Features | Education | 6 Mins Read | by
Investors need an investment default. It acts as a benchmark to judge other opportunities. In the absence of a default, it is easy to be sold investment lemons.
The £3.5 billion Woodford Equity Income Fund closed to investor redemptions at the start of June 2019. This followed a period of poor performance, with a number of the fund’s holdings blowing up.
The main lesson from the debacle is that it is better to buy funds than to be sold funds. One-way to achieve this is by adopting a default investment.
Bill Clinton’s 1992 presidential campaign theme was: “it’s the economy, stupid.” When it comes to investing we can ask: “What’s your default, dummy?”
If you don’t have an investment default, you may end up being an investment dummy.
Investment platforms, advisors and the media tend to push investors in a particular direction.
What is an investment default?
An investment default is a safe option that doesn’t require much thought. It may vary from person to person but always means not trying to be clever.
Investors that try to be clever can end up being ‘too clever by half.’
By way of backdrop, the expression ‘too clever by half’ means:
Shrewd but flawed by over thinking or excessive complexity, with a resulting tendency to be unreliable or unsuccessful (Wiktionary)
1) Cheaper developed world ETFs
An alternative fund run by State Street is SPDR MSCI World (SWLD) with £241 million under management. The Lyxor Core MSCI World ETF (LCWL) is another alternative with £90 million under management.
Both ETFs have an ongoing charge of 0.12% versus the iShares MSCI World ETF’s ongoing charge of 0.2%. They may therefore be more options attractive than the more established iShares MSCI World ETF (SWDA).
2) Alternative All-World ETF
It is worth considering how the developed world ETF measures up against one that invests in both the emerging and developed world. The iShares MSCI ACWI ETF (SSAC) is an All-World ETF that charges 0.6%.
China makes up 3.7% of the ETF and it also invests in two ETFs that have exposure to India and Brazil. The All-World ETF has underperformed the developed world ETF since 2011.