Portfolio Advice

RobStaffs

I have read this thread with interest, one thing that stand out are the contributors lack of investment in active funds.All of my investments are in this area..Must admit my first two years have been a learning curve.

Up until the 2010/11 tax year I tended to take out ISA's via my buidling society.Since then I started DIY fund selection using H_L's platform. 2010 investment was a lump sum at the start of the financial year with 2011/12 part of at monthly payment plan.

The IGNIS and AXA are two old ISA's I took out many years ago which I moved over the the H_L platform so the return on these only cover the last two years.I have had these for about 8 years and overall the return has been good.Now for the new tax year

I am looking at investing in a bit more risky funds.I am normally a cautious investor so I will spread the risk again with DD payments.Would appreciate any advice.. PS I also have an IGNIS Corporate Bond and an AXA fund not part of the H_L platform.Had these for about 6 years.


AXA IM Distribution Class R
25.60%
Mixed Investment 20-60% Shares
3.99
prior 2011
Ignis Managed Portfolio
24.40%
Mixed Investment 40-85% Shares
-0.88
prior 2011
Aberdeen Emerging Markets Class A
14.50%
Global Emerging Markets
5.65
2011/12
Hargreaves Lansdown Multi-Manager Balanced Managed Trust
14.50%
Mixed Investment 40-85% Shares
1.96
2010/11
Hargreaves Lansdown Multi-Manager Equity & Bond Trust
7.90%
Mixed Investment 20-60% Shares
6.62
2010/11
Aberdeen Managed Distribution Class A
7.60%
Mixed Investment 20-60% Shares
3.25
2011/12
Hargreaves Lansdown Multi-Manager Income & Growth Trust
5.50%
UK Equity Income
5.03
2010/11


ps apologies for the format of this.

Hooloovoo

RobStaffs wrote: »

I have read this thread with interest, one thing that stand out are the contributors lack of investment in active funds.

Yes, it's called passive investing. The choice to not invest in active funds is deliberate. It is based on the rational reasoning that it's practically impossible to beat the market. Even professional fund managers have never proven their ability to reliably and consistently beat an index.

Even if a fund manager does manage to beat the market, the fees usually wipe out any gains. Lets say an active fund beats the index by 1%. That's great. But you'll pay 2% fee so you end up 1% below market. Compare that with an index tracker which achieved market growth but only has a 0.3% fee making you just 0.3% below the market - you're better off.

The book Smarter Investing by Tim Hale covers the theory in great detail and is very easy to read.

Linton

Hooloovoo wrote: »

Yes, it's called passive investing. The choice to not invest in active funds is deliberate. It is based on the rational reasoning that it's practically impossible to beat the market. Even professional fund managers have never proven their ability to reliably and consistently beat an index.

Even if a fund manager does manage to beat the market, the fees usually wipe out any gains. Lets say an active fund beats the index by 1%. That's great. But you'll pay 2% fee so you end up 1% below market. Compare that with an index tracker which achieved market growth but only has a 0.3% fee making you just 0.3% below the market - you're better off.

The book Smarter Investing by Tim Hale covers the theory in great detail and is very easy to read.

I thought you started off by saying you didnt want the thread to be an active/passive debate!!!!!

Some misunderstandings in the above. All fund returns include any charges, so you will not get a fund which beats the index by 1% and then charges 2% - if the fund beats the index by 1%, it beats the index by 1%.

There may be some valid points in Tim Hales arguments, but his main thrust that "its impossible to beat the market " is very misleading. There are many markets with different characteristics. Many of these markets do not have an index, or have properties that make beating the index a better than 50/50 bet.

There are also different styles of investing related to for example balancing risk that are important to investors but are not captured by the index. Almost all indexes themselves have a particular "style" as they hold shares in proportion to their market capitalization and so by the 80/20 rule are dominated by the largest companies. There is no rule nor, as far as I know, any evidence that this represents the optimal allocation of resources.

Relatively few funds work within the constraints of a single index and even if they do, they would in general have a style that is different to that provided by the index. So, a true comparison of like-for-like is very difficult, and in any case fairly irrelevant as if you dont like the index style you have to go for a managed fund anyway.

Starting off with the decision to only buy trackers is a bit like going into the supermarket and only buying the low price "Basic" range without looking at the tin's contents list. You may get a bargain, but you may get something that is not to your taste or of poor nutritional value. You would certainly miss out on some of the more interesting foods the supermarket sells.

gadgetmind

Linton wrote: »

You would certainly miss out on some of the more interesting foods the supermarket sells.

When it comes to investing, most people don't want interesting.

I've finally settling on using passive for the vast majority of my investing and then having a few percent for "themes" aka "things that seemed like a good idea at the time".

Linton

gadgetmind wrote: »

When it comes to investing, most people don't want interesting.

I've finally settling on using passive for the vast majority of my investing and then having a few percent for "themes" aka "things that seemed like a good idea at the time".

Fair enough - each one of us has to make our own decision on an investment strategy.

The problems arise, I believe, when someone announces, or writes a book that convinces newbies, that they have THE way to investment success and that any other approach is foolish or conniving in corruption. This seems more akin to US-style evangelism than a sensible consideration of the complex problems of investment.

Rollinghome

Linton wrote: »

This seems more akin to US-style evangelism than a sensible consideration of the complex problems of investment.

There's a lot evangelism on both sides of the argument and a lot of evangelism, and superstition, in investing in general. As someone not inclined to superstition of any kind it's not a position I've ever understood.

thelawnet

Linton wrote: »

Starting off with the decision to only buy trackers is a bit like going into the supermarket and only buying the low price "Basic" range without looking at the tin's contents list. You may get a bargain, but you may get something that is not to your taste or of poor nutritional value. You would certainly miss out on some of the more interesting foods the supermarket sells.

That depends.

It might be that the 'Basic' and 'Extra Special' ranges are identical under the packaging.

But in my experience that's rarely the case.

'Basic' is often incredibly bad, particularly when it comes to things like sausages.

OTOH, while the 'Extra Special' funds are very often no different from than the Basic ones, just more expensive (just check the holdings).

gadgetmind

Rollinghome wrote: »

As someone not inclined to superstition of any kind it's not a position I've ever understood.

I'm considering running my wife's ISA as 90% passive and my ISA as 100% active and take a peek to see how it's looking in a decade or so!

Hooloovoo

Linton wrote: »

I thought you started off by saying you didnt want the thread to be an active/passive debate!!!!!

I don't. But I've had a lot of useful advice already so if the thread drifts a bit now it doesn't matter so much. What I didn't want is for the thread to head straight off into the "why not managed funds" argument before even getting on topic.

gadgetmind wrote: »

then having a few percent for "themes" aka "things that seemed like a good idea at the time".

... but probably ended up losing you money.

Linton wrote: »

There may be some valid points in Tim Hales arguments, but his main thrust that "its impossible to beat the market " is very misleading.

He never says that at all. Clearly it is possible to beat the market. What he presents is the evidence that it's very difficult to do so and finding a fund manager that can do it consistently is even more difficult.

The problems arise, I believe, when someone announces, or writes a book that convinces newbies, that they have THE way to investment success and that any other approach is foolish or conniving in corruption. This seems more akin to US-style evangelism than a sensible consideration of the complex problems of investment.

I'm a scientist by background, so I'm only interested in what is rational and proven by empirical evidence. The overwhelming evidence suggests that only a handful of fund managers have ever shown that they have any ability to reliably and consistently beat the market. The problem is finding the ones that can do that in advance of you investing, hoping they don't jump around between funds, and hoping their career outlasts your investment period.

I'm not falling for any evangelism, it's a simple rational argument based on facts that when considering the balance of probabilities index funds offer the highest likelihood of success.

Rollinghome

gadgetmind wrote: »

I'm considering running my wife's ISA as 90% passive and my ISA as 100% active and take a peek to see how it's looking in a decade or so!

You're more patient than me.

One of the problems has always been differentiating between luck and judgement even over very long periods. Fund managers who favoured bank stocks did impressively well until it all went wrong. It's not always possible to identify what it is in the style of a successful manager that makes him successful and whether that will last.

BTW, I manage both my own and my wife's investments and it's always an embarrassment that the returns for my investments are consistently better than for hers. I don't think I give more thought to mine than to hers and it's certainly not deliberate, all our assets are shared. So be sure to have your excuse handy.