently to the global tracker. Should
Speaker 2: I have more in for example, UK stocks, you know,
Speaker 2: should I have like, you know, twenty percent instead of
Speaker 2: three percent? You know? Should I boost my exposure to
Speaker 2: specific emergent markets, perhaps emergent markets that exclude China or
Speaker 2: you know that sort of thing, And should there maybe
Speaker 2: have a quarter in my portfolio in the US rather
Speaker 2: than the full thing? And then again within that you
Speaker 2: can turn and say that, well, which of these should
Speaker 2: be equal weighted and which should be kind of momentum model,
Speaker 2: you know, so market cap weighted. So I think it's
Speaker 2: a useful reference point to at least know what the
Speaker 2: global track it looks like.
Speaker 3: Oh well, okay, okay, loss to think about that.
Speaker 1: I think that's probably enough before instead of answering the question,
Speaker 1: we make everybody even more confused. But I suspect this
Speaker 1: is something that we'll come back to because John and
Speaker 1: I talk a lot about passive investing, active investing in
Speaker 1: which way you want to go and how each one
Speaker 1: fits the environment around it. So more to come on that, definitely. Robert,
Speaker 1: thank you so much for your question. It was a
Speaker 1: great question. And other listeners please do you send in
Speaker 1: your questions remember the flattery at the beginning if you
Speaker 1: want them to answered. Thanks for listening to this week
Speaker 1: Maren Talks to Your Money. If you like our show,
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Speaker 3: This episode was produced by some Mesadi.
Speaker 1: And Moses, and questions and comments on this show and
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Speaker 1: merin Money at Bloomberg dot net.