Professional Finance people no better than amateurs

Lokolo

darkpool wrote: »

without getting too technical you'd expect the returns from a selection of UTs to follow a normal distribution based on average market return minus co... oh i forgot that i'm talking to someone that uses a single UT as "evidence" that fund management works.

to answer your question - chance. how many UTs are there? 4000? it's not really surprising that a few do well to chance. just in the same way if 4000 people bought lottery tickets you'd expect some to win a prize.

Can I ask why you think the expected returns from the UTs to follow normal distribution after fees?

If you would be so kind, please create a spreadsheet (preferably in Excel) to show that over, say 100, managed funds that there is a normal distribution from returns.

If you want you could do it for more than one sector, such as UK Equities vs. Emerging Markets I would be grateful.

darkpool

Lokolo wrote: »

Can I ask why you think the expected returns from the UTs to follow normal distribution after fees?

well ehhhhmmm, normally you'd expect an outcome that was due to chance to follow a normal distribution.

tell you what, i've got a little experiment for you. get thee dice and roll them 100 times. each roll of the dice add up the numbers on the dice. you then plot the results on a graph. so you'll have 3 to 18 on the bottom axis and the number of times you get each total on the y axis.

i thought you were against any research anyway?

SnowMan

Invariably IFAs used to claim that they could pick the outperforming funds by looking at past performance. If you read this thread from 2009 you will see this argument being used.

The FSA investigated the matter of past performance in 2000 when deciding whether to allow advisers to use past performance to sell products. Their evidence showed that there was no correlation between past performance and future performance.

The only evidence that came up that I could see in response on that thread was an anecdote of a compliance visit to a fellow IFA from which it was supposedly deduced the FSA had completely backtracked on their finding, together with the retrospective choice of funds that had done well in the past (as opposed to those that had done badly) to show active investing with high charges was better than passive investing with low charges.

The whole thread is worth a read and illustates as Rollinghome says how IFAs have become more favourable towards trackers with the approach of the RDR.

As usual I say read the thread and decide yourselves how opinion has changed.

gadgetmind

darkpool wrote: »

well ehhhhmmm, normally you'd expect an outcome that was due to chance to follow a normal distribution.

"Expect", "demonstrate" and "prove" are all rather different.

Aegis

gadgetmind wrote: »

"Expect", "demonstrate" and "prove" are all rather different.

Especially since it's possible to derive the normal distribution that you get from dice rolling by simply looking at a probability tree and counting the possible outcomes. The experiment then just confirms the mathematical model to within a specific confidence interval.

Lots of things don't follow normal distributions.

That said, I would anticipate this distribution to look a bit like a normal distribution at a cursory glance. However, there may well be an element of skewing, and there's no actual guarantee of where the median value will be, whereas with a normal distribution you expect to see the mean in the same place as the median.

darkpool

that other thread is internet gold!

best quote i saw was from dunstonh

"Why is it that there is never any evidence from those that say trackers are best and why are they so biased towards it even if it means that they will miss opportunities?"

darkpool

i think leaving the IFAs alone on this forum would be like leaving the fat kid in charge of the tuck shop.

jem16

darkpool wrote: »

best quote i saw was from dunstonh

"Why is it that there is never any evidence from those that say trackers are best and why are they so biased towards it even if it means that they will miss opportunities?"

The rest of the post read;

dunstonh wrote: »

Why is it that there is never any evidence from those that say trackers are best and why are they so biased towards it even if it means that they will miss opportunities?

We know the FTSE100 trackers have spent most of the last 10 years in the bottom 10% of funds and FTSE all share trackers will be around mid table. Evidence has frequently been provided and is freely available on sites like trustnet and morningstar.

We also know that its not whether its a tracker or managed that matters. Its where you invest that matters (reflected in the growth years where both mid cap managed funds and FTSE250 trackers were top of the pile for long periods). Its fine if a tracker exists in that area but what about the areas where they dont? Do you refuse to invest in that area?

Question still remains valid almost 3 years later.

What do you do if a tracker does not exist in the are you wish to invest? Do you compromise your investment?

darkpool

tbh i just found it funny dunstonh wondering why there was no evidence to support trackers.

now there is ample to evidence to support trackers, yet the AM crowd seem to find it hard to find evidence.

jem16

darkpool wrote: »

now there is ample to evidence to support trackers, yet the AM crowd seem to find it hard to find evidence.

It shouldn't be one or the other. It should be what fits best for where you want to invest, tracker or managed.