Investment Trusts Trounce Unit Trusts

saveonarola

PS. A vote for Vanguard trackers, which include the cost of buying and selling securities within the fund in their TERs. I have no idea how they do this (they can't know in advance how much trading they will have to do, so they must absorb the costs in some other way), but that's what it says on their factsheet and they just confirmed this over the phone. Perhaps it's the reason they are able to track indexes so closely. Of course, most Vanguard trackers charge an upfront fee, and they not widely available, so there are other costs, but at least they're trying to be transparent about the funds' charges.

darkpool

Ark_Welder wrote: »

The insults that you always resort to merely highlight your childish trollness.

there's all this academic evidence that choosing funds on previous performance is foolish. yet UT investors like yourself decide to ignore the evidence.

imho anyone that ignores evidence and just sticks with their perceptions is stupid.

or do you think the FSA/ pricewaterhouse/ S & P et all are all mistaken?

a lot of the UT investors here seem to believe they have a method for avoiding dogs. perhaps you would share your thoughts on this?

westy22

there's all this academic evidence that choosing funds on previous performance is foolish.

Surely, almost everything we buy or do is somewhat based on past performance. Car reviews, product reviews, reliability studies, consistency graphs, school league tables, etc. We live our entire lives based on the view from our (or other people's) rear-view mirrors. Obviously, sometimes things go wrong - Toyota were always in the top 5 car manufacturers for reliability but it didn't stop the glut of mechanical problems that have beset them in the past 12 months. Overall, however, I prefer to see some longevity and consistently sound recommendations before I decide to buy anything.

Linton

darkpool wrote: »

there's all this academic evidence that choosing funds on previous performance is foolish. yet UT investors like yourself decide to ignore the evidence.

imho anyone that ignores evidence and just sticks with their perceptions is stupid.

or do you think the FSA/ pricewaterhouse/ S & P et all are all mistaken?

a lot of the UT investors here seem to believe they have a method for avoiding dogs. perhaps you would share your thoughts on this?

Chosing funds purely on past performance is stupid. But then so is chosing funds on the basis of any single factor, such as whether something is a UT or IT.

As to how to minimise your chances of chosing a dog..

1) Chose a sector that you believe has a clear long term growth potential. Over the past 5 years even the worst dog in the far east exc Japan sector would be well in the top 50% of the UK all companies.
2) Chose a fund manager with expertise in that area.
3) Generally go for the larger funds from major fund managers. Avoid the one-offs.
4) Go for funds that have a history of good performance rather than ones that are high up the performance lists because of one lucky year.

How do you chose a fund when buying for your large and successful portfolio? You do have one dont you?

PS pls can you give a link for your FSA claim.

darkpool

Linton wrote: »

How do you chose a fund when buying for your large and successful portfolio? You do have one dont you?

PS pls can you give a link for your FSA claim.

i wouldn't invest in a fund...... i do have a portfolio........

the FSA article is in post 95.

perhaps you have some evidence that your method of excluding dogs works?

competitionscafe

Linton wrote: »

Here is a comparison between ITs and UTs based on sector - data from trustnet. Unfortunately ITs and UTs adopt a different set of sector names and so only some sectors can be directly compared:

% Return over 5 years

Sector ITs UTs

Asia Pac Exc Japan 91.8 56.0
Asia Pac Inc Japan 23.1 32.3
North Am Smaller Cos -10.7 26.0
Euro smaller cos 2.9 16.0
UK Smaller Cos 15.3 10.6
North Am -3.9 10.4
Japan -18.5 -12.1


I havent done a statistical analysis but what the numbers seem to show is:

1) Sector differences are far more important than investment vehicle
2) There is no clear advantage of going for either UTs or ITs. The performance differences look pretty random, though the majority of sectors actually favour UTs.

Over ten years past performance it does arguably look more favourable for investment trusts though:

"the average investment trust has outperformed the average unit trust in every sector except one – Japan – over the past 10 years."
Source and graph.

"Recent research by Alan Brierley, head of research at stockbroker Collins Stewart, found that over the decade to the end of 2010 investment trusts on average outperformed unitised funds in eight of the nine main sectors, including global growth, UK growth, North America, Europe excluding the UK and UK equity income." Source and FT.

"The strengths of investment trusts are best shown within the Global, European and Global Emerging Markets, and UK Small-Cap sectors. In all these cases, closed-ended funds have shown significantly better relative performance than their open-ended cousins over a 10-year period." Source.

There appears to be some contradiction in the articles above regarding UK smaller companies IT's either outperforming or not over 10 years but I would guess that this is accounted for by the figures coming from slightly different 10 year periods?

Of course none of this automatically means that investment trusts will on average outperform over the next decade. Rising charges is one reason that they may not but there are plenty of others.

Also if you look at the 20 cheapest investment trusts (in terms of charges) many of them have been very average performers and at least one of them (Electric & General) has now been wound up. (Although short term (1 yr) performance has been quite good for most of them).

competitionscafe

Another point on charges:
"Of the seven sectors.....investment trusts and companies are cheaper in six. The biggest difference is in the UK Income and Growth, Global Growth and Global Emerging Market sectors, with the closed-ended Global Emerging Market sector showing a TER of half of that offered by open-ended funds.
Source: http://www.investmentweek.co.uk/investment-week/feature/1590755/the-reasons-investing-closed-portfolio

As pointed out above TER does not include trading costs, but you might in general expect the manager of an IT to trade less as OEIC managers may be 'forced' to buy or sell shares when there are large inflows or outflows to their funds. But of course there will be both long term buy and hold and high churn portfolios in both IT's and OEICS.

"We fully appreciate that simply comparing sector returns can be misleading, and risks misrepresenting individual sectors and asset classes. We also appreciate the role of shorter-term trading strategies such as selling trusts when at a premium and buying a similar open-ended fund is not discussed. However, investment trusts are ideal vehicles for very long-term investors with either a willingness to take risk, in our opinion, or those that have a bias towards requiring income"
Source: http://www.investmentweek.co.uk/investment-week/feature/1590755/the-reasons-investing-closed-portfolio

Linton

darkpool wrote: »

perhaps you have some evidence that your method of excluding dogs works?

OK. Lets look at some IMA sectors, chosen in alphabetical order. If one looks at the top 2 over 5 years and then the bottom 2 over 5 years if you are right you would expect to see much the same % of major fund managers vs minor players in both lists. If I am right choosing a major fund manager would give you a better chance of choosing a high performer and a worse chance of choosing a dog.

Fair enough? Lets look at the data. I have only included sectors with > 10 members.

Sector/manager of top 2 funds/manager of bottom 2 funds

Asia Pac Exc Japan/First State, First State/ Lloyd George,Melchior
Balanced Managed/ Ruffer,Troy/Barclays,WDB
Cautious Managed/Ruffer,Axa/Way,Huet
Europe Exc UK/Jupiter,BlackRock/Artemis,HSBC
Europe Inc UK/Hambro,Threadneedle/Principal,Martin Currie
Europ Small companies/Threadneedle,Threadneedle/Invesco,Ignis
Global/First State,McInroy&Wood/Lames,SVM
Global Bonds/Investec,M&G/Way,UBS
Emerging Markets/First State,Aberdeen/GLG,HSBC

At this stage I got bored. However look at the list
Out of 9 sectors
In the top 2 list: 12 major managers
In the bottom 2 list: 1 major player

My allocation:
Major:First State, Jupiter,BlackRock,Threadneedle,Investec,Invesco,M&G,Aberdeen
Minor: Lloyd George,Melchior,WDB,Way,Huet,Ignis,Lames,SVM,GLG,Principal, Martin Currie,McInroy & Wood
Middling:Barclays,Artemis,HSBC,Axa,Ruffer,Troy

Of course it could be completely random chance and the figures could be the other way round for the next 9 sectors. I havent checked but am happy to take a bet. Are you?

darkpool

Linton wrote: »

Of course it could be completely random chance and the figures could be the other way round for the next 9 sectors. I havent checked but am happy to take a bet. Are you?

if major firms outperformed other firms would you not expect some academic evidence of this? with respect, you have only produced anecdotal evidence.

you really think hsbc and barclays are middling?

Ark_Welder

darkpool wrote: »

there's all this academic evidence that choosing funds on previous performance is foolish. yet UT investors like yourself decide to ignore the evidence.

http://forums.moneysavingexpert.com/showpost.php?p=45900947&postcount=10
http://forums.moneysavingexpert.com/showpost.php?p=47803109&postcount=31
http://forums.moneysavingexpert.com/showpost.php?p=47809973&postcount=45

darkpool wrote: »

imho anyone that ignores evidence and just sticks with their perceptions is stupid.