First of all, apologies for writing in English. I felt that by writing in Swedish with my current level I would just be butchering your language.
I wanted to open a discussion about robots and global funds. A year ago I started investing with Lysa with the 100% stock option. I am fully committed, and believe in the strategy of long term savings using indexed funds, but I’m a bit torn in how this is done by L ysa.
While Lys a’s portfolio is all put together with indexed funds, the portfolio itself is not indexed. It invests most of the capital in the US, and 20% of the total in Sweden, when Sweden represents only a fraction of that in the global economy.
In contrast, a fund like “Storebrand Global All Countries A SEK”, follows a global index that includes emerging markets. This means that if the weight of countries would shift (for example, if China’s companies would start being the most profitable), Lys a would still be putting money in the US, while a global fund like the one I just mentioned would assume these changes since it would be reflecting the Index.
I feel like putting your savings in a single real-global fund is more true to the strategy of investing in an index, while at the same time I really like the convenience and risk spread of Lys a (and I’m sure they know why they put their portfolio together like they did).
Anyhow, thanks beforehand, and please feel free to reply in Swedish. I do understand the language, I’m just not fluent enough to formulate a question like this yet. Tack!
First of all thanks for using Lysa, and here is an answer to your question about why we believe having a home bias is a good thing for Swedish investors.
Your portfolio in Lysa consists indeed of several different underlying index-linked equity funds to give your savings the best opportunity to grow through good risk diversification. Internationally, the Swedish economy makes up approximately 1% of the world economy, but we have a home bias of 20% towards Sweden. We believe this is justified because the price development of real assets in Sweden is related to how the Swedish stock market develops over time. Generally speaking, most people living in Sweden have a higher exposure to the stock market in Sweden, and given a marked increase in the value of the stock market here, these will relatively have stronger purchasing power. For example, if a person living in Sweden wants to buy a house, they will compete with other people living in Sweden to get it. By having a larger portion of the portfolio towards the Swedish market the thought is that you will be more competitive in these types of situations than if you had 1 % exposure towards Sweden in your portfolio. This, we believe, justifies the home bias.
We invest the remaining 80% of your portfolio globally and not just in the US. For example, North America, Europe, emerging markets and much more, which in total amounts to over 8000 companies for the broad investment option. However, it is important to remember we do not follow or try to beat any specific index - instead we try to mimic how the global market develops in order to give you the best risk-adjusted return.
Thank you for the detailed explanation regarding the home bias. It makes perfect sense. Regarding the remaining 80%, you mention that you try to mimic the global market with it. Does this mean that the distribution of that remaining 80% would change if the global markets distribution changes too?
I do understand that each individual fund follows its own index. But my concern wasn’t about that, it was about the percentage given within the portfolio to each of those funds. For example there’s a 18.66% placed in Vanguard USA. Let’s say for the argument’s sake that the US crumbles and becomes only a 5% of the global economy. Would then the portfolio be adjusted so that only 5% is given to US related funds?
Yes - the distribution of the remaining underlying assets (80%) will be adjusted according to global market distribution changes too. For example, in a hypothetical situation, where the US only accounts for 5% of the global economy, we will adjust this in your portfolio. Hence, continue to mimic the global market in order to give the best risk-adjusted return.