Want 5% on £300k

Aegis

darkpool wrote: »

Invesco Perpetual, Schroders, Henderson, Scottish Widows and F&C have been named the worst performing fund managers in the industry.


Read more: http://www.thisismoney.co.uk/investing/article.html?in_article_id=505113&in_page_id=166#ixzz1PBzz0jtU

IP manage 37 funds. it is likely by chance alone one of those funds would perform well.

Those are companies, they are not individual fund management teams. It's pretty disingenuous to show those figures and to fail to actually address the specific fund.

From the website that actually conducted the research, here's a table that rates managers. Go to the UK Equity Income sector and look at the rankings over manager careers, and Neil Woodford is number 1. Over 5 years, number 4. It's only in the recent period (i.e. where he has underperformed due to taking a very defensive position when equities rallied strongly) where he drops out of the top 10.

Interesting, from here, I've downloaded the report to see which fund managers are the worst culprits, and the report says it's currently Jupiter, Schroders, Henderson, Scottish Widows and Gartmore. Invesco Perpetual doesn't make the list any more. As it happens, I only have one fund from those providers in my portfolio, and it's currently a top quartile performer in its sector over pretty much any timeframe.

Looking through the current list of dogs, I'm pleased to say that after some research I've managed to construct a portfolio with none of them in it. I do have a large number of the best of breed though, so not a bad result all in all. Thanks for pointing me in the right direction to confirm this

the paradox with active managment is that they say how well diversified their holdings are, but if they want to outrun the market they have to invest heavily in a few shares. your several hundred holdings means you effectively have a tracker?

Of course not. What index are you suggesting I'm tracking?

you don't need millions to have a well diversified portfolio.

And you need even less if you use funds. My point was that the people claiming it would be easier to hold shares directly would be very wrong in my case if I wanted to maintain the same level of diversification.

darkpool

Aegis wrote: »

The TER is designed to include most of the costs of running a fund, including the dealing costs, auditor fees, etc, so I fail to see how a fund with less than a 2% TER could actually be keeping another full 1% of charges hidden from investors.
QUOTE]

no one disputes that some funds do out perform the markets. the point i'm making is that overall actively managed funds are extremely likely to underperform the markets.

if you have several hundred indirect holdings do you not think your portfolio lacks focus? if you really believed in AM you would invest in two or three trusts.

ps it wasn't that long ago you thought dealing costs were included in the TER. it does make me take your present thoughts with a pinch of salt.

Aegis

darkpool wrote: »

Aegis wrote: »

The TER is designed to include most of the costs of running a fund, including the dealing costs, auditor fees, etc, so I fail to see how a fund with less than a 2% TER could actually be keeping another full 1% of charges hidden from investors.

no one disputes that some funds do out perform the markets. the point i'm making is that overall actively managed funds are extremely likely to underperform the markets.

So you've stopped your attack on Invesco Perpetual's High Income fund now that you realise it's actually a good one? Nice to know.

if you have several hundred indirect holdings do you not think your portfolio lacks focus? if you really believed in AM you would invest in two or three trusts.

Why would I do that? I like to know that I have exposure to a wide range of asset classes, therefore I have holdings in the UK, US, BRIC countries, other emerging markets, frontier markets and Asia, then I have speciality focused funds into certain other industrial sectors. Which 3 funds would you suggest I go into to get the full spread that I choose to invest into.

ps it wasn't that long ago you thought dealing costs were included in the TER. it does make me take your present thoughts with a pinch of salt.

I made a small mistake and thought transactional fees were included in the TER along with share registration fees and a myriad of other costs. Hardly a reason to try and dismiss the rest of my comments, unless of course you have no way to address them? For that matter, you've made plenty of your own mistakes in this thread, but you'll notice that I'm still trying to take the time to actually address all the supposed issues you raise, rather than implying that your concerns can be ignored because, for example, you estimated the average holding period of a share by a unit trust at less than a third of its actual value.

darkpool

why does the performance of one fund prove that the thousands and thousands of other funds outperform the market? Is it not probable that some funds will outperform the market by chance?

with your hundreds of holdings do you really think you will massively outperform the market? why does an elite money manager not work for himself? he manages other peoples money out of a sense of altruism?

If a financial planner told me dealing costs came from the TER i would think he was a liar or incompetent. I honestly think knowing the charges you pay is stuff you have to know.

I believe financial service providers use 7% as the value for making financial projections. So what's the difference in value between 100k compounding at 7% a year for 20 years and 100k compounding at 4% a year for 20 years? The difference in the two returns is obviously approximate to the annual management fees for a unit trust.

uk1

jamesd wrote: »

I've presumed that he can accept a level of up and down movement, which he indicated in his risk tolerance and which is also indicated in the funds advised by his IFA. You suggested a way that was certain to lose money, as part of its design. How on earth is that balanced exactly?

If he was to use the approach you suggested he'd be taking a substantial risk with inflation and guaranteeing a loss of capital. He's indicated that he's willing to accept the inflation risk, though.

As predicted - you must have the last word even though what you've said is dangerously misleading. I really hope people ignore what you say and don't act on it without considerable thought.

Yet again, in your first sentence you have a claim made about your approach "over time" compared with my approach for what might be "a moment in time".

When I gave a real live example of the risks that you have never mentioned or addressed associated with an equity approach I gave specific numbers over a 10 year period using the FTSE 100.

That shows that if the OP had invested in a range of equities ie the FTSE 100 (which you described as having all your eggs in one basket) and if he had depleted his fund as he said that he clearly he needs by 5% per year and paid small annual management charges then he would have run out of cash before the 10 years were up. He would have lost ALL of his money. None left. Zilch.

However if he'd simply had his cash at the bank as I merely put forward as an alternative - then average savings interests rates for the 10 years from 1999 would have been between 3.73% and 5.55%

So how on earth could you describe my approach where the pot would still be virtually all there by keeping the pot in cash compared with losing it all as justifying - without any caveat or word of caution "I've presumed that he can accept a level of up and down movement, which he indicated in his risk tolerance and which is also indicated in the funds advised by his IFA. You suggested a way that was certain to lose money, as part of its design."

You are very plausible and clearly have a need to "prove your point" - whatever the cost - even if the situation isn't black or white as you suggest and irrespective of how someone might be impacted.

Following your route instead of the one I suggest he consider may be the right approach but misrepresenting it is as carelessly as you do worries me considerably.

jamesd

darkpool wrote: »

no one disputes that some funds do out perform the markets. the point i'm making is that overall actively managed funds are extremely likely to underperform the markets.

Perhaps. What do you make of the US study that found that on average they outperformed passive funds in the US before tax and only underperformed after tax? The reason for that was the US extra tax on holdings for less than a year. That tax doesn't exist here so the actively managed funds have a lower handicap.

darkpool wrote: »

if you have several hundred indirect holdings do you not think your portfolio lacks focus? if you really believed in AM you would invest in two or three trusts.

Remember that we're looking for managers/teams that can beat the market. That implies some ability to do better than others in a particular market, which requires knowledge of a market. Two or three covering the whole world can't really be expected to know every market well enough to maximise the potential benefit of actively managed funds.

darkpool wrote: »

Invesco Perpetual, Schroders, Henderson, Scottish Widows and F&C have been named the worst performing fund managers in the industry. ... IP manage 37 funds. it is likely by chance alone one of those funds would perform well.

That report just reported the worst funds, also possibly by chance and called the whole investment company bad based on that. I don't have funds with all of those companies but I do have some, with their five year performance history (2007 through 2011, by calendar year):

IP: Invesco Perpetual Income 6.8 -19.9 10.6 10.5 0.4 (ten years: 9.25% a year)
Schroders: don't have a fund of theirs.
Henderson: Henderson European Smaller Companies 6.3 -41.4 45.1 27.0 -0.7 (ten years: 8.81% a year)
Scottish Widows/SWIP: Scottish Widows Latin American 43.6 -35.0 85.4 19.2 -8.8 (ten years: 19.31% a year)
F&C: don't have a fund of theirs.

I'm not sure that it's possible to reasonably call the Scottish Widows Latin American fund a dog. We should be dreaming of doing that well over ten years, though its sector matters hugely to the result - being worst in the right place can do better than the best in the worst place.

Doesn't say when I put the money in, though. Most of it was added after the falls, in 2009, so I didn't see much of the drops in 2008. I had lots of cash in 2008.

Now take a look at the Morningstar Elite Funds

Invesco Perpetual: 18 elite funds
Schroders: 34 elite funds
Henderson: none
Scottish Widows/SWIP: none
F&C: none

So are Invesco Perpetual and Schroders dogs or elite?

The answer of course is that it depends on the fund and if you're into active fund management it doesn't matter much whether the group is good or bad because you judge based on the fund and avoid the ones that do badly consistently, trying to pick those with a good record, in the right place for the particular economic situation.

If you don't want to do the work, that increases the chance that you should be using tracker funds instead of active funds.

mike88

Does this help? The figures in the link below show interesting comparisons between investing in Invesco Perpetual High Income as compared to a Building Society.

http://www.isa-ltd.co.uk/isaonline/pdfs/guide11.pdf

You will need to scroll to the Table on Page 10 of the document.

Aegis

darkpool wrote: »

why does the performance of one fund prove that the thousands and thousands of other funds outperform the market? Is it not probable that some funds will outperform the market by chance?

You're the one that chose to go on the attack at that particular fund. Your helper on this thread (one you thanked several times, so I assume you approved of what he was saying) claimed that a chimp could have outperformed that fund by random stock picks. With the specific negative comments about that fund dried up, you dragged up an article from 2007 indicating that IP funds in general weren't great (but failing to address the only IP fund being discussed in the thread). When that idea was shown to be out of date, you go back to the comment that "it's probably just luck". Neil Woodford has managed very impressive long term outperformance again and again, so I'm going to go with "good" rather than "lucky".

with your hundreds of holdings do you really think you will massively outperform the market? why does an elite money manager not work for himself? he manages other peoples money out of a sense of altruism?

Again, which market are you asking about? If you mean the FTSE, then yes, massively so. If you mean the MSCI World index, then yes, massively so. I may not outperform some other indices, but all in all it seems irrelevant to try to ask if my portfolio as a whole outperforms some index which doesn't correspond to the composition.

Now, if you were asking another more relevant question, such as "will the various elements of your portfolio outperform their respective benchmarks" then my general answer is "yes". I monitor my funds fairly regularly to ensure that they remain appropriate and in the long run the majority of my holdings outperform their markets.

If a financial planner told me dealing costs came from the TER i would think he was a liar or incompetent. I honestly think knowing the charges you pay is stuff you have to know.

Why? The dealing costs would have been included one way or another because everything has to be accounted for when you look at the actual performance vs the benchmark. The TER still offers a valuable insight into how much incidental expenditure is generated by having to manage the portfolio, and the actual performance against the sector gives you an indication of how well the fund manager performs. Alpha and beta measures, together with sharpe/information ratios, tell you pretty much everything that matters about how the manager has performed in the past against his benchmark. The Portfolio Turnover Rate and the costs associated with generating the underlying performance (yes, including the dealing costs) might explain why a fairly average manager managed to underperform the benchmark, but one of the reports I read yesterday showed that there wasn't any strong correlation between PTR and performance (i.e. that some managers overperform with a high PTR, some overperform with a low PTR, some underperform with either high or low PTRs). With all other factors being equal, increasing these costs will cause a manager to underperform, but increasing these costs will not cause underperformance unless the stock picks are themselves poor choices.

In short, a good manager will make a profit from his deals. Whether you include the dealing costs in the underlying performance or the TER, the final performance is all that matters.

I believe financial service providers use 7% as the value for making financial projections.

You believe wrong. Projections use whatever figure makes sense for the client based on their portfolio composition. The number you're thinking of is the underlying performance assumption which allows comparison of the reductions in yield due to TER. This underlying assumption would therefore already include the dealing costs already.

So what's the difference in value between 100k compounding at 7% a year for 20 years and 100k compounding at 4% a year for 20 years?

See above for why this is wrong.

The difference in the two returns is obviously approximate to the annual management fees for a unit trust.

Nope. This is counting the dealing costs twice. It would also assume that you could find the exact same underlying investment performance at a lower cost, which isn't the case simply because of the low probability that two investments will ever perform at the same underlying rate.

jamesd

uk1 wrote: »

As predicted - you must have the last word even though what you've said is dangerously misleading. I really hope people ignore what you say and don't act on it without considerable thought.

Lets see:

I mentioned a mixture of bond and equity income funds, which together with some cash is the standard recommendation for those who want retirement income from investments rather than annuities. You suggested only cash, which is a standard recommendation for what to avoid using for 100% of retirement income, except for those with very low risk tolerance and a great surplus of money - people who do exist.

You appear to lack context here: you're the person suggesting the odd approach, while I've suggested the normal one. So did the IFA who he consulted for professional, personal advice.

uk1 wrote: »

Yet again, in your first sentence you have a claim made about your approach "over time" compared with my approach for what might be "a moment in time".

Perhaps because your original post made no mention of it as a moment in time approach? What you wrote about is perfectly fine for use before a drop in markets, if someone is able to manage to do that, and can work really well if they also put their money back in to the markets to get the growth. It's also an approach that can be perfect long term for those who have ample money, don't like risk and don't mind spending their capital, though such people long term would probably do better buying annuities, perhaps over several years.

uk1 wrote: »

When I gave a real live example of the risks that you have never mentioned or addressed associated with an equity approach I gave specific numbers over a 10 year period using the FTSE 100.

It wasn't what I or others suggested, it was something you came up with to make what was being suggested to him look more risky than it was. His IFA didn't suggest using a UK index tracker, but a mixture largely consisting of bond and equity income funds. That's also what I mentioned. We'd addressed your concern even before you'd raised it by not doing what you mentioned but instead by mentioning a mixture of investments with substantial non-equity component.

uk1 wrote: »

That shows that if the OP had invested in a range of equities ie the FTSE 100 (which you described as having all your eggs in one basket) and if he had depleted his fund as he said that he clearly he needs by 5% per year and paid small annual management charges then he would have run out of cash before the 10 years were up. He would have lost ALL of his money. None left. Zilch.

Which just might be part of why neither I nor his professional adviser suggested doing that. No problem to suggest that I'm suggesting something wrong but it's nice if you use what I actually mentioned doing, not something you picked yourself. That's what makes it a straw man argument.

Here's how much he'd have left as of February 2011's income if he'd done as you mentioned, with various starting dates:

1 November 1984: £773,462
1 November 1989: £313,277
1 November 1994: £280,065
2 November 1995: £232,191
1 November 1996: £192,264
3 November 1997: £141,781
1 November 1998: £115,558
1 November 1999: £74,003 (just before the FTSE high)
2 November 2000: £107,736
1 November 2001: £175,553
1 November 2002: £279,129
1 November 2003: £288,102
1 November 2004: £273,000

Of course you already know the general picture: you picked almost the worst possible time to put a lump sum into the FTSE 100, but it still didn't end up running out of money as you claim. He'd have another six years or so of income, ignoring any future interest/growth/losses, taking him to about 17 years.

It's still a bad idea to put a lump sum for retirement income into just a FTSE 100 index tracker. Don't do it. Not even if you don't think it's the top of the market.

That's based on monthly performance data for the FTSE 100 starting in January 1999 and taking one twelfth of 5% of the initial value each month. Yahoo Finance provides monthly data for the FTSE 100 if you'd like to check it yourself. There's no inflation adjustment, which is particularly significant for the early years of the FTSE when inflation was high.

A range of equities is not the same as the FTSE 100. That completely ignores most of the world and most of the UK market.

uk1 wrote: »

However if he'd simply had his cash at the bank as I merely put forward as an alternative - then average savings interests rates for the 10 years from 1999 would have been between 3.73% and 5.55%

I've showed you what would have happened if he'd done as you mentioned and ignored prudent guidance and used just the FTSE. Now you show me what would have happened if he'd done as you mentioned.

And perhaps someone else will come along and do it for a representative corporate bond fund or index and then maybe we'd be able to show how a combination of approaches is the prudent one that has less chance of failure.

uk1 wrote: »

You are very plausible and clearly have a need to "prove your point" - whatever the cost - even if the situation isn't black or white as you suggest and irrespective of how someone might be impacted.

It's not black and white but it really helps if you try looking at what I really mentioned doing, not mentioning just the FTSE 100 when a mixture is what I and his IFA mentioned.

jamesd

mike88 wrote: »

Does this help? The figures in the link below show interesting comparisons between investing in Invesco Perpetual High Income as compared to a Building Society.

http://www.isa-ltd.co.uk/isaonline/pdfs/guide11.pdf

Thanks, interesting data. The last line summary over the years from 1991 is: Invesco perpetual Income total return: £124,341, building society: £16,510.

That document also covers a lot of the other issues with investing. Well worth a read.