Latest / On The Money / How to perform a deep dive on funds, investment trusts and ETFs

Transcript

How to perform a deep dive on funds, investment trusts and ETFs · On The Money

• 0:03
  Kyle Caldwell: Hello, and welcome to On the Money, a weekly look at how to make the most out of your savings and investments. So there is now less than two months before tax year end, and we thought it'd be very timely to do an episode in which we would explain research tactics when it comes to funds, investment trusts, ETFs. We've spoken a lot previously on this podcast about the importance of looking under the bonnet when researching funds. So today, we thought, let's lift the lid on the bonnet and talk through the key tactics. So joining me to discuss is Dave Baxter who is senior fund content specialist at Interactive Investor.
• 0:51
  Today, if we're gonna split this into three parts, we're gonna cover funds, investment trusts, and then end with ETFs and index funds. So let's start off with funds. What are the main things for investors to consider when they start researching funds?
• 1:10
  Dave Baxter: So there is of course the disclaimer that, you know, past performance is not a guide to future returns, but performance does still matter. You should look at performance, but it's important to give adequate context. So there are kind of two thoughts I have here. One is you want to compare like for like. So, you know, say you're looking at fund like Fundsmith Equity that's kind of quality growth type fund, you would like to compare it against other global equity funds with that kind of bias rather than, for example, something much ratier like Scottish Mortgage.
• 1:43
  And the second thing that I think is really important is kind of time frames and context. So don't simply look at whether a fund has performed best for five years or whether it is useful. You want to additionally kind of look at how it's done in certain market conditions. So if you had a period in which say a growth fund or growth funds in general have done well, you would expect a growth fund you're looking at to also have done well. Equally, 2022 for example, we had interest rates rising and those kind of funds like Scottish Mortgage, really struggled.
• 2:17
  So you want it to kind of be doing well and badly when you would expect that to happen. And, yeah, as I said, just sort of compare it with rivals, adequate benchmarks.
• 2:28
  Kyle Caldwell: And funds are grouped in different sectors. Sectors. But as you've mentioned, you're not always compared on apples to apples. So say for UK old company sector, for example, last time I checked, there's around 250, 300 funds plus in that sector. Some of them will have a growth focus.
• 2:45
  Some will have a value focus. And as you've already mentioned, it's not really telling you that much comparing those the performance between two completely
• 2:54
  Dave Baxter: Yeah.
• 2:54
  Kyle Caldwell: Different styles of funds. And another thing to consider is whether the full manager is investing in a certain part of the market. So is the full manager focusing on larger companies or do they have a remit where they're investing in large, medium sized, and smaller companies? Because again, it's not telling you that much if you're not comparing like for like.
• 3:17
  Dave Baxter: As I sort of briefly alluded to, it's also important to pick the correct benchmark. So funds, if you look a fund fact sheet, it will state a benchmark. Some of these are not necessarily the kind of most adequate. You sometimes get funds comparing their returns to, for example, how cash is performing, which is a bit kind of, yeah, generous, a bit lenient. You want them to be comparing against the kind of I suppose most widely followed market.
• 3:47
  For example, if you're looking at UK equity funds you might be comparing with the FTSE All share. If you're a global fund you might be comparing with the MSCI World, although looking at the composition of fund will tell you a lot. So for example MSCI World, as we've discussed many times, is very US heavy. So if you're a fund that is US light, then you would expect to outperform for example last year when The US struggled, But in some previous years when The US raced ahead, you might not expect to beat the market.
• 4:16
  Kyle Caldwell: I completely agree on that. I think in terms of what funds pits its performance against, I think it should be the most comparable benchmark that there is for that fund. I have seen instances where a fund compares its performance against the sector, the fund sector that sits in. I think that's a bit disingenuous, to be totally honest, because I think ultimately, you know, investors if if the size and open actively managed funds, then the main competitor is an index fund or an ETF that's investing in the same market that it's investing in. And that actively managed fund should be showing investors we have the potential to outperform the index for x y and zed reason because we invest sufficiently differently away from the index.
• 5:05
  Dave Baxter: And also it's worth noting that some sectors are really desperate and kind of the average masks a lot of difference. So if you look at the IA global sector, yes, you'll have those well known funds like your funds spent equities, your, you know, Scottish mortgage and so on. But you also have some very niche funds like, you know, water funds, that kind of thing. So it's it's not always the most useful metric.
• 5:28
  Kyle Caldwell: You've already touched on the fund fact sheet. So this is a two or three page document that gives a snapshot of how the fund invests. I do think it is a very useful document. Yeah. Although I do think it has its limitations.
• 5:44
  But I do think, you know, most fund fact sheets, they have to show the well, they don't have I don't think they're mandated to, but the vast majority do indeed show the top 10 holdings, which does give a flavor of how the full manager invests. And I also think it's a good indication about whether the fund is investing sufficiently differently away from the wider index. As you and I think if you see a lot of stocks in the top 10 holdings that are in common with the index. So say it's a UK fund and you see a lot of the biggest companies in the top 10 holdings of an active fund that are also in the 4,100 index, the the top end of the 4,100 index. Then for me, that is a potential sign that the active fund is not being active enough.
• 6:32
  Dave Baxter: Yeah. Yeah. Also, I think fact sheets give you a good kind of sense of, well, obviously, what you're invested in. The top 10 holdings list can be really useful, especially if it's quite a concentrated fund. So if we want to go for a really extreme example of this, one of Nick Train's funds will have, you know, multiple positions of say 12% weightings, things like Experian, RelX, you know, the stocks have been struggling this week actually.
• 7:01
  But having said that, there are funds that are a lot less concentrated. So to name one popular example, Ramall Global Equity has pretty small position sizes, like 2% or so. I think when that's the case, you want to agonize less over the top holdings and you want to look more at the sector weightings and then the kind of regional weightings if it's something like a global fund. And then as you mentioned, you want to sort of like compare it to the index and see, you know, if it's a global fund, are they taking a big US bet, or are they going somewhere else? That kind of thing.
• 7:32
  Kyle Caldwell: And also with global funds, just by looking at the country weightings in terms of where the fund's investing, it can give you an indication straight away about whether the fund just sticks to developed markets, or it also has some exposure to the Asia Pacific and emerging market regions. I mean, my view on this is that I think the global funds should use the full global remit. And there's there's you know, I think if you just stick to developed markets, then it's gonna be more common that you're gonna see a higher proportion in percentage terms in The US market due to that.
• 8:09
  Dave Baxter: Yeah. It'll be interesting on that note to see how much global managers drift now back into China and South Korea because they're sort of back on on the rise.
• 8:18
  Kyle Caldwell: And another key ratio, although it's not widely available, but I do think it's very useful when it is published, is the active share ratio. In a nutshell, and explaining this in a very fast way, the higher the percentage of the active share ratio, the more active the fund is versus a comparable index. Now if I was a cynic, I would say that the fund firms that publish the active share ratio or the funds that publish here, they tend to have a high percentage weight in Kind
• 8:55
  Dave Baxter: of fairly Gifford, that kind of thing.
• 8:56
  Kyle Caldwell: Yeah. But I I would like to see this more widely adopted. But, you know, unfortunately, there's no sort of regulatory requirements for this data point to be published. But I do think it's a very useful metric when it is available.
• 9:09
  Dave Baxter: Yeah. It's also worth noting, I mean, you mentioned before that the fact sheet is very useful, but it also has its limitations. To touch on, I guess, my kind of 2¢ there. It's interesting that different companies can vary by how I suppose detailed or forthcoming they are. So some go into all sorts of different metrics and would also provide a commentary so you have an idea of what they've been thinking that month, what they've been buying, selling, that kind of thing.
• 9:36
  Whereas some others, and for example, Bailey, if it is one of these, think, even though it does the active share, it can be quite bare bones. So you need to kind of dig a bit deeper to, like, work out what's going on.
• 9:47
  Kyle Caldwell: That's completely I agree, Dave. I think in terms of the information that investors receive from fund firms through that documents, some go into great levels of detail on a monthly basis. Others don't really provide much of an update. You say, it's like the bare bones, really. Investors aren't being informed in terms of what the full manager has been doing, what has been the portfolio activity in recent months.
• 10:14
  In regards to the full manager, I think it's important to consider how long the full manager's been running money for. And if it's more of a team based approach, how long the team has been together for for as well. Because I think, you know, like like in many other things in life, I think experience counts for a lot. I think investors may be comforted if a full manager's been in his or her post for a long time, and they've been investing through multiple different economic and business business cycles. You know, they've seen interest rates at rock bottom levels.
• 10:48
  They've seen interest rates at higher levels, and they've been able to navigate those sorts of events accordingly. And I think if if you see a full manager's been running money for ten, fifteen years plus, then it's probably quite likely that their performance has kept them in the job.
• 11:05
  Dave Baxter: Mhmm. Yeah. It's interesting also, as you mentioned, I suppose we're seeing a bit of a fading of the the star manager culture where you'd have a big name. And fund firms love to kind of stress how much they're doing this this team approach, and it doesn't matter so much if, you know, someone leaves. But I think it does make a difference who the lead manager is because they can those individuals can have specific opinions on a sector or a given stock, and it can materially alter what's in the portfolio.
• 11:36
  Kyle Caldwell: Completely agree. I think particularly for retail investors, it's very important that there's accountability when it's a team based approach that, you know, there are named fund managers. And I think, you know, when there are periods in which the fund falls out of form, as mentioned, it could be due to the style, the type of style that the fund adopts, such as a value or a growth focus. They do go in and out of favor over different time periods that the fund manager communicates and gets across to investors. This is the reasons why the fund has been underperforming.
• 12:13
  And, essentially, they they don't hide under this. There's someone that is accountable. I think another point I wanted to make is that there are certain fund firms that specialize in a certain asset class or a certain investment style, like the value style.
• 12:32
  Dave Baxter: Yeah. So a couple of examples that I was gonna throw up, say, if you take bonds, know, it could be very, some people think boring, but very kind of like technical and specialist area. There's for example a firm called twenty four and they are very good at kind of focusing on these really esoteric and kind of niche parts of the bond market. And then on the staff front, yeah, you have value firms, have say if you want to look at the growth style, Bailey Giffords. I suppose it's an interesting argument about whether you should favor those specialist firms or whether you should kind of trust the generalists because I suppose some of the really big asset managers, for example, Janice Henderson, they kind of cover everything.
• 13:15
  Kyle Caldwell: And the final point I want to make before we move on to investment trust is going back to the point you made at the start, Dave, regarding performance. I think if you go on to, like, a website such as TrustNet, you could plot the returns of a fund versus an index. And for me, if you do the, say, of, like, ten year time period is, I on on, like, a line chart, if those two lines are similar, then for me, that indicates straight away that the funds may not be active enough because otherwise, why is the performance so similar to an index?
• 13:50
  Dave Baxter: Mhmm.
• 13:51
  Kyle Caldwell: Yeah. So let's now move on to investment trusts. So those more seasoned investors will be familiar with the various bells and whistles that investment trusts have. So when you're researching investment trusts, you do have to consider the structural differences that investment trusts have compared to funds. So they include the ability to gear, so the ability to borrow to invest.
• 14:18
  In a rising market, gearing can boost performance. However, it's a double edged sword. If it's a fallen market and an investment trust is geared, then the losses will be greater. Investment trusts have two parts. They have a share price and their net asset value.
• 14:36
  So this is called the NAV. So this is the value of the underlying investments held by the investment trust. If the share price trades above the net asset value, then an investment trust trade on a premium. Whereas if the opposite occurs, if the investment trust share price is trading below the net asset value, then an investment trust is trading on a discount. And in this scenario, you're you you have the the chance to buy an investment trust for less than the sum of its parts.
• 15:07
  But as you're gonna come on to in a moment, Dave, it doesn't always mean that investors can pick up a potential bargain.
• 15:15
  Dave Baxter: Yeah. Discounts are kind of couple of areas where I suppose I disagree with the consensus a bit. Yeah. One is, yes, as you say, it's not definitely a bargain. It can still struggle.
• 15:27
  It can still stay on a discount for a long time. Some these discounts are just kind of structural features of the industry. My other big bugbear that I love going on about is the fact that I think think people worry too much about discounts, particularly you get kind of institutional investors. We're seeing activists like Saba kind of complaining about discounts, and trust boards come under a lot of pressure to remove them. But you can and for example, the private equity sector is a really good example.
• 15:55
  You can have trusts in sectors that are on huge discounts for many, many years. But what you're getting is the share price performance, and you're still getting good returns. So that's really what matters to me.
• 16:06
  Kyle Caldwell: I agree in terms of I think what you gotta think about is it's ultimately it's the performance that will drive the long term returns of the investment trust. So you shouldn't be buying thinking, oh, it's on a it's on a massive discount, but it but it doesn't have a compelling investment story, for example. However, I do think, you know, I think certain investment trusts, they have certain policies in place where they'll buy back shares at a certain percentage discount. So I think if investors are aware of them and they see, for example, an investment trust trading on a discount of 10% and the board has a policy in place where it doesn't let the discounts get above 10%, then that could be quite a a good opportunity to buy in at that point. But you need to also look at the bigger picture and think, I'm buying this because I think on a on a on a medium to long term view, I think it could outperform and it could outperform competitors.
• 17:06
  You're not just buying it purely for the discount alone.
• 17:09
  Dave Baxter: Yeah. Yeah. And I would I worry more about premiums, although they're, you know, quite rare. But if you look at say, on the AIC site or something, you can see this because then you're potentially having a long way to fall if things go right go wrong, sorry.
• 17:26
  Kyle Caldwell: Yeah. It's it's always hard to put like a number on it, but, I mean, I sort of would be a little bit wary if a premium is above 5%. I'd certainly be very, very careful if it was 10% or more. And we've seen various examples over the years of hype investment trust premiums simply being unsustainable. Mhmm.
• 17:49
  But the one example that jumps out to me the most is Linzall Train Investment Trust. So I think at one point, several years ago, the premium was at or it was very close to a 100%. Yeah. Now it's trading on a discount. Another more recent example is Free I Group.
• 18:08
  I think again, I think about twelve months, eighteen months ago, the premium was as high as around 60%. That has since cooled, and I think it's around 10 to 15% now at the time of this recording. Because ultimately, these high premiums, they can't be sustained and they can't last forever. You're paying a huge amount higher than the value of the underlying assets are worth. So I just think it just can't sustain over time.
• 18:38
  Dave Baxter: Yeah. I think it's a definite red flag. Like, normally, there are reasons people roll out for those premiums, aren't they? Like, three I is the only way to access that kind of high growth discount European retailer action. But nevertheless, as you say, it can can be a problem.
• 18:53
  Kyle Caldwell: And another of the structural differences investment trusts have over funds is the ability to squirrel away 15% of income generated each year into what is known as a revenue reserve. And this is why we have a lot a number of investment trusts that have outstanding track records of growing their dividends year in, year out. There are 10 that have increased their dividends for fifty years or more. The one that's got the longest track record is City of London Investment Trust. It's raised its dividend every year since 1966.
• 19:33
  However, I just wanted to point out the way in which these revenue reserves work is that, say, instance, there's a bear market for dividends and the amount of income being generated by the investments does not meet the amount that the investment trust needs in order to maintain or increase the dividends. So they'll then dip into what is known as the revenue reserves to fund the shortfall. However, it's not a separate pot of money. It is part of the investment trust's underlying investments. So what they have to do is, the full manager, they have to sell or take profits from some of their investments in order to increase the dividends.
• 20:18
  Dave Baxter: Yeah. Yeah. It definitely has its kind of drawbacks. But I suppose it really comes through in times of crisis, the obvious one being 2020, you know, UK companies paused or cut their dividends all over the place. And I think there were a couple of trusts.
• 20:33
  Maybe Temple Bar did cut their dividend, but most of them kind of maintained or rose it.
• 20:38
  Kyle Caldwell: I do think though in terms of the sort of bells and whistles investment trusts have, this is one of the ones that benefits private investors the most. Particularly, maybe if you're sort of a later stage of your investment journey, you're trying to find some income producing investments. And ideally, you're looking for income producing investments that are gonna be maintained or increase in value. And all things being equal, with these investment trusts to have these really long term track records of growing their dividends through thick and thin, the chances are they're gonna be maintained over time. I think it's gonna be a last resort if an investment trust board decides to cut dividends if they have these big long track records.
• 21:22
  And a really useful tool for investors to look at the health of these revenue reserves is on the association of investment companies website.
• 21:30
  Dave Baxter: They
• 21:32
  Kyle Caldwell: list the number of years and months an investment trust has in these revenue reserves. So say for for instance, it's one year, then this means that if the investment trust doesn't receive any dividends at all from their underlying investments, then they have one year's worth of reserves that they can use in order to maintain or increase the dividend.
• 21:54
  Dave Baxter: Yeah. And and generally, when we're talking about assessing trusts, it should be noted that the AIC site is really very impressive. Shows you discounts, shows you dividend data, revenue reserves, charges, has links to kind of documents of research and fun fact sheets. So it's a really good starting point if you're kind of a a budding investment trust investor.
• 22:15
  Kyle Caldwell: But one thing to watch out for with these investment trusts to have these really long term track records is that some of them have trades on a really small dividend yield. So if you're a new investor, you're not really getting that much income. I mean, you might get it you might get the income growth, but it is from a pretty low level. I mean, some of the some of these dividend heroes, the yields in two and a half percent or less Yeah. Which, you know, I think if if you're an income investor, you might take the view that that's not that's not high enough at all to even in Cheshire.
• 22:50
  Dave Baxter: Yeah. I always find it quite bizarre that Scottish Mortgage is a dividend hero. I think it must pay or must have a yield of under 1%, but it just happens to have kind of increased it over that period of time.
• 23:01
  Kyle Caldwell: I also find it bizarre, Dave, that Scottish Mortgage pays a dividend. I'm a shareholder in Scottish Mortgage, which we've spoken about before on the podcast when we did an episode earlier this year, which we explained how we both invest and how we've both invested over the years. I actually voted against the dividends being increased in the annual general meeting for Scottish Mortgage. It was last summer. But I was massively in the minority.
• 23:27
  It was 99% of shareholders, like, approved the dividend increase. But, you know, but for me, you know, it's a growth focus portfolio, and that's why I'm buying it. So, I mean, for me, I don't want the dividends, but I'm not know, that's why I reinvest it. But, obviously, there are some shareholders or a lot of shareholders who voted for it that still want this rising income stream.
• 23:51
  Dave Baxter: Yeah. Wow.
• 23:53
  Kyle Caldwell: In terms of the information that investment trusts produce, I actually think the investment trusts are more transparent and offer a lot more information to private investors. I think some of this is down to the fact that investment trusts, they are listed on the London Stock Exchange, so they have to produce half yearly and full year results. You get a lot of commentary in those results from the full manager, from the chair about what the investment trust has been doing, how it's performed, which shares it introduced to the portfolio over that year, which ones have been sold. And you can you can get a real good sense of the sort of investor sentiments and whether the full managers feel and particularly bullish or whether they're being a bit more cautious. Of course, a full manager's always gonna wanna talk up his or her book.
• 24:51
  But sometimes you can sort of read them in between the lines, and sometimes they're not as optimistic or not as positive Yeah. As they have been in the past.
• 25:00
  Dave Baxter: Yeah. I think I agree and I think that open ended funds with those, you're much more at the mercy of kind of how much a manager wants to, you know, do commentary or kind of discuss things, and they might do that on the fund firm's website, but some just really don't tell you much. It's quite hard to work out what a fund does. I was gonna mention for the real, I suppose, kind of fund geeks out there, that open ended funds do technically publish a sort of annual report, and that is sometimes useful because if you can dig it out on their website, you can see their full list of holdings at the time, but it's it's nowhere near what trusts offer.
• 25:37
  Kyle Caldwell: They can be quite hard to find. I mean, obviously, we both do this for a day job, and, you know, sometimes I can't find them, and I sort of know where I'm going to try and find them as well. And the final point on investment trusts is that they can provide investors exposure to more alternative assets. However, this does make investment trusts in certain cases more complicated than funds. So what are your thoughts, Dave, in terms of getting under the bonnet for these sort of alternative asset investment trusts?
• 26:10
  Dave Baxter: Yeah. I think in those cases, often you do kind of have to trust in the manager, so maybe you're looking again more at things like kind of performance, because to give you one example, with private equity trusts, some of these trusts will have like a limited number of kind of direct investments, so one example is Oakley Capital Investments is quite concentrated, but you get so called funder funds like Pantheon International, Harbourvest Global Private Equity, they will have, I believe, hundreds of underlying holdings. So you can attempt to look at kind of what they're holding, but really it's gonna be very complicated, lots of small positions. Maybe you're better off again looking at the broader things like sector weightings. But in those cases you are potentially taking a bit more of a kind of leap of faith with the manager, and you're less able to assess it yourself.
• 27:05
  Kyle Caldwell: Let's now move on to our final section, which is index funds and ETFs. So we've just discussed actively managed funds, those managed by professional investors. Now I think it's really important to not just simply buy and hold and actively manage funds and to do a review once or maybe twice a year. Review how the fund is performing versus peers versus a compatible index. And also over time, the fund manager and the fund manager team may change.
• 27:37
  Mhmm. And when that happens, you need to decide whether to hold or fold. Yeah. And also over time, there will come a point in time when a full manager will retire. So you need to consider whether good succession planning has been in place.
• 27:52
  Now if you buy an index funds or an ETF, you might think there's less work involved and that you're you know, you decide which index, which theme, which sector, which type of country you want to invest in. You might think maybe I can just do that and buy and hold for ten years. However, it is still very important to look under the bonnet because there are lots of instances of an index funds or an ETF investing in the same market or investing in the same theme, but doing it slightly or in some cases vastly differently.
• 28:29
  Dave Baxter: Yeah. As you said, there are lots of good examples. I'll give you two broad ones. So one is, well they're both quite popular areas to be fair. The first one is I suppose dividends targeting ETFs.
• 28:41
  We've seen lots in say The UK and globally that can generate nice yields. But when you tend to get to those more, I suppose, niche areas where you're trying to achieve something and you're almost being a bit more active almost, you can have very different ways of trying to achieve that goal. So with dividend ETFs, you get some of them will simply chase yields, so they go for like the highest yielding stocks in The UK. Whereas another option would do something like, you know, there's a so called dividend aristocrats range that tends to only include companies that have, I believe, maintained or raised their dividend for at least seven years in a row. So interesting differences there are, say with The UK dividend ETFs, the one that has the seven year requirement would not include names like Shell that cut their dividend in 2020.
• 29:33
  So that is lacking kind of energy exposure, which the other fund has and the other fund has performed much better. So that's really quite a big difference in what portfolio is. And the second broad example I'll give is thematics. So at the minute, you know, AI is causing some problems in markets, but it's quite interesting. And defence shares are again doing incredibly well.
• 29:56
  But again, you can kind of differ by, say the defence ETFs can differ by how much they focus on industrial shares or cyber security type kind of areas, that kind of thing. So and yet how concentrated they are, what parts of the world they focus on. So you really do need to do your work, and I think those funds could potentially be a bit more susceptible to changes as well than kind of a bog standard global tracker.
• 30:25
  Kyle Caldwell: But even if a bog standard global tracker, you know, some will have just exposure to developed markets, whereas others will have some exposure to the Asia Pacific and emerging market regions as well. So that's certainly one thing to watch out for. It's it's a case of looking under the bonnet and seeing what is the index that the index fund is tracking, what is the industry. Yeah. And then I think if you're comparing apples with apples, say there's one global ETF versus another global ETF, and they're both given exposure to the MSCI World Index, but one has a lot much lower fee than the other Mhmm.
• 31:06
  Then I think that makes your decision for you.
• 31:10
  Dave Baxter: Yeah. Yeah. The the only kind of exceptions to that rule I would give is you could also look at the size of the ETF because in theory, a bigger one offers you more liquidity, which cuts back on your trading costs. But if it's in a popular area and it's undercutting the competition, particularly things like global and The US, it does tend to grow pretty quickly.
• 31:31
  Kyle Caldwell: And in terms of research and ETFs, mean, I does it varies from provider to provider, but I often I'm pleasantly surprised to see that when I'm sort of looking at an ETF for editorial purposes or for my own research, you can actually see a list of the whole ETF. You can see all the holdings. You're not just being given the top 10 holdings.
• 31:52
  Dave Baxter: Yeah. It's incredible. You have to disclose your full portfolio. It's also often pretty up to date. So, you know, iShares, the market leader that runs a lot of ETFs.
• 32:02
  You can go on to the individual page for a given ETF and you can look at say that dates or the day before's kind of list of holdings, perhaps download the full list. And there's also just lots of other details like there's often things like kind of dividend yields and perhaps more kind of niche metrics, but you can obviously you won't get things like commentaries in the way you would from an active fund, but you really can basically see the whole thing. And I suppose going back to things like the mask ETFs, there's a lot of criticism of of them in that they perhaps buy a market peak. So you might not wanna hold one, but you might still use it for inspiration to say, judge, what is a cybersecurity stock? What is a defense stock?
• 32:45
  And in that case, that really full level of disclosure is great because you can simply dig into everything it's invested in.
• 32:51
  Kyle Caldwell: I think when it comes to those thematic ETFs, they they they do require more monitoring in terms of their performance because they're more susceptible to blowing both hot and cold. Whereas if you've got broad exposure to, say, a global index fund or a global ETF, you you you can't talk it away with confidence over the long term. You don't need to monitor its performance because ultimately you're owning the world. However, as mentioned earlier, the composition of an index, it will change over time. And a big change that's happened for US markets, specifically the S and P 500 index, is that over the past decades, it's become more and more concentrated.
• 33:36
  It's become more and more reliant on the performance of a small number of companies, the big US technology giants, the so called magnificent seven. So as you think today, if you own both a US S and P 500 ETF and a global ETF, I do think it's important to look under the bonnet of both and think, am I doubling up too much? Am I overlapping too much in terms of exposure? Are there other ways that I could gain exposure to both markets? For example, you might consider pairing a global ETF with a ETF that's equally weighted.
• 34:16
  Yeah. So they invest in companies and in equal proportions. So they'll own naught point 2% of every company in the S and P 500.
• 34:24
  Dave Baxter: Yeah. And it's worth noting that concentration issue does sometimes crop up for other, you know, bog standards trackers. A notable example is emerging market slash Asia kind of ETFs because the indices there tend to have a lot of exposure to China. So again, even though, as we said, those are good kind of buy and hold investments, it's worth understanding what's actually in there.
• 34:51
  Kyle Caldwell: That's all we have time for. Dave, thank you for coming on.
• 34:54
  Dave Baxter: Thanks for having me on.
• 34:56
  Kyle Caldwell: That's it for our latest episode of the On the Money podcast. Hope you've enjoyed it. We always love to hear from listeners, and you can get in touch by emailing o t m ii dot co dot uk. As usual you can find plenty of analysis on investments and pensions on the Interactive Investor website, which is ii.co.uk, and I'll see it again next week.