Fund managers

Ark_Welder

IronWolf wrote: »

Is anyone familiar with the Aberdeen Emerging markets funds? How come they have a A, I and Z fund, but only the A fund can be held in an ISA?

Do you pay CGT on funds the same as shares when you sell?

'A' class shares are available to retail investors, 'I' need a minimum of £1M, i.e. Institutional (fund-of-funds might use this class). 'Z' shares are for the use of other Aberdeen group companies. Nothing to do with Accumulation or Income shares.

CGT is not complicated by having accumulation units: all you need to do is deduct the notional distributions from the gain at the time of sale. The distributions are notified either on the vouchers or consolidated tax certificates, according to how the funds are held. No different to deducting transaction charges on purchase and sale of individual shares.

Linton

darkpool wrote: »

correct me if i'm wrong, but the tracker tracks the FTSE small cap index, while the aim of the UTs is to invest 80% of their portfolio in the smallest 10% of the index. Not really the same thing......

do you have any academic evidence that shows niche UTs outperform the relevant tracker? If your theory about niche UTs is right there will be some evidence. all these links to trustnet are pretty poor evidence in my opinion.

Where did you get this from??? Looking at the funds in alphabetical order:

Aberdeen invests outside the top 200
Aberforth - a diversified portfolio of small UK companies
etc

Each fund will have a different detailed aim.

If you are going to insist on an exact match of objectives you arent going to be able to compare anything. The only fund you will find exactly matching say a FTSE Small Cap Tracker will be a FTSE Small Cap Tracker.

Strange that your insistance on exact matches of objectives doesnt come in when you want to compare funds with FTSE AllShare/100 trackers.

darkpool

Linton wrote: »

Where did you get this from??? Looking at the funds in alphabetical order:

Aberdeen invests outside the top 200
Aberforth - a diversified portfolio of small UK companies
etc

Each fund will have a different detailed aim.

If you are going to insist on an exact match of objectives you arent going to be able to compare anything. The only fund you will find exactly matching say a FTSE Small Cap Tracker will be a FTSE Small Cap Tracker.

Strange that your insistance on exact matches of objectives doesnt come in when you want to compare funds with FTSE AllShare/100 trackers.

it came from the link you sent.

if these UTs had the objective of beating the ftse small cap it would be fair to compare their performance against the ftse small cap tracker.

but these UTs dont have that objective.

i can only suggest you read the books suggested.

Ark_Welder

A point to remember about a managed fund is that it can alter the risk profile of holding a tracker. The FTSE100 has high exposure to commodities-sector companies, not all of which are domiciled in developed world environments, and an increasing number are being launched with a restricted free float. There are a number of emerging markets companies that either have close links to the relevant government, or they are open to political interference. A managed fund can avoid these, whereas a tracker cannot if they are included in the index (Can't find the article now, though it was FT Alphaville).

There are ETFs being launched that track corporate bond indices. Is a tracker in this asset class desirable? However cheap it might be compared to a managed fund? Corporate bonds are debt. So the bigger a company's debt, the bigger the weighting in the index? Similar with international sovereign bond trackers.

The advantage that holding conventional gilts directly instead of in a fund of any persuasion is that the return can be determined at the time of purchase if the intention is to hold until maturity. This is not possible when buying a fund. Where an active manager might add value in this arena is over a fund's credit duration, which might be affected by interest rate and inflation rate expectations. Those with an interest in this area might want to research it to see if they do.

The smallest small companies index (i.e. for those that are not large enough for the All Share) contains companies that have failed, or are in the process of failing. There are also companies that are infrequently traded, have a wide bid/offer spread, or a small free-float. An index tracker would need replicate these holdings. Avoiding them gives an immediate boost to performance.


Even those that feel that then need to track an index still ought to have and understanding of the risks involved - whatever the index.


http://ftalphaville.ft.com/blog/2011/11/01/719261/ftse-asks-the-free-float-question/
http://ftalphaville.ft.com/blog/2011/10/20/707256/russians-and-the-ftse-%E2%80%93-what-do-the-russians-get/
http://ftalphaville.ft.com/blog/2011/10/20/707641/russians-and-the-ftse-%E2%80%93-what-does-london-get/

Perhaps an example of a niche tracker vehicle that is best avoided: http://ftalphaville.ft.com/blog/2011/11/09/738681/the-us-treasury-investment-thats-a-bit-bunga-bunga/

gadgetmind

Linton wrote: »

Perhaps these figures suggest why.

Looking beyond those point-to-point figures, we see wild gyrations for both the tracker and the fund average with them being 15% up at times and 50% down at others. At the end, the average of the funds has beaten that offshore tracker over the period you have given, but that headline average hides a lot of detail.

For instance, see UK-Smaller-Company-Funds.png here -

https://www.dropbox.com/gallery/433250/1/HSBC-Trackers?h=b39813

Wow, look at Fidelity, which I picked as it's the top smaller companies fund that seems to correlate with the index. It's up 60% - wow!

Notice in the middle that UT UK Smaller Companies, which has just managed to pip above the zero mark.

Then look at the UBS UK Smaller Companies fund - it's down 33% over that period. (Yes, I know that's not the tracker, but I thought it would be a giggle to pick a tracker and an active fund from the same company.)

Those whose dart hit the Fidelity fund would think that trackers stink. Those whose dart hit the USB fund would have different views. Those who chose a big basket of UK Smaller Company funds would find themselves beating the index over some short periods (5 years is short) but over other periods, almost certainly falling behind.

Of course, people will say, "Me, I'd have picked the good fund!", however, analysis has shown that managers don't tend to have "hot hands", or if they do it's not enough to compensate for the problems that face them when "hot money" slams into them if they do have a run of luck.

For instance, if you look at the performance of that Fidelity fund over the last year, it's barely above the UT UK Smaller Companies average, and is ranked 14th out of 58 funds, so our five year star is now returning to mean, which is exactly what we'd expect to happen. Where will Fidelity go next? Down below average? Time to throw our dart again, or maybe we'll look for another fund that's done well recently and go for that? What could possibly go wrong?

All of what we're seeing is exactly as described in the academic works on the subject.

Sorry, but even the UK Small Cap sector doesn't show fund out-performance (which I find mildly surprising) and in fact shows exactly why those who go for funds tend to lose over the long term.

Linton

darkpool wrote: »

it came from the link you sent.

if these UTs had the objective of beating the ftse small cap it would be fair to compare their performance against the ftse small cap tracker.

but these UTs dont have that objective.

i can only suggest you read the books suggested.

Looks like we have come to the conclusion that all of these comparisons are pretty meaningless as are your much vaunted academic studies.

Very few UTs have a stated objective of beating a specified index ( a random look at a few FTSE AllShare sector funds didnt find any) let alone any that want to do that by investing in exactly the same set of shares, but those are the only ones you are prepared to use in a comparison. Fine by me.

But where does that leave an investor? It looks like the only logical thing he can do is to choose a sector and assess the funds in it.

Each fund will have detailed objectives which may or may not match his objectives, and many other factors that he may find relevent. Some of the funds may happen to be trackers of various forms, others will be managed. Then the investor makes the choice on the basis of all of those factors. There is no reason why whether a fund is a tracker or not should be the primary factor or even a major one.

Which happens to be my view.

IronWolf

Which is the best place to hold funds? Because my iii.co.uk ISA says it will cost me 1% initial charge bu the HL website says theres no initial charge and they reduce the AMC by 0.25%?

gadgetmind

Linton wrote: »

Looks like we have come to the conclusion that all of these comparisons are pretty meaningless as are your much vaunted academic studies.

I'd respect your view that they are meaningless much more if I thought that you'd looked at them.

Which happens to be my view.

Fine, I'm just not yet convinced that it's a sufficiently informed view.

Linton

gadgetmind wrote: »

Looking beyond those point-to-point figures, we see wild gyrations for both the tracker and the fund average with them being 15% up at times and 50% down at others. At the end, the average of the funds has beaten that offshore tracker over the period you have given, but that headline average hides a lot of detail.

For instance, see UK-Smaller-Company-Funds.png here -

https://www.dropbox.com/gallery/433250/1/HSBC-Trackers?h=b39813

Wow, look at Fidelity, which I picked as it's the top smaller companies fund that seems to correlate with the index. It's up 60% - wow!

Notice in the middle that UT UK Smaller Companies, which has just managed to pip above the zero mark.

Then look at the UBS UK Smaller Companies fund - it's down 33% over that period. (Yes, I know that's not the tracker, but I thought it would be a giggle to pick a tracker and an active fund from the same company.)

Those whose dart hit the Fidelity fund would think that trackers stink. Those whose dart hit the USB fund would have different views. Those who chose a big basket of UK Smaller Company funds would find themselves beating the index over some short periods (5 years is short) but over other periods, almost certainly falling behind.

Of course, people will say, "Me, I'd have picked the good fund!", however, analysis has shown that managers don't tend to have "hot hands", or if they do it's not enough to compensate for the problems that face them when "hot money" slams into them if they do have a run of luck.

For instance, if you look at the performance of that Fidelity fund over the last year, it's barely above the UT UK Smaller Companies average, and is ranked 14th out of 58 funds, so our five year star is now returning to mean, which is exactly what we'd expect to happen. Where will Fidelity go next? Down below average? Time to throw our dart again, or maybe we'll look for another fund that's done well recently and go for that? What could possibly go wrong?

All of what we're seeing is exactly as described in the academic works on the subject.

Sorry, but even the UK Small Cap sector doesn't show fund out-performance (which I find mildly surprising) and in fact shows exactly why those who go for funds tend to lose over the long term.

You are looking at very short term periods. Yes, the small cap funds fluctuate more than the general index, perhaps because the general index may well hold very lightly traded shares in largely inactive companies which rarely change much in price. So during the bad individual years even a very good Small Cap fund that really had a winning formula may behave relatively badly. Though your example wasnt actually so bad - I would settle for 14th out of 58.

The important thing is the long term trend. I agree 5 years is a bit short but that's the best we can do with the data available - at least it includes a pretty good range of market conditions.

A pity that you havent included the index or a tracker on your graph. It would have made the comparison clearer. To remind you, it showed a drop of 7% compared with an average rise of 7%.

gadgetmind

gadgetmind wrote: »

Time to throw our dart again, or maybe we'll look for another fund that's done well recently and go for that? What could possibly go wrong?

Here's what. Close Special Situations, best performance at the link you gave over five years and three years. Wow, do I want some of that!

Over the last year, it's ranked 42 out of 58 funds, well down with the dogs.

Return to mean.

(BTW, I just spotted that 8% of that Close fund is held in Tanfield Plc. No wonder it sailed high and then crashed and burnt! I bought into Tanfield near the bottom because I saw value in their powered access business, and I've more than doubled my money, however, at the same time I put a few bob into a company which fell victim to a pre-pack.)