Want 5% on £300k

darkpool

jamesd wrote: »

You shouldn't expect long term consistency of top performance. .

yes, i agree with that. i think the most likely reason an active fund will outperform is due to luck.

those were some interesting links. with the greatest will in the world i don't think the first article would withstand rigorous scrutiny.

the second article entitled "new evidence in support of active fund management" had this in it's conclusion:

"The studies found that about 20% of all tested active funds have outperformed after costs."

so this means that 80% of AM funds underperform the market? And this is in an article entitled "new evidence in support of active fund management". George Orwell had nothing on the fund management industry when it came to doublespeak. I think a better name for the article would be "new evidence confirms that active funds are complete pants"

moneylover

jimjames wrote: »

That is my understanding too - emphasis on long term. Over a year or two a fund manager may beat the index. Chances are that the next year it will be a different manager so over 10 years a fund has a very low chance of beating the index return.

This only really applies in mature markets where all information is supposedly known; for emerging markets analysis by managers is suggested to give outperformance.

So with no crystal ball as to which fund managers might outperform are low cost index trackers the better way to go in UK, Europe and USA -then invest in Unit trusts for emerging markets?

dunstonh

So with no crystal ball as to which fund managers might outperform are low cost index trackers the better way to go in UK, Europe and USA -then invest in Unit trusts for emerging markets?

Japan as a good tracker option. N America is increasingly going that way. Europe still have a fair bit of choice due to emerging europe but will no doubt head that way, UK has more choice in focused areas (large, mid, small cap, equity income, recovery/spec sits etc). A lot of it is about choice of investment style and also the availability of index trackers. In some areas tracker coverage is very weak and if you stick with trackers you are compromising and those compromises can cost you money. Whilst in other areas it makes total sense to use trackers. Say you want to invest in UK large caps, then using a FTSE100 tracker would likely be the best way to do it. However, if you wanted to focus more on equity income then a managed fund would be better.

jamesd

darkpool wrote: »

i think the most likely reason an active fund will outperform is due to luck.

Short term it's easy to think of it as luck. For five, ten or twenty years or longer it's a lot harder to believe that it's only luck, it's severely stretching credibility with a sample size as small as the number of active funds to believe it.

darkpool wrote: »

those were some interesting links. with the greatest will in the world i don't think the first article would withstand rigorous scrutiny.

It has some significant advantages: it's using real investors making real decisions, not studies making assumptions that don't hold in the real world.

darkpool wrote: »

"The studies found that about 20% of all tested active funds have outperformed after costs."

so this means that 80% of AM funds underperform the market? And this is in an article entitled "new evidence in support of active fund management".

It also says what to look for to find those funds. Stock picking like that done by Invesco Perpetual Income' s manager being one of the keys.

I don't care whether 80% or 99% are rubbish. All I care about is having a significant possibility of on average selecting the ones that are better than average. Any rules that let me eliminate the dross - like consistent underperformance - help me to do that.

jamesd

moneylover wrote: »

So with no crystal ball as to which fund managers might outperform are low cost index trackers the better way to go in UK, Europe and USA -then invest in Unit trusts for emerging markets?

For US large cap stocks that's the area where there is the greatest studying of the market and the greatest chance that the efficient market theory is more true than usual. It's still false - sentiment does affect prices - but it's one of the best possible cases for trackers.

UK large caps are tougher, you have to look at what Invesco Perpetual Income does with largely a collection of large cap UK stocks and wonder if there's something to gain from active management. But I was still content to have quite a lot of a UK FTSE tracker fund during 2009 and 2010, as something of a compromise between Invesco Perpetual Income's cautious view and M&G Recovery's (or other recovery/special situations funds) optimistic one.

Similar for European large caps, though I don't know of a fund with consistent excess performance in that market.

Smaller companies in all three of those markets just aren't studied as much so should have opportunities for active management and I wouldn't want to use a tracker for them.

If you can't find a fund with a clear record of outperformance in some way, whether it's growth or lower volatility, use a tracker for that part of your investing unless you want some view of the world that a particular manager has.

Trackers are also good if you just want core holdings and want to use active funds to shift in the direction of some particular view.

But if you're not going to watch what's happening regularly you should seriously think about using trackers everywhere because you need to know things like when managers change if you're not to risk significant under-performance at some point.

While it's decreasing, about 30-35% of my invested money is in trackers.