Funds fees query

JamesU

Lokolo wrote: »

I wouldn't say over generalised. A UK equity tracker fund is going to have the same sort of risk as a managed UK equity fund, a US tracker is going to have the same risk as a managed US fund etc.

Thanks, now understand what you are referring to by asset classes. Find it difficult to agree with your general conclusion though e.g. UK equity tracker is just that, e.g. an index weighted by market caps, whereas components of a UK managed fund are purposefully varied in an attempt to optimise. Risks are different.

JamesU

dunstonh

Is that 'obvious' to IFAs who've paid for special research? Or can the relevant criteria be read off Morningstar, Trustnet, etc? If the answer is 'depends on the economic cycle', then is there advice as to how a newbie might estimate where we are in the economic cycle? Or does that information also have to be paid for? (Absolutely no sarcasm intended here.)

Its experience. The longer you invest and the more you follow it the more you realise that some stand out more than others.

If the answer is 'depends on the economic cycle', then is there advice as to how a newbie might estimate where we are in the economic cycle? Or does that information also have to be paid for? (Absolutely no sarcasm intended here.)

Again, knowledge and understanding. No economic cycle is the same. When you look back you can typically identify the cycles but the lengths, degree of gain/loss and issues are different. Opinion has a lot to do with where you think you are.

Page 14 of the new HL Investment Times has a graph plotting their Wealth 150 and the IMA Balanced Managed sector as 'the most appropriate benchmark', since Nov 2003. The Wealth 150 ends up nearly 40% ahead. Is that worth paying attention to, or distorted advertising?

Its best to assume the HL wealth 150 is based on the fact they are paid to market funds. I would very much doubt that the 150 has a balanced spread. Far too many niche funds in there.

It seems easy to find apparently unbiased sources giving objective evidence to suggest that managed funds aren't worth it for most investors.

Most of the research supplied that says that comes from the US. The US is a very different market. For starters taxation in the US works against managed funds. Before they even start they are at a disadvantage.

You also have to remember that where managed funds and tracker funds have the same objective, you are almost certainly better off using the tracker. Its where you want something different that a managed fund comes into play.

there's evidence that lots (most?) of them fail to achieve what their managers are 'aiming' for, so finding the right ones is mysterious to a newbie. At least to me.

Many of them are just passive managed. If you eliminate those (which you should) then you are left with a smaller list. I don't know the figures but I would guess that the majority of funds are passive managed.

Warren Buffet often tells the US market to use index trackers. Yet his own investment strategy is to look for value. There are managed funds that also look for value. Many funds are investment strategies in themselves. Sometimes the strategy will be a good one all the time. Sometimes a strategy will be good in certain periods.

If you think about it, if you buy trackers in every core sector (lets ignore satellite sectors for now) then you are starting to have your own investment strategy. You are deciding how much goes in each sector. All of a sudden you are no longer tracking an individual benchmark. You are making decisions that could deviate you away from the benchmarks. You are then doing no different to a fund manager except he/she is using cash, stocks, property or bonds (or all three). Some people choose to go light in Japan. That means they are not going with benchmark. They are making active decisions. If they choose trackers only then by default they cannot get trackers in every area, so they are making a decision not to invest in those areas. Another active decision which can affect returns.

darkpool

dunstonh wrote: »

Most of the research supplied that says that comes from the US. The US is a very different market. For starters taxation in the US works against managed funds. Before they even start they are at a disadvantage.

If active management was better on average than trackers the fund managers would be shouting about it from the roof tops. The fact that they don't have any evidence is deafening.

The main argument put forward for active management seems to be "well Perp High Income has done well". To use one active fund as proof that active management is worth the high fees is a ridiculous argument

dunstonh

If active management was better on average than trackers the fund managers would be shouting about it from the roof tops. The fact that they don't have any evidence is deafening.

I suggest you read this thread again as you are not taking in what is being said. Perhaps that is because you don't want to.

The main argument put forward for active management seems to be "well Perp High Income has done well". To use one active fund as proof that active management is worth the high fees is a ridiculous argument

You must be reading a different thread.

How about you find us a unit trust/oeic tracker for UK equity income and tell us how that has done compared to other UK equity income managed funds.

darkpool

dunstonh wrote: »

I suggest you read this thread again as you are not taking in what is being said. Perhaps that is because you don't want to.


You must be reading a different thread.

How about you find us a unit trust/oeic tracker for UK equity income and tell us how that has done compared to other UK equity income managed funds.

I don't think it unreasonable for a potential client of the active managed fund industry to expect proof that the service provided by active managers is worth the considerable fees?

Or should I just expect returns below trackers because active managers are trying their best and need a new ferrari each year?

dunstonh

darkpool wrote: »

I don't think it unreasonable for a potential client of the active managed fund industry to expect proof that the service provided by active managers is worth the considerable fees?

Or should I just expect returns below trackers because active managers are trying their best and need a new ferrari each year?

You are disregarding the posts again. You are not taking in what is being said. You are focusing on fees and not the investment objective.

Please provide details any any UT/OEIC tracker for UK equity income.

darkpool

dunstonh wrote: »

Most of the research supplied that says that comes from the US. The US is a very different market. For starters taxation in the US works against managed funds. Before they even start they are at a disadvantage.

I don't think I am disregarding posts. I just don't think the arguments put forward for active management are convincing

The arguments put forward for active management seem to be A. ignore the research as it's based in America (even though TER's are lower there) and B. active management is good if you ignore the worst performing funds.

Rollinghome

dunstonh wrote: »

Most of the research supplied that says that comes from the US. The US is a very different market. For starters taxation in the US works against managed funds. Before they even start they are at a disadvantage.

Less often mentioned by advisers is that UK managed funds are among the the most expensive in the world, far higher than the US, which makes the case for trackers here even stronger than in the US.

Nor do we hear much about the effect of disappearing of underperforming managed funds to be replaced by new funds and so flatter the statistics for remaining funds.

dunstonh wrote: »

Warren Buffet often tells the US market to use index trackers. Yet his own investment strategy is to look for value.

With the very obvious difference being that he doesn't invest in UK unit trusts and so pay six times as much to do that as to track the market. For him the costs are essentially the same. For a private unit trust investor in the UK they are not.

The primary reason why the majority of managed funds underperform trackers isn't the gross stupidy of the managers but due to the burden of charges and commission payments to advisers.

The timing and selection of investments can't be described as passive investment but neither increases costs whereas using managed unit trust does.

Interestingly many financial advisors are advocates of actively managed funds, which of course pay the most commission, but at the same time advocate passive timing as they want the investor to invest as soon as possible and keep their money with them. And they learn to say it a straight face.

darkpool wrote: »

If active management was better on average than trackers the fund managers would be shouting about it from the roof tops. The fact that they don't have any evidence is deafening.

The main argument put forward for active management seems to be "well Perp High Income has done well". To use one active fund as proof that active management is worth the high fees is a ridiculous argument

It seems pretty deafening to me despite now being compelled to state in ads that past performance is not indicative of future performance. Not surprising when they are so much more profitable. Will certainly be interesting to see how the advice of financial advisers changes when after 2012 they will no longer be allowed to take commission for selling the more expensive products. There are signs of it already as they position themselves for the new rules.

It's simple enough. The indices are the average and managed funds will overall return the average less charges and commission.

Of course every adviser will sell the line that he is above average and has a unique ablility to select the few consistently above average funds. Of course none will offer any figures or evidence of that ability; and it seems that none are just average or below average. Everyone's a winner apparently.

No doubt they are also above average drivers like the other 90% of drivers who believe themselves to be above average according to surveys. We all like to think we're above average but our investment decisions would probably a lot better if we were smart enough to know when we aren't.

dunstonh

I don't think I am disregarding posts. I just don't think the arguments put forward for active management are convincing

So, if you want to invest in equity income, which tracker would you use? or if you wanted to invest value stocks which tracker would you use?

darkpool

dunstonh wrote: »

So, if you want to invest in equity income, which tracker would you use? or if you wanted to invest value stocks which tracker would you use?

ehhhhmmmm i thought we were discussing the lack of evidence supporting the value of active management?