Why so many funds?

darkpool

dunstonh wrote: »

US market research is not suitable for UK. There are some principles that apply to both and some good opinions. However, it dose not explain the areas there no trackers exist or where you want an investment strategy with no tracker in existence to match that or more focused/niche markets or immature markets.



That is almost worth posting a lie to get that to happen.

sooooo, all the academic research from the USA says that active fund management does not add value, do you not think it likely that fund management is not cost effective in the UK either? does it not make sense for the average investor here to invest mostly in trackers? maybe 80% tracker and 20% active for exposure to markets with few trackers?

it does seem to be that you post to get people to go IFAs.

browniej

darkpool wrote: »

alpha return is the outperformance that a fund manager delivers by good investment decisions.

Outperformance over what? Is it the sector benchmark/index?

beta return is the performance due to the general market moving.

Sorry what do you mean by "general market moving"? For example if I am looking at Emerging Markets, what would the beta return be looking at?

the vast bulk of research says that fund managers do not justify the fees they charge. have you considered a tracker fund?

Yes but in some areas I can't find a suitable tracker so that's why I started looking at alpha and beta returns.

dunstonh

sooooo, all the academic research from the USA says that active fund management does not add value, do you not think it likely that fund management is not cost effective in the UK either?

I dont think the US system makes fund management cost effective and trackers are a much more logical choice there. I think the UK system gives managed funds the opportunity to add value in certain areas.

does it not make sense for the average investor here to invest mostly in trackers?

What is your definition of average investor? This is something we have tried previously with you to get to understand but you havent grasped it yet. You previously posted on the assumption that everyone is the same. Are you now realising that they are not?

maybe 80% tracker and 20% active for exposure to markets with few trackers?

Are you now saying that managed funds can offer suitability in some areas?

it does seem to be that you post to get people to go IFAs.

Its that sort of comment from you that frustrates so many of the posters here. What has the selection of managed funds or tracker funds got to do with going to an IFA or not?

HL's platform is for DIY investors. The use of managed funds dominates the overall selection. How is that the fault of an IFA in your world?

darkpool

browniej wrote: »

Outperformance over what? Is it the sector benchmark/index?

Sorry what do you mean by "general market moving"? For example if I am looking at Emerging Markets, what would the beta return be looking at?

Yes but in some areas I can't find a suitable tracker so that's why I started looking at alpha and beta returns.

tbh it might be better if you got a book at the library.

i'd suggest an investment trust is a good investment for a rookie investor, maybe Edinburgh Investment Trust.

all the best with your investments anyway

darkpool

dunstonh wrote: »

I dont think the US system makes fund management cost effective and trackers are a much more logical choice there. I think the UK system gives managed funds the opportunity to add value in certain areas.


Are you now saying that managed funds can offer suitability in some areas?

ok, what evidence do you have that the UK system adds value in managed funds? feeling in your stomach? someone told you in a dream? or something crazy like academic evidence?

active funds do provide exposure to markets where there are no trackers, i have said that before...... but i don't think the average investor here have 100% active funds

Spiggle

Hello darkpool,

As someone who is keen to learn about investing, I just used the link you provided above. A couple of things struck me.

Firstly, the academic study quoted uses the term "... tended to result ...". In my University this was a quickly learned lesson that using 'tends/ed to' gives academics a way out because results are dependent upon variables (the biggest of which is knowledge at any specific point in time which of course may be superseded subsequently). Which, from my obviously naive perspective, I thought was what investing was about - variables include a myriad as outlined in some of the articles on the link (which is interesting by the way).

Secondly, the website to which you linked has a long list of articles on selection, payment and regulation of financial/investment advisors. I did not see any article stating "Don't use a financial/investment advisor".

I have learned a huge amount about managing my finances through MSE. I am interested in branching into investing some time in the near future and so have spent a lot of time on the savings and investment board to continue learning. I am however, really really bored with running up against the same flaming arguments whenever I read a thread.

I am a big girl, I understand that I make my own decisions whether those be upon advice recieved (for a fee or not) or just on my own nous. Please, please, please stop with the pointless droning on about whether an IFA is good or bad. I'll make my own mind up!

Thank you,
Spiggle

browniej

darkpool wrote: »

tbh it might be better if you got a book at the library.

I have various books already and am slowly getting there. Sometimes though I get a bit lost in the jargon.

Thought you could help though as the post I replied to seemed to suggest you knew.

i'd suggest an investment trust is a good investment for a rookie investor, maybe Edinburgh Investment Trust.

I shall take a look - thanks.

all the best with your investments anyway

Thanks.

fairleads

dunstonh wrote: »

Did an IFA shoot JFK?

No, but I've seen a few IFAs shoot themselves in the foot on MSE.:rotfl:

jem16

browniej wrote: »

Looked on Trustnet and saw alpha and beta but totally confused.

The market itself is given a Beta of 1.0. If a fund has a Beta of 1.5% this would mean that the fund could rise 50% more or less than the market. Beta is therefore a measure of a fund's volatility in relation to the market and is not the actual return of the market. So Beta is not an actual return but an expected return and is constantly changing. It's also subjective as it's a measure of how the fund "should" perform.

Alpha is a measure of the return over or under what it is expected to return relative to its Beta.

So for example if a fund had a 1.5% Beta and the market move was 10%, the fund would have to return 15% to make up for its extra risk. If the fund returned more than 15% it would have a positive Alpha but if it returned less than 15% it would have a negative Alpha.

Should I only look at positive alphas then? Would a negative alpha always be less than its benchmark so avoid?

It's not as straightforward as that unfortunately. R squared also comes into play.

Perhaps these 2 articles might help.

http://www.qfinance.com/asset-management-calculations/alpha-and-beta-values-of-a-security

http://www.tatamutualfund.com/Knowledge-Center/AlphaBeta.swf

browniej

jem16 wrote: »

The market itself is given a Beta of 1.0. If a fund has a Beta of 1.5% this would mean that the fund could rise 50% more or less than the market. Beta is therefore a measure of a fund's volatility in relation to the market and is not the actual return of the market. So Beta is not an actual return but an expected return and is constantly changing. It's also subjective as it's a measure of how the fund "should" perform.

Alpha is a measure of the return over or under what it is expected to return relative to its Beta.

Thank you. That makes some sense to me at least. However it's different to what darkpool seemed to be saying so which is right?

So for example if a fund had a 1.5% Beta and the market move was 10%, the fund would have to return 15% to make up for its extra risk. If the fund returned more than 15% it would have a positive Alpha but if it returned less than 15% it would have a negative Alpha.

So I really have to look at both Alpha and Beta? But yet Beta is down to what someone thinks a fund will achieve. :mad:

It's not as straightforward as that unfortunately. R squared also comes into play.

Confused again.

Perhaps these 2 articles might help.

http://www.qfinance.com/asset-management-calculations/alpha-and-beta-values-of-a-security

http://www.tatamutualfund.com/Knowledge-Center/AlphaBeta.swf

Thanks. Those sites did help a bit.

Beginning to think trackers are the way forward for me but my research so far seems to indicate that some areas won't have a suitable tracker so I should try to find an active fund here.