Funds fees query

kar999

I've been looking at tracker funds more closely recently and have read somewhere (FT or Telegraph) that many active managed funds fail to beat them consistantly. However, and here is the rub, many active funds will significantly beat trackers for a given period. i.e they might beat them for 3 out of 5 years but not over 5 straight years.

I have made significant returns on sectors like emerging markets, junk bonds, commodities, income funds etc. I've also made some less good fund choices. I have also made some good gains from Neil Woodfords highly regarded Invesco High Income/income funds.

To me that is what investing in the markets is all about, especially when markets are moving sideways for prolonged periods. I prefer to try to pick and chose sectors to beat the index rather than being led by the nose blindly tracking an index. You know where you stand with a tracker and they have their worthy place in a portfolio but I don't always want to be tracking a downward slope when markets fall.

That's just my two-penneth for what it's worth. It's horses for courses.

dunstonh

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

Or the lack of trackers. So, when your choice is only a managed fund what do you do?

This point has been covered but you don't seem to want to listen. If you want to invest with the same objective as the benchmark then you would be daft not to use a tracker. If you want to invest in an area that has no tracker then you would be daft to eliminate the only option that exists as you are compromising your investment.

So, you have being trying many ways to slag off inv perp high income. Yet you havent offered any tracker alternative to that fund.

psychic_teabag

kar999 wrote: »

You know where you stand with a tracker and they have their worthy place in a portfolio but I don't always want to be tracking a downward slope when markets fall.

I'm still on the fence on this debate. The managed funds also seem to be quite content to follow the markets downwards. Possibly because they can't take money out fast enough, or they have no idea how long it will last and prefer to stay invested, or they have to stay fully invested according their remit despite their better judgement. Or because they are being judged against their benchmark and they daren't diverge too far away in case they miss the rebound.

I think others on here say that even if you use managed funds, you must actively move your money between the funds to suit the prevailing market conditions. Which seems about as much effort as moving your money between trackers as the conditions change. Except that there doesn't seem to be such a wide selection of trackers available. ETFs gives a wider selection if you're into them.

I guess a fund of funds would take care of moving the money as the markets change, but they you're paying two lots of commissions. (Are there are any funds-of-trackers so that you pay someone to monitor the market, but only have one set of fees to pay ? Or is that what your IFA does for you?)

dunstonh

The managed funds also seem to be quite content to follow the markets downwards. Possibly because they can't take money out fast enough, or they have no idea how long it will last and prefer to stay invested, or they have to stay fully invested according their remit despite their better judgement.

All of those can apply. If the remit of the fund is UK equity then it will have to invest in UK equity. Even if UK equity is dire. However, many managed funds do allow for a certain percentage to be held in cash or equivalent. Portfolio funds often have a wider remit and can go to 100% cash if they have that in their remit.

I think others on here say that even if you use managed funds, you must actively move your money between the funds to suit the prevailing market conditions.

Yes. Its not a lazy option. If you are going to invest in a recovery fund then you want to be in that for the best period and not all the time. Trackers allow you to be more lazy as you are getting the average and not going for more specific areas.

I guess a fund of funds would take care of moving the money as the markets change, but they you're paying two lots of commissions. (Are there are any funds-of-trackers so that you pay someone to monitor the market, but only have one set of fees to pay ? Or is that what your IFA does for you?)

You can use an IFA to control sector allocation and the IFA may well use trackers and managed funds to acheive that (i.e. a core and satellite approach where developed markets use trackers and more niche areas use managed). That can be a fair but cheaper than a fund of funds. The bottom line is though if you get someone else to do the work then you will be paying for it one way or the other.

darkpool

dunstonh wrote: »

Or the lack of trackers. So, when your choice is only a managed fund what do you do?

This point has been covered but you don't seem to want to listen. If you want to invest with the same objective as the benchmark then you would be daft not to use a tracker. If you want to invest in an area that has no tracker then you would be daft to eliminate the only option that exists as you are compromising your investment.

So, you have being trying many ways to slag off inv perp high income. Yet you havent offered any tracker alternative to that fund.

you could always do it the old fashioned way and buy shares directly....

the main point i'm making is that active management has no real proof that shows it's worth the money. it seems to be an industry which relies selling to easily led customers. do you agree with this?

i'm just making the point that a lot of simpletons use the "per high income has done well" argument to justify active management. not an argument that stands rigorous intellectual debate.

darkpool

kar999 wrote: »

However, and here is the rub, many active funds will significantly beat trackers for a given period. i.e they might beat them for 3 out of 5 years but not over 5 straight years.

many funds beat trackers? by implication you are saying many don't?

active funds beat trackers in some years? maybe this is due to chance?

there is little evidence to support active management beating trackers. yes some funds will beat trackers, but overall they don't.

Lokolo

darkpool wrote: »

many funds beat trackers? by implication you are saying many don't?

active funds beat trackers in some years? maybe this is due to chance?

there is little evidence to support active management beating trackers. yes some funds will beat trackers, but overall they don't.

Can I ask what you mean by overall? Are you talking about the average of tracker vs. active?

dunstonh

the main point i'm making is that active management has no real proof that shows it's worth the money. it seems to be an industry which relies selling to easily led customers. do you agree with this?

No. I think the problem is that there are pros and cons with both options and those that dont have balanced views and firmly sit in one camp or the other will point to evidence of extremes with both sides.

Trackers nearly always beat managed when the objectives are the same. That is where you often hear the 9 out 10 tracker beat managed funds argument. However, as trackers typically come mid table in the performance tables, they are clearly not beating 9 out of 10 funds.

many funds beat trackers? by implication you are saying many don't?

correct. That is exactly what you would expect for mid table performance.

active funds beat trackers in some years? maybe this is due to chance?

Possibly with some. Others will because their objectives differ from the tracker and that period suited that objective.

there is little evidence to support active management beating trackers. yes some funds will beat trackers, but overall they don't.

So, how do you explain the typical mid table positions of the trackers against their relevant sector (not including tracker in niche or more focused areas)?

darkpool

dunstonh wrote: »

So, how do you explain the typical mid table positions of the trackers against their relevant sector (not including tracker in niche or more focused areas)?

Luck, get enough monkeys to throw darts at the share price pages of the financial times and sooner or later you'll get a portfolio that beats the sector average.

No one denies that some funds beat the indices. But overall managed funds don't beat the indices

dunstonh

But overall managed funds don't beat the indices

Trackers dont either.