SIPP, Hargreaves Lansdown and Funds

Si1

jem16 wrote: »

You expect wrongly - the UK market is very different from the US market in relation to trackers v managed.

that's interesting - how?

are you saying the market is inefficient?

Aegis

Si1 wrote: »

that's interesting - how?

are you saying the market is inefficient?

Yes, the market is inefficient. The efficient market hypothesis only seems to hold in a very weak form, with emotion driving many transactions rather than pure information. Borrowing isn't unlimited, transaction costs have to be factored in to decisions, and technical analysis seems to work in enough cases that there must be something to it at least some of the time, something impossible according to standard weak-form Efficient Market Hypothesis.

Hence you have some exceptional fund managers who outperform the benchmark in almost every period you'd care to examine.

Si1

Aegis wrote: »

Yes, the market is inefficient. The efficient market hypothesis only seems to hold in a very weak form, with emotion driving many transactions rather than pure information. Borrowing isn't unlimited, transaction costs have to be factored in to decisions, and technical analysis seems to work in enough cases that there must be something to it at least some of the time, something impossible according to standard weak-form Efficient Market Hypothesis.

Hence you have some exceptional fund managers who outperform the benchmark in almost every period you'd care to examine.

fair enough. I suppose I am arguing (as much to enlighten myself, please understand), but this is still consistent with the stats done for the DOW - 1 in 14 is consistent with a few excellent fund managers, and the DOW clearly shows inefficiency, lags, speculation in similar measures; but the long term performance of the index is still a handy long term investment - if, like me, you don't fancy your chances at picking that 1 in 14 (or whatever precise number it is for UK)??

honestly, all, please take this in good humour, it's interesting, that's all!

Aegis

Si1 wrote: »

fair enough. I suppose I am arguing (as much to enlighten myself, please understand), but this is still consistent with the stats done for the DOW - 1 in 14 fits this, and the DOW clearly shows inefficiency, lags, speculation in similar measures; but the long term performance of the index is still a handy long term investment - if, like me, you don't fancy your chances at picking that 1 in 14 (or whatever precise number it is for UK)??

hoonestly, all, please take this in good humour, it's interesting, that's all!

Comparing trackers in the US to here is not a great idea. Over here trackers and active funds are taxed in the same way: no capital gains tax is paid on disposals within the trust/company arrangement. Over in the US managed funds are taxed every time a disposal is made, while trackers are exempt from this additional cost. When you consider how expensive capital gains taxes can be, you quickly start to realise how much of a handicap is applied to managed funds in the states. Given all this, the fact that some still manage to beat their tracker counterparts is very impressive.

Si1

Aegis wrote: »

Comparing trackers in the US to here is not a great idea. Over here trackers and active funds are taxed in the same way: no capital gains tax is paid on disposals within the trust/company arrangement. Over in the US managed funds are taxed every time a disposal is made, while trackers are exempt from this additional cost. When you consider how expensive capital gains taxes can be, you quickly start to realise how much of a handicap is applied to managed funds in the states. Given all this, the fact that some still manage to beat their tracker counterparts is very impressive.

from the same stats (Bogle - I suppose you could have guessed) that's better at 1 in 5 when adjusting for 1% more leeway, as 1% is the average additional annual cost from these taxes in the US

off-topic - but is that US tax applicable to, say, UK funds investing in US companies?

edit: answering my own question, they can simply invest in US companioes listed in UK and get round them, so I bet most of them don't

Si1

Aegis wrote: »

Given all this, the fact that some still manage to beat their tracker counterparts is very impressive.

it's always struck me that if someone can beat the market like that then they would deselect themselves from the pool of fund managers by retiring at 40 with 20 mil in the bank, which is why there aren't more of them

LongTermLurker

Did you check the charts on H-L? Go to http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-global-asset-management-uk-ltd-ftse-100-index-accumulation/charts

Select Total Return under chart options.
Select Shroder under "select manager" on the right, then
Select UK Alpha Plus Acc 2 boxes below

Add to chart - quite impressive, isn't it?

Schroder Mid-250 also easily beats the tracker, as does Jupiter UK Alpha Acc and even Marks & Spencer UK 100 COS Acc, believe it or not!

In fact looking at Schoder UK Alpha Plus, the HSBC tracker lags behind on 3, 6, 12, 36 and 60 month periods.

dunstonh

fair enough. I suppose I am arguing (as much to enlighten myself, please understand), but this is still consistent with the stats done for the DOW - 1 in 14 is consistent with a few excellent fund managers, and the DOW clearly shows inefficiency, lags, speculation in similar measures; but the long term performance of the index is still a handy long term investment - if, like me, you don't fancy your chances at picking that 1 in 14 (or whatever precise number it is for UK)??

I suggest you take a look at the performance stats of the FTSE all share tracker and FTSE 100 trackers in the UK all companies sector. You will find that most of the last 15 years have seen the FTSE100 in the bottom quartile and the FTSE all share trackers around mid table, as you would expect. FTSE250 trackers had a much better run in that period when mid caps were flavour of the month. When Large caps do well, then the FTSE 100 trackers should do as well.

it's always struck me that if someone can beat the market like that then they would deselect themselves from the pool of fund managers by retiring at 40 with 20 mil in the bank, which is why there aren't more of them

Because you have to have the money in the first place and in the early years, a successful manager wont be earning much. Later years they earn a lot more. You tend to find the working life of a fund manager (in that role) is not that long anyway. A few exceptions of course apply.

Si1

LongTermLurker wrote: »

Did you check the charts on H-L? Go to

Select Total Return under chart options.
Select Shroder under "select manager" on the right, then
Select UK Alpha Plus Acc 2 boxes below

Add to chart - quite impressive, isn't it?

I randomly selected 6 UK active funds and compared them with the FTSE all share fund (I meant this, not the FT100 but not a huge deal - whole index tracking is better as it encompasses stocks moving up thru the ranks, but again not that big a deal AFAIK)

Total returns is defined on bid for bid basis, implying not taking account of fees - so over 5 yrs, at 1% plus difference in fees between index tracker and active fund, an active fund would need to win by 5%+ to make a profit compared to the index fund:

Stan Life Inv UK Opps Inst Acc 73.25%
Threadneedle UK Select 1 GBP 39.64%
Cazenove MM UK Growth Acc 25.31%
Coutts UK Equity Prog 3 29.65%
Natwest Growth 40.55%
Santander MM UK Equity A 30.22%
HSBC FTSE All Share Idx A Acc 33.52%


we see one of my randomly chosen funds doing very well, 2 more or less equalling the tracker after 5% fees, and 3 doing quite badly.

By all means, if you think you can identify the best performing managers over 30 years then go for it, as the gains are considerable over and above the index, but that's not to knock the reliability of index investing for those, like me, who don't feel we can identify winning managers in advance - it equals or beats most of them most of the time


edit: and here's a fair counter-argument I googled:

The main argument that most active funds fail to beat the index is flawed. It assumes that these funds are impossible to avoid and I don’t think they are. There are a lot of poor funds out there and people who know what they are doing know which they are. There are a number of funds that consistently beat the index and again they are not difficult to find. A lot of active funds are closet trackers, that is they hold lots of stocks weighted closely to the index so are in fact trackers with high charges, but again not that hard to avoid.

jamesd

Si1, right, the first thing you do is completely ignore any fund or fund manager (as distinct form management company) that has a record of not achieving at least average performance. That eliminates all of the trackers and other funds with a record of poor performance.

Then you apply the zero sum rule that those who favour efficient markets use: if those are consistently doing badly, the money they aren't making has to be going to the rest.

Your challenge then is to find the managers whose style matches anticipated market conditions and who may actually deliver. You still might not succeed but you at least have the advantage of selecting from those that aren't sure to do badly.

For the UK markets there was a study a few years ago that found that simply selecting the best managers from the previous period couldn't produce outperformance only because of the initial commission that was charged on fund switches. Since times have moved on and nobody needs to pay initial commission these days that study now shows that you can get outperformance.