Independent Financial Advisers fees vs Novice Investor!

gadgetmind

Linton wrote: »

You trust the FTSE 100 index not to do stupid things because of short term gain?

I expect it to show short-term volatility against a background of long-term growth. Nothing more, nothing less.

if you adjust for UK inflation is less than it was in 1995?

Yet strangely, the investments I made in the early/mid 90s (boring old UK/global equity PEPs) have massively increased in value despite the fee drag. Wish there had been trackers back then!

The FTSE 100 index is largely determined by the collective actions of large traders interested in short term gains in the somewhat arbitrary list of shares that happen to be quoted on the LSE.

Yup, which is why you might think this index should be easy for an active manager to beat.

Ark_Welder

gadgetmind wrote: »

Yup, which is why you might think this index should be easy for an active manager to beat.

Assuming that this index (or any other) has any relevance for an individual investor. An index - and by definition, a tracker of that index - might not be desirable if it is concentrated on certain sectors and has an increasing number foreign firms with limited free-floats, some of which have shown a lack of regard towards governance issues, and others that have given the reason for listing in London is because the shares have to be bought by trackers.

gadgetmind

Ark_Welder wrote: »

an increasing number foreign firms with limited free-floats, some of which have shown a lack of regard towards governance issues, and others that have given the reason for listing in London is because the shares have to be bought by trackers.

The FTSE do seem to be getting wise to that one and the barrier to entry is being raised.

I accept that blind following of the index, with all of the problems of sector over-exposure, having to track fallers, etc., really should cause trackers to under-perform over pretty much any timescale and market conditions you care to name, yet the vast majority of actively managed funds in the same sector struggle to match it.

Of course, the UK is only a small part of the picture (despite the global exposure of many FTSE 100 companies) but even on a global basis, trying to beat the market with stock picking/timing seems to struggle.

The only return enhancers that have really stood the test of time are holding smaller companies, value investing, and exposure to FE/EM. For some of these, and perhaps for property and fixed interest, you might choose managed, but even here there are good trackers coming along.

Linton

gadgetmind wrote: »

The only return enhancers that have really stood the test of time are holding smaller companies, value investing, and exposure to FE/EM. For some of these, and perhaps for property and fixed interest, you might choose managed, but even here there are good trackers coming along.

We are reaching agreement:

Add in raw materials and technology, also arguably return enhancers, and you have got my long term growth portfolio!

If value investing is a return enhancer and the funds which focus on this are almost entirely based on FTSE AllShare Companies ....... but I dont want to destroy our newfound friendship.

I find it difficult to understand how Value investing, which I would argue is not too far removed from successul Smaller Companies investing, could be handled by a tracker. After all, its basic premise is that the markets are wrong.

gadgetmind

Linton wrote: »

Add in raw materials and technology, also arguably return enhancers, and you have got my long term growth portfolio!

Commodities is a difficult one and you arguably get enough exposure via other equities. As for tech, I choose to do this investing myself as I see fund managers and analysts spouting some right tripe on the subject.

I find it difficult to understand how Value investing, which I would argue is not too far removed from successul Smaller Companies investing, could be handled by a tracker. After all, its basic premise is that the markets are wrong.

I'd regard successful smaller companies as growth investing but maybe I'm wrong.

Yes, value investing does rely on the markets not being efficient, or at least there being different ways of assessing the intrinsic value of a company and that the investor's is different to and better than that of the majority. Perhaps this is why the evidence for value investing showing benefits isn't that strong and over some periods, growth investing has beaten it pretty soundly?

The Bland style HYP is a form of value investing despite the name as it filters based on high dividends, which are usually the result of a company falling out of favour with the market. However, it could well be that the market is right as high yields often precede a nasty fall.

Vanguard have a version of this with their UK Equity Income Tracker. They call it a tracker but it's really a mechanical stock picker with some additional sanity checks added regards maximum exposure to companies and sectors.

Ark_Welder

gadgetmind wrote: »

The FTSE do seem to be getting wise to that one and the barrier to entry is being raised.

They are, but they did chose to lower it in the first place. FT Alphaville has been banging on about it for a while. They're a bit tongue-in-cheek at times, but an interesting read. No logon required either.

gadgetmind wrote: »

I accept that blind following of the index, with all of the problems of sector over-exposure, having to track fallers, etc., really should cause trackers to under-perform over pretty much any timescale and market conditions you care to name, yet the vast majority of actively managed funds in the same sector struggle to match it.

Much of the problem now appears to be fund-manager peer pressure: the fear to be seen as underperforming against each other so they turn into closet trackers, but with the higher fees. Perhaps an increasing use of actual trackers will weed out these managers and just leave those that can do a reasonable job.

One interesting point made by the FT recently is that one of the problems of trackers is that they increase the correlation between individual stocks, so they will tend to move all together rather than on individual fundamentals. Perhaps once the pendulum has swung further towards tracking, more underperfroming active managers will be driven out of a job and just those that are good at it will remain. But that would eventually cause the pendulum to swing back towards active management again as the 'I can do that' brigade join in (makes me think of private investors in DotCom).

Logon required, but an interesting take: http://www.ft.com/cms/s/0/933ed532-0ed0-11e1-b83c-00144feabdc0.html#axzz1fKRS8Bkv


Another problem with trackers is that there are so many. Why? Perhaps I'll start my own passive fund management firm that tracks an index of 10 shares. Something based on container ships comes to mind...;). If this proliferation was in a specific industry or asset sector then it would be described in bubble terms.

As an example, on one of the other threads in the forum the point has been raised that there are two equity trackers that track different things: one the S&P500, the other a 'north-american index' (you probably know which one I'm on about). What is the situation if an investment is made in just the one and it underperforms against the other? That might be an interesting debate to follow...:D

gadgetmind wrote: »

For some of these, and perhaps for property and fixed interest, you might choose managed, but even here there are good trackers coming along.

This could still depend upon what you mean by 'property': listed vehicles in a particular sector or the equities martet, or the uncorrelated physical assets. The latter would be difficult to track - and retain liquidity - without being synthetic.

And debt might depend upon how the index works: there are some that look to be applying qualitive measures for deciding what is included. Sort of actively deciding what is going to be passive (my opinion, on that one!).

JohnRo

BobQ wrote: »

I have to say that I am sceptical about some IFAs objectivity too. However....

scepticism is healthy, it motivates learning, facilitates education and creates better understanding. It's cynicism that's problematic.

BobQ wrote: »

The only way to win is not to play the game!

If there were no such thing as inflation I'd agree. The choices are spend the lot, seek advice or start a new career.

Ifts

Ark_Welder wrote: »

Logon required, but an interesting take: http://www.ft.com/cms/s/0/933ed532-0ed0-11e1-b83c-00144feabdc0.html#axzz1fKRS8Bkv

If not registered with FT, just Google the article title - A measured response to markets’ ups and downs , and you can view it without having to login.

darkpool

Lokolo wrote: »

Typing the wrong thing into Excel late at night (to which I also said I made a mistake!) is entirely different to looking at US funds for a valid argument that trackers are always better than active managed.

i would have thought anyone with even a basic grasp of probability would know the chance of getting 8 heads with 10 coin tosses is nowhere near 0.1%.....

UT advertising implies that they outperform the market ie the adverts concentrate on what quartile performance they have achieved. So why can the fund management industry not supply academic evidence to show that fund management is worth the fees?

If there were a few economic professors that wrote a report that said fund management provided consistent reliable alpha returns I would consider investing in UTs. But, so far there appears to be no one of any academic integrity that will put their name to such a study. So why is this? Is there a worldwide conspiracy that wants to keep the magic of fund management for a select few? Or is it because fund management charge more in fees than they deliver?

You work in the fund management industry, why don't you just explain to your PR department that someone called darkpool on the MSE forum thinks UT investors are a bunch of fools for paying for a service they don't receive, just ask for some academic* evidence that fund managers deliver alpha returns. Do it now and come back with some solid evidence. Go on do it man!!!! Shut me up with some solid evidence and become the hero of all the vested interests who post in "saving and investments".

*academic, as in something written by a professor or economics PHd student. I don't mean something taken from trustnet.

darkpool

Linton wrote: »

Yes - unfortunately there are too many people around who read some broad assertions on the internet that there is only one way to sensibly invest, convince themselves they must be true, and then repeat them ad nauseum without being able to discuss any evidence to the contrary.

with respect, you seem to be the one that bangs the UT drum. even though there is very little evidence that fund management is worth the fees.

so far the evidence presented in support of UTs is basically pointing at a few funds that have done well.