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

Linton

darkpool wrote: »

I was wondering what your far eastern funds were?

Fidelity South East Asia and First State Asia Pacific, two of the large obvious choices for any investor wanting to invest in that region.

Looking at the data on Trustnet, it is interesting to compare the IMA Asia Pacific "index", which is an average of funds and so not a true index that can be tracked, with the MSCI Index. Over five years the fund average provides twice the return of the index.

gadgetmind

Linton wrote: »

One method would be to put together a much more balanced portfolio. The FTSE 100 is a somewhat randomly disparate set of large companies that just happen to sell their shares on the London stock exchange.

Yup, you can get a far more balanced and defensive sector spread by choosing what to hold yourself.

Linton

gadgetmind wrote: »

Yup, you can get a far more balanced and defensive sector spread by choosing what to hold yourself.

Or if you dont want to get involved at the detailed level by buying a fund whose long term aims match yours.

The trouble with trackers is that they have no objective, they just blindly follow the current bubbles and collapses.

gadgetmind

Linton wrote: »

Or if you dont want to get involved at the detailed level by buying a fund whose long term aims match yours.

And hope they don't change tack on the sly.

darkpool

Ark_Welder wrote: »

Already answered for you be Aegis in this post

no ones disputing that the tax system in america is different. in the UK we have stamp duty on shares, in america they don't....

most things in america are cheaper than the UK. i'd be surprised if american fund managers paid more in tax than UK fund managers. So if american fund managers don't add value it's likely uk fund managers don't add value either....

darkpool

Linton wrote: »

"Most actively managed funds provide either positive or zero net-of-expense alphas, putting them at least on par with passive funds.” False Discoveries in Mutual Fund Performance - Measuring Luck in Estimated Alphas (2008)

I got the below from the same document. It says only 1.9% of funds produce alpha after fees. 20% of funds have a negative alpha. Hardly a great endorsement of the fund industry.

"We first show that the impact of luck on performance is substantial. Specifically, we find that our estimators of the number of mutual funds with positive or negative performance is much lower than those obtained with the standard approach (only based on significant funds). These differences are informative , since they lead to a completely different assessment of mutual fund performance. For instance, while the standard approach concludes that 7.7% of the growth and income funds generate positive alphas (at γ = 0.2), we find that all of them are purely lucky. Finding 7.7% instead of 0% is clearly a false discovery!"

"Third, we find that the percentage of funds with negative alphas in the population is approximately equal to 20% across all categories, while the proportion of funds with positive performance is much lower (it amounts to 1.9% of all funds in the population) after accounting for luck. It implies that the performance of the industry as a whole is
not so bad because about 80% of the funds generate a performance sufficiently high to cover their expenses. The negative average performance documented in past studies is not due to the majority of funds but is caused by 20% of the funds."

DavidLaGuardia

Linton wrote: »

You can believe that if you want to. My far east managed funds which I have held for around 10 years are showing an average return of about 10% annually (and that's after the recent falls). How's your FTSE tracker performing??

Until recently there were no far east trackers.

It all goes to demonstrate my key point: what is important in investing is chosing the right mix of sectors. What funds you use to invest in those sectors is a secondary concern, as long as you avoid the obvious dogs.

I think on the lack of specific trackers you are also looking at the relatively narrow range of retail options, but the point is that Investing part of you portfolio in the FE in passives is now widely possible in amny mediums.

But, since when is comparing a Far East fund to a FTSE tracker of any relevance?

They are different markets!

What you need to do is compare the return on fund adjusted for risk against the market you are investing in. Some funds will always be positioned as having had better returns than others but which funds remain in this group is a near lottery but they cost mnore to run (I'm not tlking about TER but all the other hidden costs)

Here is a random article from a few years ago that recommends active managed funds that "are not dogs"

http://www.telegraph.co.uk/finance/personalfinance/2805867/Income-funds-best-for-growth.html

If you make the effort at their five year performance recently, only three are above average now. The top fund mentioned was completely wound up by AVIVA last year (not merged or renamed, but binned and paid out!)

I realise this on article is only a snap-shot but it gives a flavour of the truth.

DavidLaGuardia

Linton wrote: »

Or if you dont want to get involved at the detailed level by buying a fund whose long term aims match yours.

The trouble with trackers is that they have no objective, they just blindly follow the current bubbles and collapses.

You mix passives (which BTW isn't just straightforward trackers) to make the portfolio that is suitable.

The idea that Actives can consistently be successful in avoiding downturns then enter the market "at the right" time is just not what matches the evidence.

Stock picking also fails on the scale of a fund as much of the return depends on systemic effects. Avoiding obviously expensivve stock has some merit but this is more of an exlcuding function that a stock picking one and there are passives that do this.

DavidLaGuardia

Linton wrote: »

investor may be led to believe that the TER is something additional they will have to pay. It isnt - the published performance of a fund INCLUDES the charges.

As to how an active investor could outperform the index...

One method would be to put together a much more balanced portfolio. The FTSE 100 is a somewhat randomly disparate set of large companies that just happen to sell their shares on the London stock exchange. It contains a disproportionately high number of banks and Asian mining/oil companies and very few large technology businesses (Vodaphone & BT are more like utilities) and manufacturers. It doesnt contain one car manufacturer, but does include 2 very large drug companies.

1. You are correct the performance is after costs but it is also why most funds fall below the market returns and the smaller group above this does not say the same. The extent of managed funds underperforming is also underestimated by the frequent removal of underpermong funds from the market (a five year table will not show all the funds that accepted investment fives years ago).

2. No one in therir right mind is suggesting a portfolio of passives would consist of just the FTSE 100 (in fact that specific index doesn't even have to feature at all!) FTSE All Share is likely to be included alongside more carefully thoughtout niches than the FTSE 100.

Linton

DavidLaGuardia wrote: »

But, since when is comparing a Far East fund to a FTSE tracker of any relevance?

They are different markets!

Precisely. That is why the over-enthusiastic proponents of trackers are talking dangerous nonsense in claiming that a tracker is automatically better than a managed fund.

What is important and what a novice investor should focus on is the sector. Having decided that then you should decide which fund. Whether the fund is a tracker or managed is only one of many factors you could consider.

If you really want to invest in shares that happen to be in the FTSE100 (and I have some difficulty understanding why you would want to do that as a strategy) and are prepared to take the risk level of the FTSE100 index then by all means go for a FTSE100 tracker.

However if you want to invest in the Far East surely the last thing you want to do is to match what appears to be the only available Index, that provided by MSCI.

Look at the Trustnet graphs. To be fair lets compare the MSCI Asia Pacific Index with the IMA Asia Pacific (including Japan) figure, the latter being an average of all funds in the sector. Over 5 years the MSCI Index is down 23%, the IMA average is up nearly 30%.

You really would have to be a True Believer to go down the tracker route.