Want 5% on £300k

Aegis

darkpool wrote: »

yeah, i think actively managed funds could be beaten, on average, by a chimp.

The exact sort of rhetoric that does you no favours when it comes to this debate.

IP high income has 16% of it's value in big pharma, if it does well the manager will be treated like a god and IP will advertise the fund. If pharma does badly they'll just advertise another fund, after all they have 37 of them - one is bound to be doing ok.

I don't personally care which fund the management companies are advertising. I also don't care about any of the other funds (bar one), all I care about is how this particular fund of theirs is performing because I'm holding it and have been for some time. I came to the conclusion that only one of their other funds fit my requirements within my portfolio, and it's also doing ok. That said, as shown above, the management group has more star performers than dogs by a long way, so it's not like they only have one decent fund manager.

Do you remember that squid that predicted all the football results in the world cup? Was it luck or did the squid have more football knowledge than all the football pundits......

Obviously luck. Given the sheer number of methods being used to try and guess the results of the 8 games actually player, it's not surprising that one method would get it right. This is, after all, a simple exercise in binomial probability (trinomial if you include the possibility of draws in the early stages), therefore the odds of getting 100% correct are relatively high compared to other probability exercises where there are far more potential outcomes.

As quoted on wikipedia:

Jos! M!rida, a data analyst from Guatemala City, used a coin tossing model to calculate that only 178 individuals are needed to have someone correctly predict all the winners from a series of 8 matches; and points out that there were certainly thousands and thousands of individuals all over the world attempting to make these predictions during the 2010 World Cup.

Bear in mind as well that the real fame for this octopus came after already predicting 4 correct games. As such, by the time the media really picked up the story (i.e. turning this into a conditional probability exercise because various other methods had already been eliminated), only 4 more matches needed to be correctly picked, which had a probability of 0.0625, or a 1 in 16 chance. Not the best odds, but certainly not the longest ever.

Now this might be an opportunity to start talking about luck within a sector or survivorship bias, but just to head off some of that, bear in mind that this fund has been running since 1988 with a similar mandate throughout, and that the UK Equity Income sector is comprised of only 105 funds at present, which with a much more complex probability arrangement (i.e. for each company, deciding whether to buy, how much to buy, when to sell and how much to sell) doesn't mean that "someone is really likely to get it right by chance" compared to just following the index.

Again, there are some dogs in this sector, but they can generally be avoided.

darkpool

Aegis wrote: »

The exact sort of rhetoric that does you no favours when it comes to this debate.

you work in the financial services industry? surely you have masses of solid information that shows AM is worth paying for? If AM was worth it for the consumer surely all these fund managers would be commissioning phd students to write reports on how good AM is?

I think active fund managers play "pass the share parcel" with UK shares. After all is share trading not a zero sum game? I think you could get a chimp to pick a portfolio of shares that would, on average, beat the active fund management industry. The reason being that "buy and hold" does not mean 3% annual fees.

jamesd said that american active fund managers underperform the market after tax. why do you think uk managers are any better?

I don't want to sound a conspiracy theorist, but i think the newspapers don't really discuss active management vs trackers is because fund managers advertise a lot in newspapers.

so how do you avoid the dogs? was woodford not nearly kicked out of his job during the tech bubble? at that stage everyone though IP high income was a contender for crufts?

Rollinghome

jamesd wrote: »

Nobody here so far as I know. When writing about an IFA who had done that I wrote that it was reckless and irresponsible for an IFA to use just one investment for the hundreds of thousands involved.

But you're probably referring to some examples I used for how to build portfolios to manage risk, which used 20% of that fund. Last I saw it was expected to return something over 55% of the money and there hadn't been any public comment on whether fraud was involved or not, though the audit had completed. It didn't manage to come close to losing all of the money though - 55% or so is far more than 0%.

James, I think you’re being just a little less than frank. Nor does it make any sense to try to minimise the problem at Arch Cru and why it occurred.

According to Citywire the manager is now running a fish and chip shop “Arch Cru scandal: ex fund manager crops up in chip shop” http://citywire.co.uk/money/arch-cru-scandal-ex-fund-manager-crops-up-in-chip-shop/a465537

“For a primer on the Arch Cru scandal, watch The 'cautious' fund that destroyed life savings, and the DVD that peddled it:” http://citywire.co.uk/money/the-cautious-fund-that-destroyed-life-savings-and-the-dvd-that-peddled-it/a379266

So infatuated with Arc Cru were you that you recommended it not once but in around 30 different threads. It was pretty relentless. In some posts you suggested that 50% of a portfolio was spread between Arch Cru and Blackrock UK Abs Alpha (another terrible investment since your recommendation) while in others you suggested that 100% be put in those two funds.

A few reminders of what you said:
“I'll just try tempting you with stable looking investments to see if you bite and accept that those are worth having now... These two, for example:
BlackRock UK Absolute Alpha
CF Arch Cru Investment Portfolio (see more details).”
http://forums.moneysavingexpert.com/showpost.php?p=10413429&postcount=239

Again
http://forums.moneysavingexpert.com/showpost.php?p=10344941&postcount=7

You sometimes suggested investing in those two funds rather than pay off debt:
“And that expectation of more than 9% a year is why it's likely to beat overpaying the mortgage." http://forums.moneysavingexpert.com/showpost.php?p=10505563&postcount=12 “

Your expectation of more than 9% presumably. And again:
“Good plan but you might consider these in a stocks and shares ISA as well if you like the idea of predictability and 12% or 8.5% gains a year:
BlackRock UK Absolute Alpha, about 12% growth in the last year.
CF Arch Cru Investment Portfolio (see details), about 8.5% growth in the last year.”
http://forums.moneysavingexpert.com/showpost.php?p=10344553&postcount=227

In many other posts you suggested them as a wider p/f but still 50%:
“…those two examples are some of the best around… They don't lock you in but do provide nice stable growth.” https://forums.moneysavingexpert.com/discussion/comment/10337941#Comment_10337941

Despite your track record you still seem to be recommending investments which really isn’t a good idea. What makes it dangerous on forums like these is that other people are liable to assume you understand these things and have done some research.

Clearly you hadn’t and appear to be very susceptible to industry hype and fashion investing. You seemed to be recommending those funds on recent performance alone without any real idea of where the returns were coming from. I assume you invested in them yourself and weren’t repeatedly recommending funds you wouldn’t touch.

Whereas as most experienced investors would have avoided those funds many like yourself were less sceptical and others bought on the advice of advisers. Some on this board quite possibly bought on the strength of your repeated recommendations. Which illustrates how difficult forecasting the next outperforming market or funds is. Those who believe otherwise tend to know the least.

Rollinghome

dunstonh wrote: »

From the period of 1997 to 2007, Britain was the 8th worst performing stockmarket out of the worlds 50 largest stockmarkets.

Did you know that would happen in 1997? If I'd known this week's lottery numbers a week ago I could have made a fortune.

dunstonh

Rollinghome wrote: »

Did you know that would happen in 1997? If I'd known this week's lottery numbers a week ago I could have made a fortune.

Of course not. However, if you limit yourself to investing 100% in one sector then this is a risk you take. You are putting your eggs in one basket.

The same would be said if it was 100% US equity or 100% Japanese equity etc.

Rollinghome

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

Mike I think it’s misleading claims from the industry like that that confuses so many people. It seems to be all but meaningless, little more than another sales puff.

What is the building society rate they refer to?

And why the IP High Income UT. Why not one of the thousands of others or even one of the hundreds of UT/OEICs that are retired each year due to underperformance? There’s no money to be made from knowing the winners and fallers in the 3.30 after they’ve passed the tape.

The often quoted Barclays Gilt Equity study also references to “cash”. The account it uses for reference is the uncompetitive Nationwide Invest Direct Account which pays just 0.20%. Why not use one of the many better paying accounts or NS&I index linked? The reason why many people on this board don’t have savings in NS&I is because until recently they were earning far more than inflation from ordinary deposit accounts. I checked on my cash accounts (including ISAs, all being instant or notice accounts apart from one which carries a 90 day penalty for withdrawal plus a good proportion in NS&I IL) and found the average after tax is currently 5.03%. Certainly way more than 0.20%.

There are three main states for investors.

Those who have less than their future needs and may need to take investment risk to get there. Those who have just enough and for them capital preservation without risk should be their priority. And those who have well in excess of their needs and can choose whether they want to take risk. All of them need to have a fully realistic understanding of risk and returns.

The problem is that there’s a huge industry devoted to persuading people to give them their money for investment. The banks, building societies and investment managers pay salesmen and commission to IFAs to sell their investment products. They don’t pay them to sell their savings products. The reason is obvious.

I’m fortunate to be in the last category with a decent index-linked pension and a seven figure sum invested in property, cash, bonds and equities. I don’t need to take risks in investment and certainly my income isn’t dependent on selling them. So I can afford to be objective.

The past couple of years have been among the best in history for equities and we’ve currently got one of the lowest ever returns on cash, one largely the result of the other.

As a result, according to this year’s Gilt Equity Study the return after inflation over the last 10 years for UK equities has been just 0.6% above inflation. The return on “cash” they say was 1.1%.

That ignores all costs for equity investment and uses only the return on the uncompetitive Nationwide account. Deduct the TER plus other internal costs for units trusts plus buying costs and use a more realistic figure for the return on cash and the figures look grim. During the two previous 10 years periods the figures were naturally still worse. Or look at the 20 year period and it hardly looks too inviting when factoring in the costs of unit trusts etc.

The salesman’s line will be that the return from other markets was better but that outcome wasn’t known at the time and it’s also unknown how long it will last. No more than it was known that the Nikkei would now stand at only a quarter of what it was 20 years ago. We’ll only know whether the markets that did give better returns are a still bargain in several years time.

It would have required the luck to have placed a very substantial proportion of funds in the best performing markets to substantially improve those figures.

So I invest but try to be realistic and ignore all the sales hype.

Equities need to offer a risk premium to make any sense. Due to the massive charges and commissions for managed unit trusts the chances are that the investment industry and salesmen will get the premium and the investor is left with just the risk. I do use them but only where necessary. Choosing the few funds that will outperform in future is not easy as Jamesd proved a short while ago.

Ilya_Ilyich

How can a 0.2% interest account return 1.1% after inflation?

Rollinghome

Ilya_Ilyich wrote: »

How can a 0.2% interest account return 1.1% after inflation?

It's over 10 years.

0.2% is the rate currently offered on that account with the bank rate at 0.5%. The bank rate and other rates have normally been much higher over the period.

mike88

Rollinghome. I produced the figures merely because several references had been made to the performance of IP High Income in order to illustrate a point. As it happened I had some figures for IP High Income calculated on a mid to mid basis net of annual management charges and all other fund expenses so I drew attention to them in order to advance the debate.

You ask about the Building Society rates; those used in the Chart are average Building Society figures based on Lipper calculations and probably underestimate the returns that could have been achieved.

As regards the rest of the discussion the conclusions, if ever reached, do not particularly concern me as I no longer invest in individual shares or property and now have a 50%/50% split between unit trusts and cash. I am now pretty much risk averse compared to some posters on this thread because when you are retired I believe in keeping what has been accumulated. At my age (62) I do not have the inclination to follow individual shares and am totally ambivalent about fund performance as long as the funds I choose beat cash and help hedge my accumulated wealth against inflation.

Of course I could possibly make more by investing in individual shares and have done so in the past. But now I don't need to. I doubt whether I'm alone as many other retired individuals must be in a similar position.

I'm therefore happy to leave it to fund managers to do the work for me and I am happy to pay their charges for as long as they produce an acceptable return. I am a lazy investor but I suspect there are many of us. Although I have a lot tied up in funds, even if they all failed (which they wont), I would still have sufficient resources to maintain my current standard of living.

My mantra for retirement is not to invest more than you can afford to lose and that is where my current simplistic approach to money management begins and ends. While the rest discuss returns, charges and TERs in their minutia I am happy to luxuriate on my holiday home terrace in the sunshine with a bottle of Chablis at my side.

Aegis

darkpool wrote: »

you work in the financial services industry? surely you have masses of solid information that shows AM is worth paying for? If AM was worth it for the consumer surely all these fund managers would be commissioning phd students to write reports on how good AM is?

There are plenty of debates and studies done about this, but depending on the way the data is interpreted the results can give favour to either side of the debate. As a rule, proponents of active management will cite cases of outperformance and the ability of decent research teams to pick funds which will generally do better than their elected benchmarks, while opponents will claim that this is largely down to luck and that the efficient market hypothesis always applies, meaning sustained outperformance is impossible.

All I really care about is whether my portfolio can do well in the good years and resist downturn in the bad, and my combination of funds has managed that quite nicely all in all.

I think active fund managers play "pass the share parcel" with UK shares. After all is share trading not a zero sum game? I think you could get a chimp to pick a portfolio of shares that would, on average, beat the active fund management industry. The reason being that "buy and hold" does not mean 3% annual fees.

It also means losing out on tactical opportunities that could make you a lot more than 3%. As I keep coming back to: if they're managing to beat the buy-and-hold strategy after including charges, I'm happy to invest.

jamesd said that american active fund managers underperform the market after tax. why do you think uk managers are any better?

He said that pre-tax performance in US active management teams averages slightly better than passive funds, but because of the US tax system the underperformance of the active funds is almost inevitable. The reason for this is that US funds are taxed on capital gains within the fund. UK funds aren't subject to any such taxation, so it's easier for active teams to get a good result even if their turnover rate is higher. The rules in the US favour longer term holdings, therefore portfolio turnover rates are kept to a minimum to reduce tax, which makes them more like tracker funds. Tracker funds with active fees will always be worse than tracker funds with tracker fees, so they do better.

Over here it's a lot rarer to find active managed funds investing like tracker funds, which is exactly why almost all the research done on US active vs passive funds is meaningless over here.

I don't want to sound a conspiracy theorist, but i think the newspapers don't really discuss active management vs trackers is because fund managers advertise a lot in newspapers.

I think it's more because it's not really news and there's no clear winner in the debate.

so how do you avoid the dogs? was woodford not nearly kicked out of his job during the tech bubble? at that stage everyone though IP high income was a contender for crufts?

You diversify. If you pick a couple of funds in each sector with a reasonable track record of adding value, one of them becoming a dog will not cause your entire holding to underperform the market. You can also follow the industry news on what decisions are being made within the fund and the justifications, if you really like. Otherwise it's just a case of picking managers that you feel do a good job and have the right aims for their fund.