Portfolio Advice

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  • thelawnet
    thelawnet Posts: 2,576
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    Linton wrote: »
    Its the same either way round - I assert from checkable evidence that over 10 years the average FTSE allshare fund has performed very much the same as the average FTSE allshare tracker AFTER charges in both cases. Therefore the average FTSE allshare managed fund IS outperforming (before charges) by sufficient to cover the difference in charges compared with the passive fund.

    Can you add the index to that, instead?

    I don't find it convincing, sorry.

    I checked here:

    http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/j/jupiter-uk-growth-income/charts

    Add in 'UT UK All Companies' and 'FTSE All Share', and it gives:

    5 years
    0.95% UK All Companies
    7.63% FTSE All Share.

    How much underperformance is that? 7.63-0.95 = 6.68%. 1.0668^(1/5) = 1.013. Which is 1.3% per year - about what you'd expect given the charges

    I don't see that it's particularly useful to evaluate 10 year old trackers, sorry. You can buy a tracker costing under 0.3%, so bingo - that's 1% of outperformance.

    What you can see is that the FTSE All Share outperformed the UK UT All Companies sector by ~1.3% per year over 5 years.

    I also kinda wonder why Trustnet says 1.6% return over 5 years, and Hargreaves Lansdown 0.95%.

    I also I'm not convinced that the numbers tell the full story. What about the closed funds?
  • Perelandra
    Perelandra Posts: 1,060 Forumite
    FWIW....

    My own reasoning is that actively managed funds could well outperform trackers when the market is volatile enough to create opportunities to stock-pick. Index trackers coule well outperform actively funds when the market is more stable, due to the lower costs involved.

    Through my company pension, I have to invest my investments in actively managed funds. However, in my ISA I invest in a mixture of tracker funds, in a strategy similar to the OP's. I've therefore, effectively, introduced another area of diversification into my total investments, diversifying between a "stable" and "volatile" asset movements. That could be a load of twaddle though!

    Plus it makes it much easier to decide what to invest in the ISA, so I sleep easier at night. :)
  • Hooloovoo
    Hooloovoo Posts: 1,281 Forumite
    Perelandra wrote: »
    My own reasoning is that actively managed funds could well outperform trackers when the market is volatile enough to create opportunities to stock-pick.

    ... and even then only if the market efficiency is low enough to enable the star fund manager to stock-pick and get in more quickly than their fellow managers.

    Back in the 1970s ... maybe. In these days of 24 hour news channels, the internet, and therefore news breaking instantly all around the world simultaneously the market efficiency is just too high IMHO.
  • MrMalkin
    MrMalkin Posts: 210 Forumite
    edited 29 April 2012 at 5:14PM
    Couple of links for the naysayers who say that indexing advocates never back up what they say:

    Here's a link to a review article of UK-based indexing from PwC, it's a few years old now but very readable and very even-handed:
    www.ifa.com/Media/Images/PDF%20files/pricewaterhousecooper.pdf

    And a review by the Australian investment watchdog into research on outperformance of managed funds:
    http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/FMRC_Report.pdf/$file/FMRC_Report.pdf

    Both have plenty of references to the studies that provide the underlying data, from a wide variety of markets and finance academics.

    Also Linton, I have to say that I'm not convinced that your data drawn from Trustnet is in any way accurate, for 3 reasons: 1) it doesn't take into account the large drops in passive fees over the last 3 years, as others have mentioned; 2) I've seen lots of occasions when Trustnet quoted data (including some that you yourself have posted) has been wildly wrong, for whatever reason, on their part, and 3) your little survey doesn't take into account the survivorship bias, because funds that have died or been merged aren't represented properly.
  • Hooloovoo
    Hooloovoo Posts: 1,281 Forumite
    edited 30 April 2012 at 10:08AM
    Well, there we go, that's that done. I went with Cavendish and put in £1000 as a lump sum, and set up a £250 monthly payment plan. I will increase the monthly payments at the end of the year once the mortgage is gone.

    It will be interesting to see what the Fidelity portfolio analysis says and if it compares to my own calculations regarding global region percentages and sectors etc.

    I'll update the thread once the transaction completes.
  • gadgetmind
    gadgetmind Posts: 11,130
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    MrMalkin wrote: »
    Here's a link to a review article of UK-based indexing from PwC, it's a few years old now but very readable and very even-handed:
    www.ifa.com/Media/Images/PDF%20files/pricewaterhousecooper.pdf

    That document was what initially steered me towards reading Bernstein and Hale, both of whom are very rigorous and fair in their discussions of the pros and cons of indexing versus active.

    However, on re-reading it, I spot that they mention that indexing isn't as effective for the bond market, which backs up my view that fixed interest is way harder to get right than equities. While I do hold some corporate bond ETFs, I also use some active strategic bond funds.

    I'm also using active for some EM, biotech, property and infrastructure, and private equity, but this is dwarfed by my passive holdings.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • Perelandra
    Perelandra Posts: 1,060 Forumite
    edited 30 April 2012 at 12:17PM
    Hooloovoo wrote: »
    Well, there we go, that's that done. I went with Cavendish and put in £1000 as a lump sum, and set up a £250 monthly payment plan. I will increase the monthly payments at the end of the year once the mortgage is gone.

    Good luck!

    I believe you were buying in to 6 trackers in the end- have you been able to split the monthly £250 with Cavendish across all six trackers, and if so is there enough to cover the minimum regular purchase for the funds (particularly those with a smaller share).
  • Hooloovoo
    Hooloovoo Posts: 1,281 Forumite
    Perelandra wrote: »
    Good luck!

    Thanks!
    I believe you were buying in to 6 trackers in the end- have you been able to split the monthly £250 with Cavendish across all six trackers, and if so is there enough to cover the minimum regular purchase for the funds (particularly those with a smaller share).

    I was wondering about how this would work, too.

    It seems that the "minimum lump sum" and the "minimum monthly payment" are totals regardless of the number of funds selected.

    For example, I have just split a £1000 lump sum between six funds and it didn't complain at all, even though all six funds have a minimum £1000 lump sum purchase.

    Same with the monthly schedule. It has accepted my values even though the lowest percentage fund has just £18 going in per month.
  • Perelandra
    Perelandra Posts: 1,060 Forumite
    Hooloovoo wrote: »
    It seems that the "minimum lump sum" and the "minimum monthly payment" are totals regardless of the number of funds selected.

    For example, I have just split a £1000 lump sum between six funds and it didn't complain at all, even though all six funds have a minimum £1000 lump sum purchase.

    Same with the monthly schedule. It has accepted my values even though the lowest percentage fund has just £18 going in per month.

    I suppose that makes it simple to set up, but I'm a little surprised that it let you. Good to know, though, as I probably would've assumed it was (say) £50 minimum regular payment per fund, and not even tried the smaller amount...

    If you need to rebalance, will you do this by buying/selling amounts, or try to do it somehow with new purchases only?
  • IronWolf
    IronWolf Posts: 6,423
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    There is a very simple reason funds cannot beat the index on average.

    The majority of shares are owned and traded by investment funds, therefore on average they have to average to the market movements. Factor in charges and you get underperformance.

    There are clearly some managers that can consistently beat the market, however I don't believe individuals can correctly predict who these will be unless they know a lot about investing themselves.

    If you just rely on past performance, a) you risk getting a manager thats just lucky and b) his assets under management will likely have mushroomed making it a lot harder for him to beat the market.
    Faith, hope, charity, these three; but the greatest of these is charity.
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