Everybody seems to recommend the Vanguard FTSE Global All Cap Index Fund (VAFTA) but is this the best fund? What about the Vanguard FTSE All World Index Fund (VWRL)? You could easily think that funds are identical if not for the small margin of difference in their performance and associated fund fees.

This is my review of the Vanguard Ftse Global All Cap accumulation fund.In this article I’ll compare the vanguard FTSE Global All Cap (accumulation) against the Vanguard FTSE All World Index Fund. This means getting into the detail of the funds asset allocation and what this means for the funds potential future performance.

Investment Objective Of The Vanguard FTSE Global All Cap

The fund objectives seem to allude to a slightly different fund management strategy. The Vanguard FTSE All World Index (VWRL) fund objective is to “provide long-term growth of capital by tracking the performance of the Index, a market-capitalisation weighted index of common stocks of large and mid cap companies in developed and emerging countries”. This focus on Large Cap US Stocks has resulted in strong returns over the past decade.

By contrast, the Vanguard FTSE All World Index Fund “seeks to track the performance of the FTSE Global All Cap Index (the “Index”). The Fund is a passive fund with an indexing investment strategy designed to track the performance of the Index as closely as possible by investing in a representative sample of the component shares of the Index”. To be clear in this review we’re covering the FTSE Global All Cap Index Fund Accumulation.

The problem is that without digging into the asset allocation of each fund it is difficult to actually translate these statements into something meaningful. That’s why I’ve put together this FTSE global All cap Index Fund accumulation review. This can also serve as a Vanguard FTSE Global All Cap Index Fund Review.

Disclaimer: Please note this is not financial advice and you are responsible for your own financial decisions. When investing, capital is at risk. This article contain affiliate links for Fidelity which I have used to compare both funds.

Fund Performance Comparison: FTSE Global All Cap Index Fund Accumulation Review

The obvious place to start with any FTSE Global All Cap Index Fund review is the performance. You can quite clearly see that there is a difference in the performance of both funds. Whilst they both track closely, the FTSE All cap just edges it over the past 10 years. However, in the last 6 months to a year you can see that this position reverses.

Key Differences: The FTSE Global All Cap Vs Vanguard FTSE All World Index Fund

The number of equity holdings differs significantly between the FTSE Global All Cap Index Fund and The FTSE All World Index Fund. Based on Fidelity’s website there are 3756 in the All World in the former but over 7000 in the All Cap. Therefore we can conclude that there is more diversity in the FTSE All Cap Fund. In order to understand where this extra diversity comes from we need to look at the funds structure. That is to say it’s asset allocation.

There are a number of different components to a funds asset allocation. The core differences are:

  • Geography, which can be broken down into developed vs emerging, continental regions and countries (e.g. ex United Kingdom).

  • Market Cap; Large, Medium and Small.

  • Stock Sector: Cyclical, Sensitive and Defensive. Of which there are 3-4 sub categories.

Market Cap Allocation: FTSE All World Vs All Cap Index Funds

The geographical allocation across both funds is almost identical. The key difference between the FTSE All World vs Global All Cap is in the market cap breakdown. Which seems to have a secondary effect on the stock sectors held. When making a FTSE Global All Cap Index Fund accumulation review, asset allocation is key to review. The asset allocation sections can hide subtle differences, which is what we want to pick up in this Vanguard FTSE Global All Cap Index Fund Review.

The FTSE All World is heavily weighted towards 85%. By contrast, the FTSE All Cap Index Fund Accumulation has 75% allocated towards Large Caps. However, the weighting between Value, Core and Growth stocks is pretty identical. The key difference is the addition of the Medium and Mid Cap Stocks. More specifically, the All Cap has a 2% higher allocation to Mid-Caps and 6% for Small Caps.

Small vs Mid vs Large Cap Performance

To complete this Vanguard FTSE Global All Cap Index Fund Review, we need to review small vs mid vs large cap performance. This may explain past and potential future differences in performance between VAFTA and VWRL. Historically, small and mid-caps have out-performed large cap stocks in terms of growth. This is because there is more underlying growth potential for small-caps, by contrast large caps are already fully formed.

You can see this trend quite clearly in the first of the bellow chart, which track the UK Small, Mid and Large Cap stocks. You can see how strongly the Small-Mid Caps have performed and the Large Caps have lagged behind. This would usually give the VG FTSE All Cap a clear edge against the FTSE All World. The same could be said for the Fidelity World fund which is circa 82% Large-Cap stocks.

Although, you may notice the opposite trend in the United States. Funds dominated by Large-Cap U.S. stocks tend to show the opposite trend because of powerful technology stocks. These have surged in value over the large decade. This is why funds such as the Vanguard FTSE All World and Fidelity Index World Fund have 5 star ratings from companies such as Morningstar.

vanguard ftse global all cap index fund review: ishares uk small to large cap 10 yr performance 1
ishares uk small to large cap 10 yr performance

Reversing Trends: Advantage To The FTSE All Cap Index Fund Accumulation?

In the past year, this trend has been reversed. Since 2020 you can observe the strong positive trend in the valuation of Large Cap stocks. Where as Small and Mid-Caps are more volatile and have therefore trended down during the challenging economic times. This trend might be what has caused the FTSE All World to take the lead in returns against the FTSE All Cap.

It therefore begs the question, will this lead increase over time? Alternatively, do the supressed prices of small and mid-caps offer a purchasing opportunity? If it’s the later then the Vanguard FTSE All Cap Index Fund Accumulation offers a distinct competitive advantage long-term. By contrast, the Vanguard FTSE All Word Index Fund could be considered a little more overweight on overvalued Large Caps.

Given that the Large Cap U.S. stocks have performed so strongly, it has been argued they are now overvalued. Which means that small or mid cap stocks are better value. Which would mean that the FTSE Global All Cap Accumulation offers better compounding returns.

vanguard ftse global all cap index fund review: ishares uk small to large cap ytd performance
ishares uk small to large cap ytd performance

Impact Of Market Cap Weighting Allocation On Performance

What you have to remember is that both funds are heavily weighted by Large-Cap stocks (75% vs 84%). As a result, both fund have always tracked very closely together. It is likely that they will continue to do so. That is unless, Small and Mid-Cap stocks seriously take off, whilst Large-Cap stocks fall or simply stagnate.

Using the asset allocation of both the Vanguard FTSE Global All cap Index (accumulation) fund as the FTSE All World Fund, we can plot this against future returns to see how they might performance. This gives us an understand of what the performance of different market caps might mean for the returns of the Vanguard FTSE Global All Cap Fund. Depending on how you think small, mid and large caps will perform, may determine if you align better with the FTSE Global All Cap or the FTSE All World.

Comparison: Vanguard FTSE Global All Cap Index Fund Accumulation vs Vanguard FTSE All World

For example, in the event you invested £100,000 in the FTSE All Cap (vs the All World). You would have invested an additional +2% into Mid-Caps and +6% into Small-Caps. In the event your Mid and Small-Cap stocks each grew by 50% this would equate to an extra 1,000 for the Mid-Caps and £3,000 for the Small Caps. In the event that Large-Cap stocks stayed flat, you would be up £4,000 compared to the Vanguard FTSE Global All cap Index (accumulation) fund.

vanguard ftse global all cap index fund review: VAFTA Vs VWRL, Returns Example for vanguard ftse global all cap index fund accumulation
VAFTA Vs VWRL Returns Example

Vanguard FTSE Global All Cap Index Fund Accumulation Return Potential

In the a scenario where you had invested into the Global FTSE All World, then Large-Caps and Mid-Caps returned 50%. You would gain £41,500 on your Large-Caps and £8,500 on your Mid-Caps. This means you would gained an additional £4,000 on the Large Caps compared to the Global FTSE All Cap. However, you would only have earned £8,500 on your mid-caps compared to £9,500 in the Global FTSE All Cap. Overall, you would still be up +£3,000 than if you had invested in the Global FTSE All Cap.

Even small differences in performance can make a huge difference in the long-term. Especially when compounding up those returns as you would in an accumulation fund. This would include FTSE global all cap index fund accumulation fund. You can now see why I chose to focus on market cap in this Vanguard FTSE Global All Cap Index Fund review.

Conclusion: FTSE All World Index Fund Vs FTSE All Cap Index Fund

The market cap weightings can make a significant impact if there is a distinct difference in the performance of market cap segments. To date the returns for the Mid and Small Caps have not been significant enough to drive a major difference in performance. The question is weather or not Large-Caps are overweight and if Mid or Small Caps will outperform them in the future.

Both funds are heavily weighted towards Large-Cap stocks and that will be the primary driver of performance. The problem here is that there have been major warnings given by experts. These warnings relate to the growth of a stock market bubble, with some calls for a crash of over 50%. This throws us into a new paradigm of what funds might be best for you.

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Summary
Everybody Recommends The FTSE Global All Cap But Is This The Best Portfolio Choice?
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Everybody Recommends The FTSE Global All Cap But Is This The Best Portfolio Choice?
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Everybody seems to recommend the Vanguard FTSE Global All Cap Index Fund (VAFTA) but is this the best fund? What about the Vanguard FTSE All World Index Fund (VWRL)?
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