Market Collapse

J._WESTERMAN

None of the managers of the various trusts in which my money is invested appears to have sold substantial numbers of shares in anticipation of the recent market collapse. Were none of them clever enough to anticipate the event? If they were, why did they not sell?


26/5/06.

Thank you for your remarks peoples!
All were useful.

JW

grumbler

J._WESTERMAN wrote:

... Were none of them clever enough to anticipate the event? If they were, why did they not sell?

Which?extra:

Passive Versus Active
The boundary between active and passive funds is blurring. Many actively managed funds have such a large amount of the fund invested into either FTSE 100 or FTSE All-Share companies in the same proportion as the index that they are known as 'closet trackers'. It has been suggested that as many as 40 per cent of actively managed funds are really closet trackers.
The whole purpose of investing in actively managed funds, as opposed to passive funds, is that they have the potential to beat the market, instead of simply tracking it. This is especially important if the market is heading downwards. Actively managed funds can and should take action to try to keep losses to the minimum - but a tracker is designed to follow the market whether it's going up or down. It's this flexibility in the management of actively managed funds that has traditionally made them more expensive. However, some funds may be charging for active management - sometimes twice as much as trackers - even though they are simply trackers in disguise.
Over time, few actively managed funds manage to do their job and outperform the market. In the 12 months to March 2002, over half of the actively managed funds in the UK All Companies sector failed to beat the FTSE 100. The picture improves over three years, with 163 out of 232 funds beating the index, but deteriorates over five years, with half failing to beat the index. Over ten years the result is dismal - less than a third managed to beat the index. .... the average actively managed fund in this sector beat the indices over three years, but failed to do so over five years.

Tiggs_2

J._WESTERMAN wrote:

None of the managers of the various trusts in which my money is invested appears to have sold substantial numbers of shares in anticipation of the recent market collapse. Were none of them clever enough to anticipate the event? If they were, why did they not sell?

did you invest for the long term? if so why on earth do you want them shifting "substantial numbers of shares" everytime the markets moves a few %????

and its hardly a collapse!

cheerfulcat

Unless the funds you are invested in are hedge or target return funds, the managers are not expected to outperform their benchmark indices; in fact they are pegged to the indices ( as per grumbler's extract ).

Quite a few people saw the correction coming; some, like Anthony Bolton, took evasive action; others simply held tight. And it has so far only been a correction, not a collapse.

grade15

fair enough with comments made..so anyone can be a fund manager..
give me ur money..put them in a few companies..don't look at them for 10 yrs and when that time comes..u can either say..here is a bit cheque for u or u owe a lot of money..eitherway..u still pay the fund manager!
i think i should change job!

Tiggs_2

i think you will find some ground exists between "dont look at for 10 years" and "knee jerk reaction"

ReportInvestor

It's up to the UT manager to invest in shares to the best of his ability and then you can manage the balance of your assets according to your own risk profile.

If managers were to shift money into and out of the market on a whim, then managing the balance of their overall portfolio becomes harder for investors.

Chrismaths

I'm just posting to get my thanks count up!

Chrismaths

Sorry, that was churlish.

The fact remains that you have to judge fund managers by the ronseal test. There's no point looking at the IMA All companies sector, because they all do different things. One fund in this sector had a high alpha, low beta and high information ratio (investopedia for people who don't get the jargon - essentially it passed all the tests that demonstrate manager skill) - and it was the HSBC mid 250 tracker - because it was compared against funds that invested in all parts of the market, with different mandates. It just happened to be tracking the section of the market that went up most.

The point of this story is that very few funds have a mandate that allows them to go into cash - they are not there to stick your life savings in, they are there to provide ONE part of diversified portfolio. Some funds do have such a mandate - but that carries risk in itself. One fund that does this went 100% cash in 2003 and missed out on the baghdad bounce and subsequent bull market entirely.

I think this correction is the best thing that could have happened to the market - it gets rid of some of the people who think 'oh, this investing business is easy money', and provides a great buying opportunity for the rest of us.

All the best, chris

EdInvestor

The point of this story is that very few funds have a mandate that allows them to go into cash.

Many people do not realise this, including the OP,obviously.

If you want to get out out of the market because you think it's too risky then YOU must sell your fund.

The manager cannot sell the shares for cash within your fund because if it is an equity fund, it is required to be invested in shares.

margaretclare

In response to the OP's question - why didn't fund managers see this coming and get out of the market - if they all had done so it wouldn't so much have been a 'correction' as a stampede, and the market would have plunged still further.

You could see this as an opportunity to buy at a cheaper price!

I think I was lucky. I got my stakeholder transferred on the Thursday, that was the day the FTSE started to slide, and if it had been any later I'd have received less.

Margaret Clare