Financial Professionals - What Do They Know?

middlepuss

Some actively managed funds might well beat the index trackers over the long term. But how do you pick that actively managed fund? Chances are you won't.

So I'd agree that an index tracking unit trust is the safer bet for the long term non-professional investor. Or maybe a big and "boring" investment trust such as Foreign and Colonial.

Ark_Welder

middlepuss wrote: »

Some actively managed funds might well beat the index trackers over the long term. But how do you pick that actively managed fund? Chances are you won't.

So I'd agree that an index tracking unit trust is the safer bet for the long term non-professional investor. Or maybe a big and "boring" investment trust such as Foreign and Colonial.

Foreign & Colonial is an actively managed fund. It just happens to be of the closed-end variety that is structured as a company. Unlike an invesment company with variable capital, i.e. an Open-Ended Investment Company.

bigfreddiel

dunstonh wrote: »

Yet Warren Buffett himself invests on the basis of value. So, he is doing one thing but telling others to do different. Also, his comments are for the US market where trackers make much more sense.



Depends on what you know.



You are not exactly the most balanced person to have a conversation with on here. So, if you are like that in real life you could understand it.

brilliant

1 i'm going to invest in us trackers - makes more sense

2 i know loads - just as much as anyone else

3 i'm the most balanced person you could ever meet

cheers fj

jamesd

Why not invest with Warren Buffett? You like his opinions and he has a good record of active management...

MrMalkin

jamesd wrote: »

Why not invest with Warren Buffett? You like his opinions and he has a good record of active management...

Buffett's kind of a bad example of active management though, because he's way more active than the average active fund manager - he usually gets such big stakes in companies that he has the power to hire and fire management and change the way his businesses run.

He's also at a plain of existence where simply being Warren Buffett is enough to get preferential deals that no other investor could, for example his Bank of America preferred stock. The Buffett stamp of approval is worth that much.

He's also knocking on a bit now, the guy's over 80. If he moves off to the big investment house in the sky there's no guarantee that Berkshire will see continued success.

A good article on buying Berkshire if you want, though:
http://www.fool.co.uk/news/investing/2011/01/04/why-buy-berkshire-hathaway.aspx

Linton

middlepuss wrote: »

Some actively managed funds might well beat the index trackers over the long term. But how do you pick that actively managed fund? Chances are you won't.

So I'd agree that an index tracking unit trust is the safer bet for the long term non-professional investor. Or maybe a big and "boring" investment trust such as Foreign and Colonial.

Easy - look at the UK Small Cap fund sector and the FTSE Small Cap Index.

Over 10 years the Index has increased by 31%.

Over 10 years all 34 UK Small Cap funds listed on Trustnet have beaten the Index except one - Close Beacon, which invests in AIM shares, not FTSE Small Cap. The average growth of the 34 is 118%.

And again you make the mistake of claiming that Index funds are necessarily safe. If the Index fluctuates beyond what would be reasonable for the return then the corresponding index fund does.

MrMalkin

Linton wrote: »

Easy - look at the UK Small Cap fund sector and the FTSE Small Cap Index.

Over 10 years the Index has increased by 31%.

Over 10 years all 34 UK Small Cap funds listed on Trustnet have beaten the Index except one - Close Beacon, which invests in AIM shares, not FTSE Small Cap. The average growth of the 34 is 118%.

I think you need to be careful quoting figures like that, because I think you'll find most of the superior performance comes from those funds investing in companies that aren't in the FTSE Small Cap index, so there's an element of comparing apples to oranges.

However your overall point is valid, and I don't think any sensible index investor would deny it. For some sectors, there is no adequate index, or if there is there's a lack of index funds that track it. UK smaller companies is the classic example.

But that raises another question: how do you pick the best of those 34 funds?

Linton

MrMalkin wrote: »

....
However your overall point is valid, and I don't think any sensible index investor would deny it. For some sectors, there is no adequate index, or if there is there's a lack of index funds that track it. UK smaller companies is the classic example.

But that raises another question: how do you pick the best of those 34 funds?

The important decision I believe is the one to invest in that sector. To get good performance you need to start with a potentially lucrative sector. Whether you get the very best fund or not is a secondary matter - whatever you chose you would probably have trounced a FTSE100 tracker.

What I normally do is to look for factors such as:

1) A history of 1st quartile performance
2) Particularly good relative performace in the bad times
3) A fund manager (company) I have heard of
4) The current major holdings look reasonable with a good spread
5) A fund of reasonable size, though in the Small Cap sector this can be a disadvantage as it may be difficult for large ones to find sufficient worthwhile investments. Small Cap funds have a tendancy to close for new investors

The Small Cap area is of interest to me as to get a good performance a fund manager needs skill and knowledge to identify those companies that are small but could easily grow and avoid those which are deservedly small. This sort of analysis is less likely to be successful in the FTSE100 arena where there is much public knowledge and analysis of every company.

Conversely a tracker is less likely to be successful as there are many companies where trading only occurs infrequently and so the quoted price means little and many companies that are small now and always will be, until they fold. As far as I can see there are no Small Cap trackers, I guess it would be too expensive to buy what may be a small number of shares in every small cap company.

Small Cap is a sector where the small investor is unlikely to perform well as the number of companies makes analysis arduous and where specialist knowledge may well be required to properly assess their chances of success. Also shares can be illiquid - it may be difficult to obtain sufficient on the open market to make an investment worthwhile and difficult to sell at the quoted price when required.

Linton

MrMalkin wrote: »

I think you need to be careful quoting figures like that, because I think you'll find most of the superior performance comes from those funds investing in companies that aren't in the FTSE Small Cap index, so there's an element of comparing apples to oranges.

......

Good point. This sector is definitely one where you need to look closely at what the fund actually invests in. Having done that, its clear some small cap funds look at the lower reaches of the FTSE250 sometimes to a significant extent, others keep to much smaller companies.

Looking at the top 10 holdings of the funds near the top of the 10 year table it isnt the case that this is dominated by FTSE250 investments.

jamesd

MrMalkin wrote: »

Buffett's kind of a bad example of active management though, because he's way more active than the average active fund manager - he usually gets such big stakes in companies that he has the power to hire and fire management and change the way his businesses run.

True, but if I'd written that he's a private equity investment firm the person I'd been addressing might have recoiled in horror in spite of presenting him as a source of good advice (which he is, when applied with appropriate context). I have and do pay attention to the gentleman.