Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
Global index tracking funds are the Levi 501s of investing - affordable, never out of fashion and a good fit for a whole range of different people.
For anyone with the aim of capturing the performance of shares in a single fund, with regional diversity built in and for a low cost, global trackers are the go-to option. The promise they make is to give you the performance of the market they choose to track - no more, no less - for the lowest available cost.
For lots of investors - often including the most sophisticated - that is enough. They believe these funds give them the best chance of gains in the long run by taking as many active investing decisions out of the equation as they can.
This can create the impression that all global trackers are the same - or at least very similar. But as our analysis below shows, funds which offer global index tracking on the surface can be very different underneath.
Which global tracker is really the best option for you?
Under the bonnet: global index funds compared
Across the Fidelity Personal Investing platform there are eight funds that you can fairly describe as global trackers, where costs are the lowest available and your money is invested across the world according to market capitalisation-weighted indices - i.e. where funds are allocated to companies according to their size. This is the group we examine here.
It does not include exchange traded funds (ETFs), some of which also replicate the performance of indices. It also does not include the funds which invest globally and are invested passively but with particular emphasis - such as companies paying high dividends.
The options we compare here are the ‘accumulation’ share classes for each fund, where any dividend income is reinvested.
- Aviva Investors International Index Tracking Fund
- Fidelity Index World Fund
- HSBC FTSE All World Index Fund
- Legal & General Global 100 Index Trust
- Legal & General Global Equity Index Fund
- Legal & General International Index Trust
- Vanguard FTSE Developed World ex-U.K. Equity Index Fund
- Vanguard FTSE Global All Cap Index Fund
Each of these funds is invested according to an underlying benchmark index which offers ‘global’ exposure. Across the eight funds there are six different indices represented, plus some variations where the UK is excluded. They are all slightly different and often overlap, which can make things confusing.
Indices like the FTSE Developed and (despite its name) MSCI World cover the developed markets of the world, but not the emerging markets. Meanwhile, the S&P Global 100 covers just 100 of the largest companies which have been selected according to both their size and the international nature of their underlying business.
The FTSE World index - which underpins three of the funds on our list- covers developed markets and some more advanced emerging markets. The FTSE All-World is slightly more comprehensive, covering developed and most emerging markets, while the most comprehensive is the FTSE Global All Cap which covers developed and emerging markets, including mid and small cap stocks within those.
These differences lead to differences in performance. The table above shows the value of £100 invested into each fund in 2016 - the date that the most recently launched of the fund began.
Below is the same performance data plotted on a chart.
Different exposures - different risks
The performance of each of our global tracker funds is broadly aligned - with one exception. The L&G Global 100 Index Trust is out in front, turning £100 into £333 over our chosen nine year period. The next best performer, the Fidelity Index World fund returned £263 and the rest were close behind that.
The difference can be accounted for by the much more concentrated nature of the L&G Global 100 fund, which comprises just 100 companies selected for their size and the international exposure of their underlying business. By accident or design this method of selection has led to the fund being much more exposed to the largest US companies, and in particular to the giant tech companies that sit at the top of the American market.
Below is a table showing the geographical breakdown of each of the funds, using data collected from their most recent fund factsheets.
The largest US companies have driven returns for investors for several years now, and a high exposure to them has amplified those returns.
That means investors in the L&G Global 100 fund are likely to be very pleased with their selection, but they may begin to wonder whether they are too exposed to this small group of companies - particularly in a fund that promises global exposure.
A look at the top holdings within the L&G Global 100 fund reveals the risks they are running. The top 10 holdings account for a huge 58% of the fund overall. Furthermore, the top two holdings - Nvidia and Microsoft - account for more than 25% of the fund. Some 13.5% of fund investors’ cash is in Nvidia alone.
Contrast this with the most geographically diverse of the funds on our list - the Vanguard FTSE Global All Cap Index fund. Its top 10 holdings account for just 21% of the fund. The top two holdings are again Microsoft and Nvidia, but these account for just 4.1% and 4.3% respectively.
The better diversification has harmed recent performance. The Vanguard fund is the worst performer in our group over the timeframe in question - turning £100 invested in 2016 into £238 - but that is not an indicator of what may happen in the future.
Top 10s - most and least concentrated
| Vanguard FTSE Global All Cap Index Fund | % of fund | Legal & General Global 100 Index Trust | % of fund | |
|---|---|---|---|---|
| 1 | NVIDIA Corp | 4.34 | NVIDIA Corp | 13.52 |
| 2 | Microsoft Corp | 4.12 | Microsoft Corp | 12.15 |
| 3 | Apple Inc | 3.19 | Apple Inc | 9.49 |
| 4 | Amazon.com Inc | 2.34 | Amazon.com Inc | 6.72 |
| 5 | Meta Platforms Inc Class A | 1.76 | Broadcom Inc | 4.34 |
| 6 | Broadcom Inc | 1.42 | Alphabet Inc Class A | 3.43 |
| 7 | Alphabet Inc Class A | 1.17 | Alphabet Inc Class C | 2.78 |
| 8 | Taiwan Semiconductor Manufacturing Co Ltd | 0.99 | JPMorgan Chase & Co | 2.52 |
| 9 | Alphabet Inc Class C | 0.95 | Eli Lilly and Co | 1.82 |
| 10 | Tesla Inc | 0.91 | Exxon Mobil Corp | 1.47 |
| Total | 21.19 | 58.25 |
Which is best for you?
A look underneath the bonnet of the global trackers on our list shows that the most diverse option is the Vanguard FTSE Global All Cap Index Fund, giving exposure to the most markets and to companies of all sizes.
That extra exposure comes at a relatively high cost - 0.23%. That compares to the cheapest option on our list, the Fidelity Index World fund, at just 0.12%
The best performer has been the L&G Global 100 Index Trust - but this is also the most concentrated of the funds we examined and highly exposed to just a few stocks. These have performed well but a reversal from here will hurt this fund proportionately more than other global trackers.
Ultimately, the choice of the right global tracker for you - if that is how you choose to invest - is likely to come down to the risks you are happy to take, the cost you are willing to pay and how each option fits with any other investments you hold. What’s important is that you fully understand what’s going on underneath the bonnet of your global tracker fund.
If you’ve got a burning question you want to ask, why not drop us a line? Ask us your question.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of financial adviser or an authorised financial adviser of your choice.
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