The Transition from Active to Passive
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Okey dokey lets see your list of outperforming funds over the next year so we can confirm this sure thing.
Sorry - I'm not in the business of stock picking -:D There are no sure things - I only mean that if you exclude the underperformers then the AVERAGE remaining fund should beat the benchmark.
Also there is the issue of avoiding volatility - many managed funds that apparently underperform are managed, not necessarily to beat the benchmark but to get close but do it with much less volatility. This may suite your investment objectives.0 -
Okey dokey lets see your list of outperforming funds over the next year so we can confirm this sure thing.
I will stick my neck out and pick some of the ones I hold to be put against Vanguard GLS 100.
Old Mutual UK Smaller Companies
Framlington Health
Blackrock European Dynamic
Henderson Global Tech
F&C US Smaller companies
First State Asia Pacific
Make the same investment in each, so a broad geographic spread with a bias towards the US.
One caveat - VGLS100 must have risen over the year.0 -
I dont see why trackers should be any less susceptible than managed funds to issues of timing, selling and risk. Many managed funds are less volatile than the FTSE100. That could be a reason for choosing one.
That maybe true, but the main focus of the passive investment strategy is driving down cost and the fact that 'beating the market' is something achived in the past by a handful of funds, who's to say they will beat it in the future or indeed be less volatile, that's the gamble.
As we're so often told by the FS industry 'past performance is no guide to the future', some might ask then why are they so facinated with performance over 1, 3, 5 & 10 years when the next few years could see a previously well performing fund in the doldrums.
One of those less volatile managed funds at 1.0-1.5% vs a tracker at 0.25%? I'm looking towards the tracker option as I think it a better aligned with my investment goals. It just takes a lot of the hassle out of deciding which funds are 'best' and at least gives you a guarateed average return instead of taking a gamble on maybe beating or more likley not beating the market.
Admitedly, what I'm looking to do here is something I'm not currently doing with my pick of funds and HYP shares, hence the original post and me looking to unwind these positions into passive trackers. After doing a fair bit of reading I'm convinced passive is more suited to my investment knowledge (pretty ametuerish) and appetite for the ongoing hassle of monitoring fund performance and switching out of non-performers into upper quartile performers (I'd rather go to the pub for a beer)
Again on bonds, lots of commentators been saying they're a bubble waiting to happen, some have said that about the housing market in London and recently I've seen talk of the FTSE hitting 10,000, this time last year I'm not sure many were predicting it would hit 6000, let alone 6800. Everyone has an opinion (some are paid to have one) but, you, I and industry 'experts' don't really know what's going to happen.
Now where's that monkey, I need to give him a pin.
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If you are investing a lump sum in a tracker to draw down in the short term then there will be timing risk, however if you are investing over the long term with a monthly contribution, history shows us that you are virtually (not totally I accept) nullifying that risk.
Its all about horses for courses, I would rather be the average than end up a loser.0 -
Sorry - I'm not in the business of stock picking -:D There are no sure things - I only mean that if you exclude the underperformers then the AVERAGE remaining fund should beat the benchmark.
Also there is the issue of avoiding volatility - many managed funds that apparently underperform are managed, not necessarily to beat the benchmark but to get close but do it with much less volatility. This may suite your investment objectives.
Well do you want to list the ones that will definitely underperform then.
I hold both trackers and actively managed funds but am still sceptical of ten added value in managed funds in many cases.0 -
Hi,
A few points I'd make: 1. I believe rebalancing every 3-6 months is excessive. Rebalancing has it's merits but the costs would weigh on your portfolio.
2. Investing regularly and having a 25 year horizon should mean you can except higher volatility in the earlier years. As such, I wouldn't hold the bonds suggested. Yes they will do well in deflation and negative returns (certain countries have done this already) but over the time frame I believe bonds will cause a drag on performance.
3. Other sectors to consider is investment trusts (some can offer decent discounts to their underlying value), technology sector, commodities, maybe hedge funds if you want to be more adventurous, to name a few.
4. I wouldn't discount using managed funds as some have performed exceptionally well and are likely to continue to do so. It's not surprising that some constantly outperform over long terms and some don't (typically from high street banks) as it's down to the management and team.
5. Check the total cost of the trackers you use as I've become aware of some horrifically high costs.
Cheers,
DonHi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam0 -
I forgot to mention the key point. Calculate how much you need to retire on as this will determine the level of risk/return you may need to take. Do not forget to account for inflation. For some figures: Investing £1,000pm over 25 years you'd expect to have a pot value of;
£450,600 at 3% p.a. return
£601,300 at 5% p.a. return
£812,100 at 7% p.a. return
£1,298,100 at 10% p.a. returnHi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam0 -
Why this caveat?
Because most years show a rise. If they didnt people wouldnt invest. So if we are only going to measure 1 year it seems to make some sense not to read anything into an unusual year eg another major crash. Ideally the comparison would be over the next 10 years but I and perhaps other people dont want to wait that long.
However I wouldnt make a great issue over it.0 -
I will stick my neck out and pick some of the ones I hold to be put against Vanguard GLS 100.
Old Mutual UK Smaller Companies
Framlington Health
Blackrock European Dynamic
Henderson Global Tech
F&C US Smaller companies
First State Asia Pacific
Make the same investment in each, so a broad geographic spread with a bias towards the US.
One caveat - VGLS100 must have risen over the year.
So it's not exactly a year later but close enough - taking the figures from Trustnet
Vanguard Life Strategy 100% Equity is +11.4% on the year
vs the Challenger
Old Mutual UK Smaller Companies -0.3%
Framlington Health +30.5%
Blackrock European Dynamic +3.8%
Henderson Global Tech +19.5%
F&C US Smaller companies +8.0%
First State Asia Pacific +21.2%
Giving an average increase of 13.8%. Which is victory for the active fund picker. Interestingly both smaller companies fund not only did badly compared to VGLS but they also unperformed their sector average. Framlington Health was a monster pick - without it the basket of funds would have been +10.44% for the year.0
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