Active funds vs Trackers (again...)

koru

jamesd wrote: »

koru, you didn't prove that HL was wrong, because they were using averages. As you implied in your post, the average tracker does worse than the HSBC tracker, due to fees, which would average between 1% and 1.5% (1% being typical in a pension, 1.5% outside). You'd also need to find some fund to represent the average managed fund, which may be a more difficult task.

I don't think that there's a reason to disbelieve HL but what is more interesting is working out how to do better than average. Eliminating the poor performers works for both active and passive funds.

I am not saying their figures are wrong; I am saying the conclusions they draw are wrong. Trackers do not have "an inherent bias towards larger companies" (as HL claim); it all depends on what index the tracker is tracking. However, the average tracker does have such a bias, so by using averages they claim to have proved that actives have outperformed passives when in fact they have only proved that actives have outperformed trackers that track the FTSE 100 or FTSE All Share.

jamesd

koru, I think they are correct to the extent that in any index, the standard trackers will have a bias towards the larger companies tracked by that index. It's true that the active managed funds have had the flexibility not to have market cap weighted holdings and have presumably usefully exploited that, though whether that's by going larger, smaller or staying the same but with different weightings probably isn't known.

I'm not sure that it matters to their intended audience or for their objective, which was presumably in part to point out that trackers in that sector have been beaten by active managed funds in the same sector, so people using trackers have on average lost out by not using managed funds.

On average conceals a lot of variation of managed fund performance that's present to a lesser degree for the trackers, though. The trackers give a degree of certainty of relative performance that the managed funds don't give.

"standard trackers" because I'm ignoring things like fundamental and other relatively new flavours that won't do this.

koru

jamesd wrote: »

I'm not sure that it matters to their intended audience or for their objective, which was presumably in part to point out that trackers in that sector have been beaten by active managed funds in the same sector, so people using trackers have on average lost out by not using managed funds.

That's the bit that I object to, because the sector they used is far from homogeneous. It encompasses active funds that are mid-cap funds, highly focused stock picker funds, "ethical" funds, and plain vanilla large cap. The trackers in this sector are much less diverse - almost all are large cap. So, it is hardly surprising that actives and trackers have not, on average, performed the same. They are not comparing like with like, so their figures are close to meaningless.

I notice they did not use other sectors where (despite the "inherent bias" to the largest caps) trackers outperformed or matched the sector average, such as (orange is the HSBC tracker in that sector, blue is sector average):

Europe


Japan