Funds fees query

darkpool

Academics at the Cass Business School have found that only 2 per cent of all actively-managed funds in the UK outperform their benchmarks.* Moreover, around 20 per cent of such funds underperform, they say.

The above is from the Financial Times. Of course a few actively managed funds will outperform the index - but most don't.

How much trail commission do trackers pay?

freemoneyrocks

darkpool wrote: »

By the time the fund manager takes his 2.5% each year there isn't a lot left for the investors

Not sure I'd agree with that.

Dunstonh - you mentioned earlier that the HSBC all share tracker was very similar to the IP High Income fund.

Over the last year the IP High Income fund has grown in value by about 9-10%. What has the HSBC all share tracker done in comparison?

dunstonh

Academics at the Cass Business School have found that only 2 per cent of all actively-managed funds in the UK outperform their benchmarks.* Moreover, around 20 per cent of such funds underperform, they say.

If 2% outperform and 20% under perform then what happens to the rest?

Did they also mention that trackers typically consistently under perform their benchmark too but you are guaranteed of that?

I think you miss the point about trackers and managed though as you cant compare. One aims to give you as close to benchmark consistency as it can (i.e. which typically means mid-table) whilst the other aims to outperform through management but may or may not achieve that. If you dont believe out performance is likely then you use a tracker. If you do think out performance is likely then you use managed fund. If you are just limiting yourself to trackers and not considering managed funds then you are compromising your investments and that can be far more damaging.

How much trail commission do trackers pay?

As much as you want them to.

Dunstonh - you mentioned earlier that the HSBC all share tracker was very similar to the IP High Income fund.

Its not similar as they have very different remits. However, you dont get UT trackers covering that remit so its about the closest match you can get.

Over the last year the IP High Income fund has grown in value by about 9-10%. What has the HSBC all share tracker done in comparison?

Just looked on Financial express and last 12 months has HSBC at 22.61% and Inv Perp High Income at 23.36%.

darkpool

i'd imagine the rest are closet trackers? Perhaps Perp high income is a closet tracker? It's performance wasn't that much more than the hsbc tracker......

active management may aim to outperform the market. but the certainity is, on average, active management will underperform the market institutions own about 90% of listed shares. If one fund does well it just means another fund has done badly. I believe this is called a zero sum game.

then if you consider that active management charges circa 2.5% a year it means that active management will on average underperform the market by 2.5% a year.

again if anyone produces proof that active management is worth the money i'll get my family to invest our millions with a local IFA.

dunstonh

i'd imagine the rest are closet trackers?

There are a large number of passive managed funds. That is why a general rule of thumb is that you eliminate those in your research.

Perhaps Perp high income is a closet tracker? It's performance wasn't that much more than the hsbc tracker......

I assume you are joking when you say that.

active management may aim to outperform the market. but the certainity is, on average, active management will underperform the market

Trackers underperform the market all the time. What people are aiming for with managed is outperformance. There is no guarantee but that is the choice people make.

again if anyone produces proof that active management is worth the money i'll get my family to invest our millions with a local IFA.

Why do you need persuading. Its clear that in some areas trackers are best and in others managed are best. Why does it need to be one or the other?

darkpool

dunstonh wrote: »

Trackers underperform the market all the time. What people are aiming for with managed is outperformance. There is no guarantee but that is the choice people make.


Why do you need persuading. Its clear that in some areas trackers are best and in others managed are best. Why does it need to be one or the other?

it's all very well saying managed funds aim to outperform the market. but it's the actual results that matter. If managed funds outperformed there would be academic evidence to prove it.

I need persuading because i wouldn't invest money in a fund that couldn't prove their outperformance was due to luck.

IMHO people who invest in funds don't really know a lot about investment

Reaper

Darkpool - I think part of the problem is you are not comparing like with like. If my aim is to invest in big blue chip UK businesses then a FTSE100 tracker might well be up there as a contender. However usually when I want to invest in the UK I am looking for something better targeted. For example I have often invested in "Recovery" or "Special Situation" funds that search for over sold, out of favour stocks, and they have done very well for me in the past. I wouldn't trust a tracker to do that.

A tracker is a crude tool which only works if it happens to match your investment objective, which in my case they rarely do (and in those cases yes I do use them).

I don't think that makes me one of those who "don't really know a lot about investment" as you claim.

dunstonh

IMHO people who invest in funds don't really know a lot about investment

With respect, you thought Inv Perp High income was a closet tracker. I don't think that puts you in a position to say they dont know about investments.

jimjames

darkpool wrote: »

Academics at the Cass Business School have found that only 2 per cent of all actively-managed funds in the UK outperform their benchmarks.* Moreover, around 20 per cent of such funds underperform, they say.

The above is from the Financial Times. Of course a few actively managed funds will outperform the index - but most don't.

How much trail commission do trackers pay?

Hence the comments by Dunstonh that it depends on the markets. I can't see a lot of benefit in using active funds in the UK & US and most of my funds are trackers. I do have some more specialist active funds that are not suitable for trackers.

As mentioned there is a place for both but when long term most active funds fail top beat the index in the UK it makes sense to use a tracker. Tracker may under perform the market due to charges but at least you know the performance will be consistent rather than chasing the manager that beats the index each year and may not do so again.

jimjames

darkpool wrote: »

IMHO people who invest in funds don't really know a lot about investment

Some may not but I think the majority choose funds based on their remit and why they think they are better than a tracker for that reason. I use both and at present there isn't a private equity tracker for example so I use a fund for that.