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  • FIRST POST
    Hooloovoo
    Portfolio Advice
    • #1
    • 24th Apr 12, 10:44 PM
    Portfolio Advice 24th Apr 12 at 10:44 PM
    I'm looking to extend my savings to include an investment portfolio since I am currently holding too much in cash. I am hoping someone knowledgeable could look at my plan and see if there are any obviously stupid errors I am making.

    Here is my current SOA.

    I am 33 years old and so will be looking to invest for 20-30+ years. I am employed full time in a reasonably secure job that provides a final salary pension scheme to which I contribute 6%.

    My house is worth around 150k and I have 11k left to pay on the mortgage paying 536 per month at 2.68% (base rate floored at 2% plus 0.68% differential). After filling my cash ISA each year I have been over paying the mortgage at the maximum allowed 500 per month. I plan to continue doing this and my mortgage free date is approximately February 2013. I know it's a low rate loan and I could probably make better returns elsewhere, but I just want to get rid of it and end the repayments. I wont be closing it entirely since I wish to keep the rate and access to my overpayment reserve.

    Liquid accounts:

    Previous ISA - 32k at 3.1%
    Current ISA - 500 at 4.25%
    Premium Bonds - 1k

    I think you will all agree that I am holding far too much in cash and need to invest to protect my money from inflation.

    I have been reading Smarter Investing by Tim Hale that has been recommended on here many times. I am fully sold on the passive investing idea and I am only interested in low cost tracker funds. I don't intend this thread to become a passive/active debate - I understand the pros and cons of each and I have made my choice. I've also been reading many posts over on Monevator.

    Many years ago I had an Egg Investment ISA that later became part of Fidelity. I have recovered my log in details and I can see my old ISA that has a zero balance. I intend to invest through Fidelity again and I am currently in the process of changing the agent over to Cavendish Online as recommended on here in order to get the lowest costs.

    Tim Hale recommends taking FinaMetrica's Risk Profiling psychometric test in order to determine attitude to risk and thus how your portfolio should be structured. As an aside, members of the public are supposed to go here in order to take the test at a cost of 30. But if you go here instead you can pose as a IFA wanting to check out the report and you can do it for free. I'm glad I didn't pay any money for this because it was a complete waste of time. My risk tolerance score came out at 59 putting me in risk group 5 which is pretty much what I expected. This suggests a portfolio of 60% risky stocks and 40% defensive stocks.

    Looking at all the index funds on Fidelity I have picked out the following for whole-market investment based on lowest-TER and under 2% average index tracking error. It turns out that they are all HSBC funds.

    FTSE All Share Index:
    HSBC FTSE All Share Index Retail Acc
    Fund Code HSUKA
    Annual Management Charge 0.25%
    Total Expense Ratio (TER) 0.27%

    FTSE World Europe ex UK Index:
    HSBC European Index Retail Acc
    Fund Code HSEUI
    Annual Management Charge 0.25%
    Total Expense Ratio (TER) 0.31%

    USA S&P's 500 Index:
    HSBC American Index Retail Acc
    Fund Code HSAMI
    Annual Management Charge 0.25%
    Total Expense Ratio (TER) 0.28%

    FTSE World Japan Index:
    HSBC Japan Index Retail Acc
    Fund Code HSJIN
    Annual Management Charge 0.25%
    Total Expense Ratio (TER) 0.29%

    FTSE World Pacific excluding Japan Index:
    HSBC Pacific Index Acc
    Fund Code HSPAC
    Annual Management Charge 0.25%
    Total Expense Ratio (TER) 0.37%

    Index Linked Gilts
    Legal & General All Stocks Index Linked Gilt Index Trust Inc
    Fund code LGASI
    Annual Management Charge 0.20%
    Total Expense Ratio (TER) 0.25%


    Now here is where I get a little stuck. Are there any indices that I am missing? Or better ones than I have selected?

    How should I set the weighting between these funds? Clearly Japan and the Pacific should be low weighting. Give 33% each to the UK and USA? Or maybe I should give a low weighting to the US and start ramping it up after the election and inevitable market slump. What about a weighting to Europe considering the potential issues with the Euro? I'm happy to invest in a falling market because it means I get more for my money, and my investment period is long enough to cope. Any advice would be gratefully received.

    I am planning to start investing monthly. I am not going to transfer over any of my cash ISA because I feel it would be very foolish to make any lump sum investment in the market right now.

    I will probably start low at 250 per month, and increase that to between 500 and 1000 per month from 2013 once my mortgage is paid off. As I said earlier, planned investment period is 20-30 years or more.

    Apologies for the long post and thanks for any help!
    Last edited by Hooloovoo; 24-04-2012 at 10:55 PM.
Page 5
  • thelawnet
    If you were correct in your general point, ISTM that over 10 years the random variation you allege should have evened out and the trackers should have benefited from their 1%-2% annual advantage and so should have given about 10-20% better return than the average. Do you agree?
    Originally posted by Linton
    You have that the wrong way round. The point is NOT that the tracker must beat the active by the cost difference, but rather that an active fund charging ~1.5% more per year has to outperform by 1.5% just to match the passive fund.

    Lets have a look and see if they have, Trustnet is your friend:
    It is?

    Not so sure myself. A lot of the figures are horribly outdated and/or unreliable.

    Over 10 years the IMA index (ie average of all funds) shows a 59.5% increase, the best AllShare tracker is 61.1% the worst Allshare tracker is 54.6%. So over 10 years there is no evidence that trackers do any better compared with the average FTSE All Share sector managed fund. There is no underlying advantage, or if there is it is extremely small as it is undetectable over 10 years.
    Er, I don't know where you've got those numbers from, but I'm afraid this is rather like the evolution and intelligent design stuff. There are NUMEROUS published studies that show passive performs better. That's where the evidence is.

    Now you're saying that they perform the same, well maybe, but it doesn't really make a compelling case for chucking millions of quid a year at active managers does it? 'If you give us hundreds of millions of pounds, we'll give you the same performance you could get for free'.

    What a great sales pitch.

    (PS some people at this point allege survivorship bias - it doesnt apply if you use the IMA average as the IMA index is taken over all funds active at the time).
    I'm not sure what you mean, as you've provided no evidence, no links, just bald statements.

    Next point - lets assume that fund X shows a random under and over performance against the tracker although providing the same 10 year return. Does this mean that the X is a worse/riskier investment than the tracker?

    At first sight yes but lets think about it. The FTSE index can fluctuate wildly, particularly over the past 10 years. If fund X was very safe and simply provided a constant return every year it would show random under and over performance against the index. But clearly fund X would be a far better investment. This isnt a silly example - there are many managed funds that do show a lower variability than the FTSE and just for that reason are a better choice for many investors.
    That assumes that all your wealth is tied up a single tracker.

    That would be utterly ludicrous.

    If otoh, you've got a balanced portfolio, a sharp fall in a particular asset class will be balanced by rises elsewhere.


    Finally you assert that specialist funds have no advantage over general funds.
    No I didn't. What I said was that a specialist fund can outperform simply because its chosen area is performing well at the moment. It doesn't imply skill on the part of the investment manager.

    Clearly false - compare a general Global Tracker with a fund that focuses on say the Far East (a subset of Global). If you were correct why advocate FTSE trackers, the only sensible investment would be in a global tracker.
    Who is advocating FTSE trackers?

    So many strawmen, so little evidence. D+, must try harder.

    My personal evidence: over the past 10 years my investments in focused managed funds have returned over 100%.
    And my passive funds have gone up 200%.

    So what's your point?
  • gadgetmind
    The evidence from this forum has been that those who see trackers as the only sensible way to invest can provide no more justification than to refer to the Blessed Tim
    Originally posted by Linton
    Fortunately, Mr Hale, Mr Bernstein, and many others provide references to copious amounts of academic material and studies, so "uncited" is way off the mark.

    If you've read these books, and looked at a reasonable sample of the data, and are still unconvinced, then I guess we'll have to leave it at that.

    However, insulting those who *have* looked at all of this data, and who do have the strong scientific and statistical backgrounds to be able to judge it in a cool and dispassionate way, isn't really something I think you should be resorting to.

    This isn't religion, it's science. That doesn't mean it's right, but science is the strongest tool we have ever found to stop us fooling ourselves by "seeing" patterns that aren't really there.
    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.
  • gadgetmind
    Incredibly profitable though. I heard Apple makes more profit just from iphone (exc rest of Apple) then Exxon makes from all of its sales worldwide and its the largest oil company in the world (petrol can be low margin I think, tech is like 50% profit margin )
    Originally posted by sabretoothtigger
    Yes, but it's not sleep-easy investing. My tech portfolio, which I have held for many years now, is pretty much IMG, ARM and AAPL. I'm still a big believer in the story behind all of these, but I'm diversifying as fast as CGT allowances permit, and even using all of my wife's 18% CGT band.

    Happy days in the gadget household (particularly every April 6th!) but it's all too focussed on just a few companies and just a few products.
    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.
  • Linton
    You have that the wrong way round. The point is NOT that the tracker must beat the active by the cost difference, but rather that an active fund charging ~1.5% more per year has to outperform by 1.5% just to match the passive fund.


    ...
    Originally posted by thelawnet
    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.


    To check this for yourself:
    1) get a list of all IMA UK All Companies funds on trustnet.
    2) Use the Create Custom tab to add a column for 10 year performance
    3) It should show the IMA Allshare fund return on the top line with a return of 59.5% over 10 years.
    4) Find your chosen tracker and check its % return. It is in the range of 54%-61% or there-abouts.

    Repeat the exercise for say IMA Europe excluding UK:
    IMA: 55%, best tracker: 44%, worst tracker: 40%.

    Similarly for IMA Far East Exc Japan - actually I havent been able to find a sector where over 10 years a tracker does outperform the relevant IMA index.

    That is my data - please can you show me data that supports your position.


    If there is no inherent performance advantage of trackers and you bring other factors into consideration - say volatility or your belief in particular styles (eg contrarian) corresponds to the fund manager's - there may be very good reasons for chosing a managed fund over a tracker.


    PS: I have found a sector where a tracker outperforms the IMA fund average over 10 years. It's IMA North America (mainly USA). Now where do all these much vaunted academic studies come from?????!!!!!!
    Last edited by Linton; 28-04-2012 at 5:58 PM.
  • gadgetmind
    Therefore the average FTSE allshare managed fund IS outperforming (before charges) by sufficient to cover the difference in charges compared with the passive fund.
    Originally posted by Linton
    Tracker fees have come down a lot since Vanguard hit the market and you're not allowing for survivorship bias.

    Additionally, many funds that claim to be UK all share have a habit of holding non-UK holdings and/or cash. This isn't necessarily a bad thing, but it does mean that you're comparing apples and oranges.

    Note that I don't think there is anything inherently wrong with active management, just with the high fees. Stick high fees on a tracker and it will also underperform by the same as the average active fund.

    there may be very good reasons for chosing a managed fund over a tracker.
    Perhaps, but the calls you mention are really for fairly sophisticated investors, who still stand a good chance of being wrong. Other investors want it simple, and don't want to risk having their dart hitting a fund that's going to crash and burn.

    Now where do all these much vaunted academic studies come from?????!!!!!!
    Where has had low fee trackers for the longest?
    Last edited by gadgetmind; 28-04-2012 at 6:02 PM.
    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.
  • Hooloovoo
    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.
    Originally posted by Linton
    So, as thelawnet said in post #81 - what a great sales pitch!

    "I'll manage a fund and make it outperform just enough to pay my fees."

    So you are admitting that a managed fund can outperform enough to cover the higher fees and return the same growth as a cheap tracker.

    So what's in it for me? I get the same growth in either case, but with the managed fund someone else has got rich off my investment.

    I think I'll stick with the cheap one!

    To check this for yourself:
    It's ok, I don't need to check. You've convinced me and confirmed that my investment strategy is the one I want to follow.
  • Linton
    So, as thelawnet said in post #81 - what a great sales pitch!

    "I'll manage a fund and make it outperform just enough to pay my fees."

    So you are admitting that a managed fund can outperform enough to cover the higher fees and return the same growth as a cheap tracker.

    So what's in it for me? I get the same growth in either case, but with the managed fund someone else has got rich off my investment.

    I think I'll stick with the cheap one!



    It's ok, I don't need to check. You've convinced me and confirmed that my investment strategy is the one I want to follow.
    Originally posted by Hooloovoo

    No, I am saying were you to chose at random out of all UK funds you would on average get much the same return whether you happened to pick a tracker or a managed fund.

    BUT the universe of UK managed funds arent all the same, all just randomly buying and selling shares. For example there are ethical funds, there are funds which are deliberately conservative so as to reduce volatility, there are funds that follow a riskier approach based on knowledge of individual companies - eg "special situations" etc etc.

    I guess what a tracker does give you is to minimise the downside - you wont make an unusual loss, at least not unless most other funds in the sector do.

    So what fund you chose depends on what characteristics you are after. Personally I like the riskier, potentially higher return funds and am prepared to accept volatility. If you want to minimise downside, chose a tracker. But I would question that if you were sufficiently risk averse to focus on that why would you chose a FTSE tracker - a global tracker yes, a US tracker quite possibly, but a FTSE one?
  • Linton
    Tracker fees have come down a lot since Vanguard hit the market and you're not allowing for survivorship bias.

    Additionally, many funds that claim to be UK all share have a habit of holding non-UK holdings and/or cash. This isn't necessarily a bad thing, but it does mean that you're comparing apples and oranges.

    Yes, but these are the funds available. The question is how you chose between those, not between one existing fund, a tracker, and some other hypothetical fund that invests in exactly the same shares as a tracker.

    Note that I don't think there is anything inherently wrong with active management, just with the high fees. Stick high fees on a tracker and it will also underperform by the same as the average active fund.

    But the data as far as it goes suggests you dont get that underperformance, at least in the UK market

    Perhaps, but the calls you mention are really for fairly sophisticated investors, who still stand a good chance of being wrong. Other investors want it simple, and don't want to risk having their dart hitting a fund that's going to crash and burn.

    True, but then I would say that such investors shouldnt be in the FTSE, trackers or not. They should be in balanced or cautious managed funds.

    Where has had low fee trackers for the longest?

    True, but isnt it more likely a factor of the maturity of the market and possibly local tax laws? After all current UK trackers, or any other tracker cant perform any better than the underlying index and if the index is suspect in some way its hardly the trackers fault.
    Originally posted by gadgetmind
    I agree with much of what you say!
  • Hooloovoo
    BUT the universe of UK managed funds arent all the same, all just randomly buying and selling shares. For example there are ethical funds, there are funds which are deliberately conservative so as to reduce volatility, there are funds that follow a riskier approach based on knowledge of individual companies - eg "special situations" etc etc.
    Originally posted by Linton
    Yes. And that is the problem. There are so many funds that it's practically impossible to chose between them and pick the ones that are going to outperform without relying on a large dose of luck.

    Only a handful of managers have shown any ability to outperform over their entire careers - Anthony Bolton et al. Most have only ever outperformed over short periods, much of which can be shown to be more related to sector performance rather than obvious skill.

    Assuming you do find a manager you believe has some skill to outperform, what do you do when they jump around and move funds, as most of them do every few years? Switch out funds to follow them?

    Once you have 20 years of data on a fund manager and they have proved their worth, you can't have them manage your own money for the next 20 years because they have retired!

    No one is denying that active funds can, have, and do outperform the market. The problem is finding the managers that can do that now for your own money - not the ones that were good over the past 20 years.

    Who in 1979 knew that Anthony Bolton was going to be one of the best fund managers ever? If you had invested in his Special Situations fund based on the past returns of 8% per year over the last nine years in 1989, three years later you would have been 45% behind the market. At that point in 1991 you simply don't know whether he is brilliant or whether his luck has just run out.

    It's little more than gambling.

    I guess what a tracker does give you is to minimise the downside - you wont make an unusual loss, at least not unless most other funds in the sector do.
    That's it exactly.

    You minimise the downside, while at the same time foregoing the (very slim) chance that you would have picked a fund manager that no only turned out to be one of the best, but also continued to manage the fund for the life of your investment.

    So what fund you chose depends on what characteristics you are after. Personally I like the riskier, potentially higher return funds and am prepared to accept volatility. If you want to minimise downside, chose a tracker.
    Yes. It's all a question of managing risk.

    But I would question that if you were sufficiently risk averse to focus on that why would you chose a FTSE tracker - a global tracker yes, a US tracker quite possibly, but a FTSE one?
    I'm not sure where you're getting this from.

    Who has suggested investing in only a FTSE tracker?

    The very foundation of passive investing is to buy into the global market. So you are quite right, you would not chose solely a FTSE tracker. You chose either one global index tracker, or a selection of trackers that provide regional diversity throughout the global market.

    I chose to do the latter. The question then becomes how to best weight the different regions in the global market, which takes us back to post #1 in this thread.
    Last edited by Hooloovoo; 28-04-2012 at 8:05 PM.
  • Linton
    Yes. And that is the problem. There are so many funds that it's practically impossible to chose between them and pick the ones that are going to outperform without relying on a large dose of luck.

    Only a handful of managers have shown any ability to outperform over their entire careers - Anthony Bolton et al. Most have only ever outperformed over short periods, much of which can be shown to be more related to sector performance rather than obvious skill.

    Assuming you do find a manager you believe has some skill to outperform, what do you do when they jump around and move funds, as most of them do every few years? Switch out funds to follow them?

    Once you have 20 years of data on a fund manager and they have proved their worth, you can't have them manage your own money for the next 20 years because they have retired!

    No one is denying that active funds can, have, and do outperform the market. The problem is finding the managers that can do that now for your own money - not the ones that were good over the past 20 years.

    Who in 1979 knew that Anthony Bolton was going to be one of the best fund managers ever? If you had invested in his Special Situations fund based on the past returns of 8% per year over the last nine years in 1989, three years later you would have been 45% behind the market. At that point in 1991 you simply don't know whether he is brilliant or whether his luck has just run out.

    It's little more than gambling.

    No - the success of Fidelity SS wasnt, I believe, because Anthony Bolton had a special personal stock picking skills but rather his approach. Similar success though admittedly lesser was achieved in that era by other "Special situations" value funds. If one is in the FTSE sector a viable approach I believe is to identify potentially good funds and spend a bit of time understanding what they invest in. If it's random pickings, then yes the fund is unlikely to be worthwhile. If there is a clear underlying approach and consistent characteristics then the outlook is I believe much more promising.

    That's it exactly.

    You minimise the downside, while at the same time foregoing the (very slim) chance that you would have picked a fund manager that no only turned out to be one of the best, but also continued to manage the fund for the life of your investment.

    Yes. It's all a question of managing risk.

    Yes - one way of minimising risk is to only invest in funds that cannot be the very worst. The downside is that they wont be near the best either. My own way for long term growth is to invest in a wide range of funds of types/sectors that are riskier, but if they win, they can win big. The downside there is that when everything everywhere slumps they all slump fairly badly, perhaps rather more badly then a set of trackers. But them I'm an optimist. Slumps are short term.

    My belief is that each investor should make a rational decision for themselves based on objectives, timescales and acceptance of volatility. IMHO the suggestion that there is only one sensible way of investing, and that particular way has been proven to maximise long term returns seems to me to be wrong (ie incorrect) and dangerous particularly for newbies who leap in and buy one tracker as they have understood that it must be both safe and relatively lucrative.

    Who has suggested investing in only a FTSE tracker?

    The very foundation of passive investing is to buy into the global market. So you are quite right, you would not chose solely a FTSE tracker. You chose either one global index tracker, or a selection of trackers that provide regional diversity throughout the global market.

    But the FTSE100 (or allshare being 80% FTSE100) does not provide much regional diversity. It is dominated by large multinationals from a restricted range of sectors (hence the volatility), does not include much of British industry as that is foreign owned, and is strongly influenced by sectors with relatively little UK content, in particular mining and oil. If you want a regional UK focus could I suggest the HSBC FTSE250 tracker as being much more UK based.

    I chose to do the latter. The question then becomes how to best weight the different regions in the global market, which takes us back to post #1 in this thread.

    Your choice, if it's right for you it's right. But it's far from being the only way, each has its own advantages and disadvantages.
    Originally posted by Hooloovoo

    Interesting, well I find it so anyway.
  • Hooloovoo
    No - the success of Fidelity SS wasnt, I believe, because Anthony Bolton had a special personal stock picking skills but rather his approach. Similar success though admittedly lesser was achieved in that era by other "Special situations" value funds. If one is in the FTSE sector a viable approach I believe is to identify potentially good funds and spend a bit of time understanding what they invest in. If it's random pickings, then yes the fund is unlikely to be worthwhile. If there is a clear underlying approach and consistent characteristics then the outlook is I believe much more promising.
    Originally posted by Linton
    It still doesn't alter the fact that over the next 20 years finding which fund manager is going to have the right approach, or skills, or whatever it is, is very difficult if not impossible.

    My belief is that each investor should make a rational decision for themselves based on objectives, timescales and acceptance of volatility.
    Absolutely.

    IMHO the suggestion that there is only one sensible way of investing, and that particular way has been proven to maximise long term returns seems to me to be wrong (ie incorrect)
    It would indeed be incorrect, if that was what was being suggested. It isn't. No one has ever said that passive investing has been proven to maximise long term returns - quite the opposite in fact.

    It's about loading the probability in your favour that you will see market return over the life of your investment.

    Sure you might miss out on massive gains had you somehow had the foresight to pick a star fund manager, but likewise you should also miss out on the massive losses you might also incur by picking a bad manager.

    But the FTSE100 (or allshare being 80% FTSE100) does not provide much regional diversity. It is dominated by large multinationals from a restricted range of sectors (hence the volatility), does not include much of British industry as that is foreign owned, and is strongly influenced by sectors with relatively little UK content, in particular mining and oil. If you want a regional UK focus could I suggest the HSBC FTSE250 tracker as being much more UK based.
    Who said anything about wanting a UK focus? The same people who said to only invest in a FTSE tracker? Where are you reading this? It's clearly not in this thread.

    By regional diversity I meant globally. Hence me choosing the six different trackers I have selected that cover the whole global market, or as close as I can get.

    But it's far from being the only way, each has its own advantages and disadvantages.
    I've never said or thought otherwise. There are certainly many ways of choosing investments. Passive investing just happens to be the rational choice that makes sense to me ... YMMV.
  • thelawnet
    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.
    Originally posted by Linton
    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-disco...-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
    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
    My own reasoning is that actively managed funds could well outperform trackers when the market is volatile enough to create opportunities to stock-pick.
    Originally posted by Perelandra
    ... 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
    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.n...MRC_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.
    Last edited by MrMalkin; 29-04-2012 at 6:14 PM.
  • Hooloovoo
    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.
    Last edited by Hooloovoo; 30-04-2012 at 11:08 AM.
  • gadgetmind
    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
    Originally posted by MrMalkin
    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
    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.
    Originally posted by Hooloovoo
    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).
    Last edited by Perelandra; 30-04-2012 at 1:17 PM.
  • Hooloovoo
    Good luck!
    Originally posted by Perelandra
    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
    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.
    Originally posted by Hooloovoo
    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?
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