Professional Finance people no better than amateurs

darkpool

Is there anyone else out there that seriously thinks when discussing trackers/ UTs you should compare trackers and UTs from two completely seperate markets?

Linton

JamesU wrote: »

From Trustnet: AXA Framlington UK Select Opportunities, AXA Framlington UK Growth, CF Lindsell Train UK Equity and Cazenove UK Opportunities are the only UK All Companies funds that have beaten their sector average in the each of the last five calendar years, according to the latest FE Trustnet study. The high level of volatility since 2007 has made it increasingly difficult for funds to consistently outperform; the four vehicles make up less than 2 per cent of the 256 UK All Companies with a long enough track record.

Link here:http://www.trustnet.com/News/Research.aspx?id=300732


My feeling is that it would have been pretty difficult to pick those 4 funds from the 256 possibilities in the sector five years ago.

Next question would be how a popular UT tracker would compare against the average of the UT fund sector over the period. Obviously, with hindsight the star performing AXA Framlington would have been a good choice, but choosing a fund going forwards over the next 5-10 years would be more difficult of course. The HSBC FTSE all share tracker, popular for obvious reasons, seems to do quite well, outperforming the UT fund sector average over the last 5 years. So unless it is possible to predict which of the UT funds will be the star performer over the next 5-10yrs, there would seem justification in simply going with the UT tracker rather than choosing a higher cost fund (but personally, I have no interest in this sector anyway).





JamesU

As a long term investor I have little interest in how funds perform in individual years against the sector average. IMHO long term trends are much more important.

My key point on trackers is not that they are bad compared with managed funds. In mature sectors they are, as expected, average even after any claimed 2% annual advantage from lower fees.

However sector choice is far more important than fund choice. Those sectors with the most popular trackers, principally the ones based on FTSE LSE indicies, have been very poor performers over the past 10 years given their volatility. I see no likelihood that, given global economic trends, this is likely to change.

Therefore advice to newbie investors to buy trackers, apparently purely because they are trackers, is misguided.

Like you I have no interest in the general UK Allshare sector, although there are niche funds within the sector which I am happy to hold, and what could be classed as a subsector - UK smaller companies - that I do like.

Linton

gadgetmind wrote: »

Try Smarter Investing by Tim Hale and read the studies referenced therein. Also try Bernstein.

This sounds almost religious, read The Book and you will be saved. Do you have an explanation of why the real world of UK investing appears to fail to follow the sacred texts?

JamesU

Linton wrote: »

As a long term investor I have little interest in how funds perform in individual years against the sector average. IMHO long term trends are much more important.

My key point on trackers is not that they are bad compared with managed funds. In mature sectors they are, as expected, average even after any claimed 2% annual advantage from lower fees.

However sector choice is far more important than fund choice. Those sectors with the most popular trackers, principally the ones based on FTSE LSE indicies, have been very poor performers over the past 10 years given their volatility. I see no likelihood that, given global economic trends, this is likely to change.

Therefore advice to newbie investors to buy trackers, apparently purely because they are trackers, is misguided.

Like you I have no interest in the general UK Allshare sector, although there are niche funds within the sector which I am happy to hold, and what could be classed as a subsector - UK smaller companies - that I do like.

FTSE UKX/ASX sectors have not been the best performing sectors over the last decade for sure, and you are probably right that they will not be the best performing sectors in the future either. But I feel it is wrong to infer the use of index trackers as the investment vehicle in these sectors is the reason for the underperformance, when it is the choice of the sector itself that is the reason for the underperformance.

There is nothing misguided in suggesting the use of trackers in numerous sectors, each one has to be assessed on merit. What I think is misguided is a situation where an investor chooses a tracker for a given sector solely on the basis of cost and tracker availability, without evaluating UT/IT alternatives that may well be more appropriate. UK smaller companies which you mention are a perfect example where a tracker e.g. CUKS is not really suitable. Its horses for courses really.

JamesU

GeorgeHowell

gadgetmind wrote: »

Because doing otherwise would be stupid and irresponsible.

1) Equities give the best long term performance.
2) You're looking at capital value and ignoring dividends.
3) Looking at peaks tells you little as sensible investors put money in either continuously or (for the brave and/or foolhardy) in the dips.
4) When are IFAs supposed to "push" equities? Only when the markets are at long-term peaks? Really?

1) They did in the fairly distant past, but past performance is not a reliable indicator of future trends

2) Even with dividends included the performance of UK equities over 12 years has hardly been stellar. Foreign equities introduce the vagaries of fluctuating exchange rates - ie more uncertainty and risk

3) Nobody knows when to dip in and out to maximum advantage. If anyone does this and succeeds then they are just lucky gamblers.

4) IFAs should not push equities at all, but only offer them as one option within a balanced portfolio to people who are definitely willing to put part of their capital at risk, and who really understand what they are doing. To say that it is stupid and irresponsible not to push equities as a blanket policy is ... stupid and irresponsible. But without pushing equities and making out that they know better than their clients what is there left for financial advisors ?

MrMalkin

Linton wrote: »

This sounds almost religious, read The Book and you will be saved. Do you have an explanation of why the real world of UK investing appears to fail to follow the sacred texts?

What is this nonsense, seriously. The 'world of UK investing' doesn't fail to follow the book, the book is informed by things that are actually occurring in the real world.

Read Smarter Investing, it references various academic studies including plenty that relate to the UK investing scene. Some (most?) of these studies are not available online unless you have a JSTOR account or equivalent, so you may have to go to an actual library to read the journals they're published in.

This book has been brought up in previous threads on this subject, it's pretty pathetic of you to continual ask for this evidence if you can't be bothered to follow up when people tell you where to get it. You don't get to criticise evidence if you haven't even read it.

You could even ask the same question of Trustnet, which you bring up a lot. I've come across plenty of instances where their data has been plain wrong, so it's clearly not an infallible source for anything,

Rollinghome

Let's not discourage too many people from paying for managed funds. After all trackers rely on managed funds to provide the accurate pricing that makes trackers so efficient. It's ironic that those most fanatically opposed to trackers are the kindly souls who end up generously subsidising them. Bless them.

Do they ever wonder why the providers of managed funds need to grease the palms of advisers with commission in order to sell them but index funds don't?

It's very noticeable with the imminent banning of commission under RDR that tracker funds no longer trigger the automatic hostility from IFAs on this board as they once did. Seems some are even recommending them now. Who would have believed that from what they were saying here a year or so ago?

Despite the high costs, managed funds can sometimes be useful if specifically needed for something that can't be achieved with a standard tracker. Otherwise it makes sense for a tracker to be the default option.

MrMalkin

I was looking at the fact sheets for the new NEST pension scheme funds today, and it reminded me of a question I would like to ask of any advocate of managed funds: why is it that most of the large pension funds, who have tens and hundreds of billions under management and can therefore afford the best active managers that money can buy, choose not to bother and instead go with an asset allocation model chiefly relying on indexing?

I don't think anyone is suggesting that indexing is a panacea, but as a default methodology for the average investor it's very difficult to beat.

Aegis

MrMalkin wrote: »

I was looking at the fact sheets for the new NEST pension scheme funds today, and it reminded me of a question I would like to ask of any advocate of managed funds: why is it that most of the large pension funds, who have tens and hundreds of billions under management and can therefore afford the best active managers that money can buy, choose not to bother and instead go with an asset allocation model chiefly relying on indexing?

I don't think anyone is suggesting that indexing is a panacea, but as a default methodology for the average investor it's very difficult to beat.

The larger a fund is, the harder time it will have taking advantage of favourable pricing because a) the fund's investment will itself affect the price of the instrument in question if the investment is significant and b) the fund will have to research and locate a huge number of these inefficiencies if the investment amount is not particularly significant.

With a very large fund, indexing as a benchmark is likely to be one of the very few options available as a core strategy.

afwone

An interesting debate here.

After years of acquiring an eclectic mix of some 30 or so unit trusts, I have come to appreciate that in many cases the actively managed fund industry is just a means for skimming money off the unwary.

I have begun the process of re-structuring my portfolio though I am not entirely sure where I am going with this. However, these are my thoughts:

(1) For FTSE100 companies I imagine it is best to own directly the shares that make up the main components of the index. Similarly best to own a selection of bonds rather than a UK bond fund.

(2) For exposure to the main markets outside the UK, I am convinced by the argument that the chances of success are better with tracker funds covering the US, Europe, Japan and just possibly Pacific region.

(3) For emerging markets, smaller UK companies, commercial property and other areas, I am thinking of keeping hold of actively managed funds despite the expense.

As an amateur who doesn't want to spend time trading investments, other than adding to holdings occasionally, I would welcome the thoughts of other amateurs as well as of the professionals.