How to invest on a (weeny) budget

jamesd

If by "hot hands" you mean capable management teams, yes, that's what you're buying with an active managed fund. If those management people move than it's no longer the same fund, even if the name and management company stay the same.

The successful managers don't get the boot after decades, they retire or move on to something else after having been successful. But a study that then just keeps on monitoring the fund, pretending it's the same, may then see reduced performance.

You reject the funds with consistent underperformance and notice that there is persistence of outperformance when you start ignoring the studies that find it doesn't exist because of systematic errors in the studies. Even if using just passive funds you reject the consistent underperformers that exist.

If you go back and look at some of my posts from 2005-2007 you'll find that I looked at global growth funds. Persistence of outperformance of the top ten continued for years except when the manager had changed.

gadgetmind

jamesd wrote: »

If by "hot hands" you mean capable management teams, yes, that's what you're buying with an active managed fund.

Yes, but they are just as capable of under-performing as over-performing, and over the long term they are almost certain to return to mean.

But a study that then just keeps on monitoring the fund, pretending it's the same, may then see reduced performance.

Some studies have tracked funds, but those looking for "hot hands" have tracked managers and with very few exceptions have failed to find such hands. Another interesting study looked at the performance of fired managers who got new roles versus the new "star" manager brought in as a replacement. Regression to mean applied in spades to both funds and both managers, which meant those booted tended to outperform the new manager.

Persistence of outperformance of the top ten continued for years except when the manager had changed.

Interesting. Do you have a link to this study? And do you think it would have been possible to identify these funds other than in hindsight?

darkpool

it seems to me that the anti fund manager side of this argument have the academic proof to back up their claims.

the pro fund manager argument seem to rely on wishfull thinking and referring to reports they can't produce.

ohhh well, i suppose a fool and his money are soon parted.

gadgetmind

darkpool wrote: »

academic proof to back up their claims.

Copious amounts, but I like to think that I keep an open mind, and I offer up as proof the fact that I do use some managed funds in specialist areas, and hold some ITs. However, I also keep my overall TER below 0.4% as I'd rather have that extra 1% in my pocket.

My next investment is probably going to be into a fund as I'm considering dropping £3k into Franklin Templeton Biotech, and this is despite L&G offering a global health and pharma tracker.

darkpool

gadgetmind wrote: »

Copious amounts, but I like to think that I keep an open mind, and I offer up as proof the fact that I do use some managed funds in specialist areas, and hold some ITs. However, I also keep my overall TER below 0.4% as I'd rather have that extra 1% in my pocket.

My next investment is probably going to be into a fund as I'm considering dropping £3k into Franklin Templeton Biotech, and this is despite L&G offering a global health and pharma tracker.

I just wonder what proof the pro fund manager brigade would need before they realise that fund management is not worth the fees Over the last year I've seen so much hard academic evidence produced by the anti fund manager argument. Then the pro fund manager side of the argument respond with details of a SINGLE fund that has done well.

I just hope the pro fund managers here never have to do jury service. They obviously can't understand evidence no matter how many times it's put to them

kharne

darkpool wrote: »

I just wonder what proof the pro fund manager brigade would need before they realise that fund management is not worth the fees Over the last year I've seen so much hard academic evidence produced by the anti fund manager argument. Then the pro fund manager side of the argument respond with details of a SINGLE fund that has done well.

I just hope the pro fund managers here never have to do jury service. They obviously can't understand evidence no matter how many times it's put to them

This is the reason this thread has completely de-railed and is full of mis-information, misleading comments, and huge generalizations. There is no right or wrong in investing, and no clear cut decisions-otherwise we would all be rich. What works for one person (based on personal finance, attitude to risk, understanding of the markets), may not work for someone else.

Here is an article that discusses the differences between active management and trackers. It's only one article, yes, but there are more around-I don't have the time to trawl through my history to find them (if asked I will spend some time doing this though). That said, the salient points are that in the big markets (UK, US, any of the developed world really), trackers will over time outperform. This makes sense. With so much research done into these markets it is extremely difficult to beat the market with an active fund. However, other specialist areas are different. Emerging markets are not so efficient, not so well researched, and so lend themselves towards active management. Obviously not every fund will outperform the index (Anthony Bolton's China fund being quite a recently infamous example), but there are definitely more opportunities to add value.

Personally, I hold a mix of trackers and funds, weighted towards a Vanguard Lifestyle tracker, that in my opinion is absolutely fantastic value for money. However, as I am young, I have a few actively managed EM funds to hold for the long term, as well as a natural resources fund. They are weighted to the areas I prefer-something that you cannot do with a tracker of course, which will probably have ~17% China, but only 7% India, amongst others of course.

To conclude, there is little to no point people (and sorry I've picked on the guy above, I really mean no offense) claiming one way or another what might be best for others-it doesn't make for fun reading, and isn't particularly informative for anyone in the position of wanting to get started investing!

Thank you, and good night.

/rant

gadgetmind

kharne wrote: »

Personally, I hold a mix of trackers and funds, weighted towards a Vanguard Lifestyle tracker, that in my opinion is absolutely fantastic value for money. However, as I am young, I have a few actively managed EM funds to hold for the long term

I'm mainly using separate Vanguard trackers as I wanted my own cap and territory mix (more mid/small cap, more Pacific and EM) and I also wanted to choose my own bonds and to add property.

For property, and for some satellite themes, I'm using REITs and active funds, and I'm also using a strategic bond fund alongside some corporate bond ETFs.

So, I don't have any kind of religious zeal regards active/passive, it's simply that the evidence shows that for most assets and markets, passive outperforms over the long-term, and I'm an evidence-based person.

kharne

gadgetmind wrote: »

I'm mainly using separate Vanguard trackers as I wanted my own cap and territory mix (more mid/small cap, more Pacific and EM) and I also wanted to choose my own bonds and to add property.

For property, and for some satellite themes, I'm using REITs and active funds, and I'm also using a strategic bond fund alongside some corporate bond ETFs.

So, I don't have any kind of religious zeal regards active/passive, it's simply that the evidence shows that for most assets and markets, passive outperforms over the long-term, and I'm an evidence-based person.

Unfortunately using Hargreaves I don't have that much choice with regards to Vanguard, and splitting my money into the individual funds will kill my returns (£24/year/fund). Funnily enough, I'd also like to throw in a corporate bond ETF, but again, Hargreaves charge too much to make it viable.

I agree, there is plenty of evidence of the index being preferable to active management in most areas, but it's not categorical across the board. The point I was trying to get across is that there is no fixed guide to making money investing, everyone needs to have their own strategy and method of implementation. Which you clearly do! So kudos

gadgetmind

kharne wrote: »

Unfortunately using Hargreaves I don't have that much choice with regards to Vanguard, and splitting my money into the individual funds will kill my returns (£24/year/fund).

I was this --> <--- close to starting a SIPP with HL, and even had all the forms completed and in the envelope, when they introduced their charges. I went instead with BestInvest, who do have an annual charge if you use Vanguard trackers, but it comes to less than 1/10th of a percent for me.

Funnily enough, I'd also like to throw in a corporate bond ETF, but again, Hargreaves charge too much to make it viable.

No charge for these with BestInvest, at least not yet ...

The point I was trying to get across is that there is no fixed guide to making money investing, everyone needs to have their own strategy and method of implementation.

As we've seen, it's harder for smaller sums.

Which you clearly do! So kudos

I'm learning, slowly. If I had a time machine ...

Maverick_Money

I'd opt for a regular investment plan into one or more investment trusts, some of which allow monthly investments of as little as £20.

Those run by Invesco Perpetual have commissions of 0.5% on buying and selling (plus 0.5% stamp duty on purchases) and you can invest from as little as £20 per month. Included in the range are the similarly run Edinburgh Investment Trust (EDIN) and Invesco Income Growth Trust (IVI), both of which have a bias towards defensive, high yielding UK stocks (both yield over 4%) - a safer option in todays' volatile markets.

The Temple Bar Investment Trust (TMPL) also has a very cheap regular investment plan with no commission on buying or selling, but has a minimum monthly investment of £50. This has a bias towards the larger UK stocks and yields over 4%.

For a more diversified trust, RIT Capital Partners (RCP) in the Global Growth sector has an excellent long-term track record and allows monthly savings from £20 with buying and selling commission of 0.5%.

All of these trusts trade around their Net Asset Value reflecting their popularity, although variability in the size of an IT's discount is less of an issue when you're drip-feeding money over a longer term ...