Funds fees query

Aegis

darkpool wrote: »

how can you possible think it right to find the average return by ignoring data that doesn't suit your position? That's best described as wooly thhinking.

No, it's not wooly thinking. It's one way of evaluating the success of a strategy.

If your strategy involves eliminating funds of a certain nature, why would you not conduct a subset analysis of the sector?

darkpool

Aegis wrote: »

No, it's not wooly thinking. It's one way of evaluating the success of a strategy.

If your strategy involves eliminating funds of a certain nature, why would you not conduct a subset analysis of the sector?

you say elsewhere "ignored the persistent worst offenders and most funds managed by retail banks, then the average of the remainder would be higher"

why ignore only some of the bank funds? you ignore the worst offenders?

you can't just cherry pick funds to show that active management works.

dunstonh

you can't just cherry pick funds to show that active management works.

Active management is about actively picking investment strategies. So, an active management strategy would not use passive managed funds.

jamesd

Under performance persists, whether it's due to poor manager performance, high charges or both. Exclude from consideration the ones that consistently do badly and you improve the average result of the onces you're selecting from. This applies to both trackers and managed funds, the gains are just higher for the managed funds.

It should be obvious that eliminating from consideration the trackers charging 1.5% will increase the expected return of random selection from the remaining trackers.

That's not cherry picking, it's using a sensible filter to eliminate the underperformers from consideration.

The same would apply to active funds, except that there the underlying performance also varies, not just the charges (ignoring for the moment the range in performance and risk level differences for trackers that track the same index).

I haven't yet seen even on study that did a proper job of considering how trackers perform. They generally treat them as if they were trackers, pretending that people don't move when fund managers move and holding the funds at the wrong times in the economic cycle instead of just the right ones. And they don't even bother to eliminate the consistent underperformers from consideration.

darkpool

dunstonh wrote: »

Active management is about actively picking investment strategies. So, an active management strategy would not use passive managed funds.

so the investors with passive managed funds are unlikely to be getting value for money? they are likely to be a lot worse off than someone with a tracker?

i've read that the stockmarket produces on average 7% a year. If active managment costs 2.5% a year I see no way how active management can outperform the stockmarket on average*.

before some says "perp high income has done well" yes some funds will outperform the market but overall active funds will not.

*average inlcudes all funds. not just the cherry picked ones.

jamesd

darkpool wrote: »

i've read that the stockmarket produces on average 7% a year. If active managment costs 2.5% a year I see no way how active management can outperform the stockmarket on average*. ...

*average inlcudes all funds. not just the cherry picked ones.

Who cares what the average active managed fund does? Nobody who cares about their investments is going to include the consistent poor performers in the list of funds they select from. Whether those are trackers or managed funds, the sensible people will eliminate the ones that consistently do badly and only pick from the rest.

Your arguments don't make sense, insisting on treating managed funds as if they were trackers, when even tracker buyers wouldn't act as you're suggesting managed fund buyers should act.

Presumably you'd also be claiming that savings accounts are a bad deal based on the average return on savings accounts as a whole, while sensible people would eliminate the 0% bank accounts and look at the high performers to find that they can get 8% from First Direct.

darkpool

jamesd wrote: »

Who cares what the average active managed fund does? Nobody who cares about their investments is going to include the consistent poor performers in the list of funds they select from. Whether those are trackers or managed funds, the sensible people will eliminate the ones that consistently do badly and only pick from the rest.

Your arguments don't make sense, insisting on treating managed funds as if they were trackers, when even tracker buyers wouldn't act as you're suggesting managed fund buyers should act.

you see in the adverts "previous performance is no guide to future performance". perhaps you think the FSA are stupid to make that warning compulsory?

perhaps the funds that do well are lucky? i could toss a coin and i bet i would get long runs of heads. does that make me an expert coin thrower?

how do i treat managed funds like trackers?

jamesd

Current performance of that 8% savings account is no guide to future performance of money paid into that account beyond the term that the 8% is guaranteed for. That's not a sufficient reason not to take the 8% when it's available.

Managed funds have different investment strategies. They inherently differ in performance at different times depending on how the manager views the economic situation and their ability level. Trackers should not be doing that. By using averages you're including the managed funds that have consistently poor management which wouldn't be selected by managed fund users given free choice and using that to penalise those with good management. The studies don't generally even bother to weight their performance averages by the amount of money in the funds, so a dog of a fund with only a little money in it ends up weighted like a popular and successful fund.

You'd be an expert coin thrower if you first eliminated the coins with loading in favour of tails when you planned to bet on heads every time. That's what I expect you to do when selecting trackers - eliminate the ones with poor performance and/or high charges - and what I expect people to do when buying managed funds.

You've misquoted the FSA warning. It's not "previous performance is no guide to future performance", it's "The past performance of an investment is not a guide to future performance". There's a big difference in meaning between not a guide and no guide.

Even the flawed studies paid for by the FSA found that poor performance persisted and could be used as a guide to eliminating consistently poor performers. That shouldn't surprise anyone any more than not being surprised that most bank savings accounts pay low interest rates.

kar999

If markets move sideways then tracker funds can only follow the markets and hence give no return.

The only way to get a real return would be to would move into cash based investments or active funds. How much risk you are prepared to take is an individuals choice. Ramming the theory that "on average passive funds beats active funds" argument down everyones throat isn't a panaccea as everyones risk profile is different. We are not all sheep.

In a market that is "moving sideways", the jury is out on whether tracker funds work for investors - over the last five years, only 73 out of 210 funds outperformed the all-share index.
Sometimes it is right to be in index trackers. When there is a broad bull market such as there was during the 1990s with blue chip shares moving ahead strongly, it is difficult for active managers to compete with an index because you have to remember that the ten largest companies account for about 50 per cent of the FTSE 100 Index by market capitalisation.
"But last year we saw that trend unwinding. Small and mid-cap companies bounced back."

http://www.timesonline.co.uk/tol/money/article1035230.ece

I for one, as a risk based investor, would want to try and continue to seek out those 35% of funds that HAVE beaten the index.

cloud_dog

darkpool wrote: »

you see in the adverts "previous performance is no guide to future performance". perhaps you think the FSA are stupid to make that warning compulsory?

Sorry but, this is an irrelevant statement.

This applies to all invesments not the vehicle they use.