Help me rebalance my failing S&S ISAs Portfolio - Sept 2011

darkpool

Aegis wrote: »

No, actually, but don't worry too much about drawing more false confusions.

Except there isn't. There are studies which look at the "pick an active fund completely at random and invest in it" type of approach... Which I've never seen anyone actually use.

Who would fund it if it wasn't the active management fund providers? Studies aren't generally done for free, after all.

Incidentally, most of the evidence I've seen for the supposed superiority of trackers in the UK stems from a study by Vanguard, a group which really likes to sell its trackers. If you're going to try to attack the source of studies, at least do so consistently.

Yes, if I was analysing whether it's possible to generate returns in excess of the market by careful selection of active funds, I'd like there to actually be some selection criteria involved in the study. Otherwise it's assuming that active investors only ever pick a fund completely at random, which is a strategy so profoundly stupid that I've never heard it cited as the reason someone invested in a fund, even someone with no experience at all.


For the record, medical research ignores results too, if people break the protocol of the trial, i.e. the selection criteria for the sample. In statistical terms, there's no problem with ignoring results as long as you have a clear methodology in advance of the study to define what elements of the statistical set are deemed to qualify for the study and which are excluded for various reasons.

i think everyone here can agree that academic proof that active management "worked" would be a huge selling point. fund managers charge billions in fees. they could easily afford rigorous academic research to prove how good they are.

so where is the research that shows AM works? the absense of that research is a mystery, or maybe the research shows AM is not cost effective?

if AM does not work, what does that make the people that invest in unit trusts and pay over 2% a year for the privilege?

masonic

darkpool wrote: »

i agree that timing can matter, but S and P are using 5 year time frames. so you'd expect good share selection to show iteself over that time.

but the "swimmers" are all facing the same economic conditions. to be fair S and P were one of the rating companies that failed to spot the credit crisis coming. but overall i'd trust what they produced.

The longer term results are interesting. So around 25% of top quartile funds over 5 years maintained their position in the next 5 years. That, in itself, when compared with a 25% statistical chance of being in a particular quartile, looks like noise. But it would have been interesting to see how many of those 25% stayed top quartile for a another 5 years... 15 years is probably a timeframe over which a manager is likely to change, but perhaps by looking at consecutive 3 year periods you'd see something more significant if you do several rounds of weeding out the inconsistent performers in this manner.

In any case, I think setting the criteria a bit looser, to include first and second quartile performers (since these are the ones that will beat trackers), would lead to a different outcome. There must be a lot of those first quartile funds that only slipped into the second quartile.

However, this study could be on to something. The only way to really tell the difference between luck and skill is when it runs out. I'm not going to get complacent, but managed funds have delivered for me so far. I'll probably be quite quick to change my tune if that situation changes though.

Total Expense Ratios are about 1.5% to 1.7% in the UK. But they don't include dealing costs....

For OEICs and UTs there should be no dealing costs, and initial charges are normally fully discounted. The TER should be the only cost involved in investing in these types of funds and some of this charge is made up of rebatable commission. For ITs there are normally dealing costs, but I understand ongoing charges are normally lower for these. So that's a total cost of about 1.5% if you go with a platform that rebates commission.

jabbahut40

gadgetmind wrote: »

Definitely ride it out UNLESS you think that the whole Western economy is about to collapse, and keep feed money in if you can afford to, but target it carefully.

I'm currently moving slowly out of cash and into equities!

Thanks Gadgetmind. Out of interest is anyone else moving back into equity funds at present or still sticking with cash?

Jabba

darkpool

masonic wrote: »

The longer term results are interesting. So around 25% of top quartile funds over 5 years maintained their position in the next 5 years. That, in itself, when compared with a 25% statistical chance of being in a particular quartile, looks like noise. But it would have been interesting to see how many of those 25% stayed top quartile for a another 5 years... 15 years is probably a timeframe over which a manager is likely to change, but perhaps by looking at consecutive 3 year periods you'd see something more significant if you do several rounds of weeding out the inconsistent performers in this manner.

In any case, I think setting the criteria a bit looser, to include first and second quartile performers (since these are the ones that will beat trackers), would lead to a different outcome. There must be a lot of those first quartile funds that only slipped into the second quartile.

However, this study could be on to something. The only way to really tell the difference between luck and skill is when it runs out. I'm not going to get complacent, but managed funds have delivered for me so far. I'll probably be quite quick to change my tune if that situation changes though.

For OEICs and UTs there should be no dealing costs, and initial charges are normally fully discounted. The TER should be the only cost involved in investing in these types of funds and some of this charge is made up of rebatable commission. For ITs there are normally dealing costs, but I understand ongoing charges are normally lower for these. So that's a total cost of about 1.5% if you go with a platform that rebates commission.

tbh for me active management just doesn't make sense. i think it best for novices to invest in general investment trusts, then when they get experience they should buy trackers and shares directly.

Obviously a lot of people love active management, however imho the evidence does not support AM...

some other posters on this thread work in the financial industry, some other posters can not be convinced by evidence to change their prejudices

No the TER is not the total expenses faced by a UT. UT's will also have dealing costs. Look at your funds and find the portfolio turnover, multiply that figure by 1.8%. Add that figure to the TER, that is your annual charge.

kar999

darkpool wrote: »

...with the greatest respect you are an IFAs dream customer.

You were bothered enough to put me on your "ignore" list, i thought it was because you realised your argument was, limited.

I've just taken you off my ignore list purely to correct your very arrogant presumptous personal statements. What you think bears no resemblance to what I do personally. Incidentally if you'd read some of my posts it would be abundantly clear that I have never used an IFA in my life.

Anyway back on topic, good luck to OP in balancing his portfolio.

jabbahut40 wrote: »

Thanks Gadgetmind. Out of interest is anyone else moving back into equity funds at present or still sticking with cash?

I personally am increasing my monthly drip feed back into equities plus lump sums, notably the two funds I mentioned in an earlier post. Perpetual High Income has only fallen 0.76% for me this tax year (net of fees :rotfl:) but I'm also looking to buy stocks that are below their perceived real market values. There are plenty of undervalued stocks and funds out there IMHO that have got dragged down with the general falls.

My Physical Gold ETF is still in profit so I will hold for now but it has been very volatile of late so I will be watching it closely if it gets near my personal stop loss point.

As a higher rate tax payer, cash is nearly all in negative real return territory after inflation (except NS&I ILC's which I maxed out).

EDIT: I'll sell my ETF index trackers (yes I do have some!) as soon as they recover enough to generate profit as I expect the index to be volatile for some time in which case I'll probably buy again if the market dips.

Ark_Welder

darkpool wrote: »

tbh for me active management just doesn't make sense. i think it best for novices to invest in general investment trusts

You should go to bed. You've started to contradict yourself in the same paragraph.

Get some sleep and come back to entertain us after you've had a rest.

Ark_Welder

Aegis wrote: »

No, actually, but don't worry too much about drawing more false confusions.

darkpool's purpose is to draw false conclusions!

Ark_Welder

jabbahut40 wrote: »

Thanks Gadgetmind. Out of interest is anyone else moving back into equity funds at present or still sticking with cash?

Jabba

Hi Jabba.

Yes, but just a top-up to an existing holding. Only a smidge, though.

darkpool

kar999 wrote: »

I've just taken you off my ignore list purely to correct your very arrogant presumptous personal statements. What you think bears no resemblance to what I do personally. Incidentally if you'd read some of my posts it would be abundantly clear that I have never used an IFA in my life.

well you don't seem to be the type of person that lets evidence get in the way of decision making. tbh for you i think active management is the right choice.

masonic

darkpool wrote: »

No the TER is not the total expenses faced by a UT. UT's will also have dealing costs. Look at your funds and find the portfolio turnover, multiply that figure by 1.8%. Add that figure to the TER, that is your annual charge.

Ok, I misunderstood what you meant by dealing costs. PTR is not something I've looked at before, though. Frankly, I'm a little confused by the figures I've seen: apparently HSBC FTSE All-share Index has a quoted PTR of 0% (surely it needs to change its constituents and weightings as the index changes?), M&G Recovery has a PTR of -7.42% (what on earth does a negative number mean?). I wanted to compare Aberdeen Emerging Markets (66%) with L&G Global EM Index, but the latter does not disclose its turnover - possibly due to the fact it is a relatively new launch. I'm left unsure of how managed and passive funds compare on underlying sharedealing costs.