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Funds fees query
Comments
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"managed fund"? You're the person who wrote "managed" fund. Matthew Vincent didn't.how stupid must managed fund investors be?
So one answer to your question is "not enough to believe what you wrote when I read his opinion piece in the FT yesterday myself and thought that you were likely to mention it here".
So some little questions for you. How often did tracker funds appear in the top quartile? How stupid must investors be to use tracker funds that never or almost never appear in the top quartile? After all, your argument is that things not consistently in the top quarter every time are bad, right?
The answer to those questions is the one that should be obvious: appearing in the top quartile isn't what matters. The performance over the time you hold the fund is what matters and you can beat many just by being near the top of the third quartile, just like most trackers. Active managed funds can beat the trackers even by being in the fourth quartile much of the time, so long as they are ahead for the period.
Mr. Vincent's argument that you've partially mentioned went like this. "Its like sport ... the more repetition the better " So lets have a look at a sporting record:
19 events. Bottom quartile at least 3 times. Top of the list just five times. Won the 2010 Formula 1 drivers' world championship.
Mr. Vettel didn't need to be top all of the time. He didn't need to avoid being bottom either. His overall result was good enough to beat the rest.
Maybe you'd reject him from consideration because he was in the bottom of the pack several times. I wouldn't because I know that sometimes things go wrong and it's fine not to be a winner every time.
Maybe I'd prefer the record of Mr. Schumacher if I as investing in the 2000-2004 seasons but I won't prefer him now, in part because he's working with a different business structure these days, one with a less good performance backing him up.
Sporting analogies are interesting. But they aren't restricted to illustrating just one view of a discussion. Arguing that it's only worth backing consistent winners isn't a correct argument. All you need to do is beat the pack of trackers over time to come out ahead.
The data isn't from the FT, it's from Thames River, mentioned by an opinion columnist in the FT.The data from the FT strongly suggests that fund performance is down to chance......Unless you see the data differently?
The piece is looking at ranks. Here's a performance record that looks good, in a field of 20: 10th, 9th, 16th, 1st, 10th. But five year performance: 1st. even though it was first quartile only once and in the fourth quartile once. Rank isn't the whole picture, the results achieved in growing or not losing money are and those are not linear, as ranks are.
But such records were excluded from the report, which also required "bottom-of-the-sector three-year volatility".
Still, Thames River did say something interesting for those who want consistency of volatility as well as year by year rather than overall performance: there was "more consistency in fund performance in what are arguably more volatile sectors such as Asia ex Japan and Emerging Markets, with less consistency in safer sectors such as Global Bonds, £ Corporate Bonds and North America".
But personally, I'll go for overall performance, not necessarily rejecting a manager just for high volatility or not being in the top quartile every year. Though I may not use that manager in times when I don't think they will be best.
Thames River is a fund management part of the F&C group. Now, why would they be promoting a measure like this? Well...
'The best way to describe us is as a "dependable steady Eddie" who hopes to get to their destination of consistent out-performance over many years'.
That's from one of their "advertorial"s. Now who'd ever expect a fund management company to promote studies that support its own marketing?
Right, but lets have a look at who the study was from:You misunderstand the remit of a fund manager. In any 5 year cycle you will have different sectors that perform well - i.e. one year it could be small cap, others mid cap, others recovery funds etc. The fund manager cannot change the basic remit of his fund. If he is in UK Equity Income that's what he must stay in - he cannot jump over to something else just because that's doing better.
The investor has the choice to move between funds that are doing better in that particular part of the cycle - the fund manager does not.
"Thames River Capital Multi-Manager"
A multi-manager fund can move allocations between sectors.
What was that about fund managers promoting their own funds again?
Investors can do the same job, adjusting their allocations. The study seems to seek to make funds that can't do that look bad. Which would hardly be surprising given the source.
Going back to darkpool's point, one useful attribute for active fund users is to do the research to have some idea of what you're buying. That's a good habit when it comes to studies as well. While it's interesting to write posts like this, I'd much prefer it if you weren't taken in by some fund management company marketing in the first place.0 -
only someone that worked in the financial industry could say that?
only someone that doesn't understand investments could say that.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
If appearing in the top quartile is what matters, why are you still advocating trackers? They almost never appear in the top quartile over the long run, after all.only someone that worked in the financial industry could say that?
This is me being facetious, by the way, because I actually understood why jamesd said what he did.I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
If appearing in the top quartile is what matters, why are you still advocating trackers? They almost never appear in the top quartile over the long run, after all.
This is me being facetious, by the way, because I actually understood why jamesd said what he did.
i think trackers are best. but if i did have managed funds i'd want them in the top quartile. where do you want your funds? bottom quartile?
i read jamesd's post a few times and couldn't make sense of it. so i'm glad you understood it.0 -
Depending on the level of risk I wanted the manager to adopt I'd be happy with various positions within a sector. If I was in a particularly high risk fund within a sector, I'd accept that top quartile performance wasn't likely to happen every year as there would likely be significant volatility driving down the performance over certain reporting periods. However, I'd expect the long term performance to ultimately end up as high as possible. As such, for high risk funds, being top quartile for 3 years in a row isn't required.i think trackers are best. but if i did have managed funds i'd want them in the top quartile. where do you want your funds? bottom quartile?
i read jamesd's post a few times and couldn't make sense of it. so i'm glad you understood it.
For low risk fund, you don't generally expect top quartile performance except in years where the markets are falling, as you would expect the less risky positions to generate less significant losses. In the good years you would then expect the manager not to follow the crowd into the higher risk recovery stocks in case of further issues. Longer term you expect lower performance than the highest risk funds, but you would expect lower volatility as a consequence. As such, for low risk funds, being top quartile for 3 years in a row isn't required.I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
i think trackers are best..
I think that's fairly obvious to all.
So if you'd have invested in FTSE 100 tracker for the last 10 years you'd be happy with next to no return on your investment?
It's your choice.If the ball had gone in the net it would have been a goal.If my Auntie had been a man she'd have been my Uncle.0 -
Do have a look at my profile: "I do not work in the financial services industry. I'm neither an IFA nor a mortgage advisor".only someone that worked in the financial industry could say that?
Since you didn't understand my post I'll try another way of explaining it to you. Start with the Trustnet list of the top performing funds over the last three years and see how they would presumably do on the Thames River result.
1. MFM Slater Growth + 102%. Rejected by TR: bottom quartile for volatility (yup, huge upswing in performance!)
2. First State Indian Subcontinent A GBP Acc + +92.9%. Rejected by TR: bottom quartile for 1 year volatility.
3. Fidelity UK Opportunities A +87%. Rejected by TR: bottom quartile for 1 year volatility.
4. Close Special Situations + 85%. Rejected by TR, bottom quartile for three year volatility.
Just work your way down the list and you'll find that the always top quartile for volatility filter eliminates the funds that performed best over the three years. That volatility isn't because they were bad, it's because they out-performed their peers, which generated higher volatility than them.
I don't know about you but I'm not inclined to eliminate from consideration funds that do very well just because they are high in volatility. Particularly not during recovery from major market and financial trouble when those are often the funds to be in. That volatility can be partly from the sectors they are in but it can also be from the companies they buy and the amount of leverage that they use.
But Thames River does have an incentive to cause people to eliminate from consideration such funds because of the nature of the funds that they run, which can be lower volatility because they can switch from sector to sector and because of the way they choose to manage the money. The report on which you based your comment wasn't a neutral study, it was intended to push a certain point of view which fits the funds that they sell.0 -
Active management is about actively picking investment strategies. So, an active management strategy would not use passive managed funds.
Actually, you have said that even when using active funds, you have to actively move your money between funds as the economic cycle changes. Wouldn't you still be actively managing if you were moving between different trackers to follow the economic cycle ? (Perhaps using ETFs rather than funds to make up for the poor choice of tracker funds.)
Are there any bloggers or market commentators with a good track record of suggesting which fund strategies are likely to be favourable in the immediate future ? (I'm sure it's just common sense to the more experienced investors.)0
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