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jamesd

Gadgetmind, that 2007 discussion here gave numbers going back to 2002. Throughout that time it's been one of the most popular funds in the UK and was so well before 2002 as well. The manager, for example, was renowned for avoiding investing in the tech bubble companies and missing the bust in them at the start of this century. It's not merely "a" fund, it's the likely obvious first choice fund for anyone interested in the style of investing that HYP covers.

When it comes to predicting the future with that fund, the discussion was in 2007. The fund is currently ranked 12 out of 106 funds in the UK Equity Income sector over the last five years, 18th over three years and 3rd over one year.

You can pick other funds but the ones that matter are the ones that people pick and in that sector it's more this fund than any of the others, with 11.6 billion invested in it and another 9 billion more in its similar Invesco Perpetual Income fund. Between them they have around 3.5% of the money invested in all UK funds combined, which is currently about 600 billion. The money in those two is more than half of the total of 37 billion invested in all retail Invesco Perpetual funds combined and more than in all retail funds offered by any other investment house except M&G.

So yes, it's possible to observe that a great deal of money has correctly been placed in those funds by retail investors over the years and that those retail investors have done quite well out of it. Retail investors seem to have been quite good at correctly predicting future outperformance in this sector.

I'm sure that many have done well with HYP, others went heavily into banks, say, and lost a lot of money because a bank like Lloyds TSB was very popular due to its high dividends.

There's no reason to take the extra risk of that approach when you can just pick one or two of the most reputable UK funds instead and know that you're likely to beat the HYP portfolios.

gadgetmind

jamesd wrote: »

It's not merely "a" fund, it's the likely obvious first choice fund for anyone interested in the style of investing that HYP covers.

Yes, and it will be interesting to see what happens if/when reversion to mean occurs. Let's take another look at that fund in 10 to 20 years, if it survives.

So yes, it's possible to observe that a great deal of money has correctly been placed in those funds by retail investors over the years and that those retail investors have done quite well out of it.

And equally well, the end result could have been much worse, and it has been for those who chose the "wrong" fund. You get the same thing in the Investment Trust sphere; those that have weathered the last decade well are spoken of in hushed tones, and their names spoken with much reverence, but once their steady eddy approach was laughed at. Others that had the same attitude but put their chips on the wrong colour at some point are largely forgotten and sent to sit in a corner for five years.

Don't get me wrong, I do hold some of those trusts for reasons of my own, but I'm all to aware that they all try and guess the macro economic future, and while some get it right, others get it wrong. At the next decision point, it's all change.

There's no reason to take the extra risk of that approach when you can just pick one or two of the most reputable UK funds instead and know that you're likely to beat the HYP portfolios.

Nope, over the long term, the managed fund will underperform by about the same amount as would be predicted by its fees. Removing that risk is fairly easy but it is also easy to add diversification risk instead.

This isn't guesswork, it's got solid maths, statistics and history behind it. Also note that I don't follow the HYP model as I don't regard it as a "whole" investment strategy, As a result, I am going well beyond 15-20 holdings, hold shares from the 250 and even AIM shares, have added REITs, and infrastructure to the pot, and also hold some ITs for asset diversification, and to cover smaller companies and/or non-UK markets. I also hold a variety of fixed interest, including some retail and financial bonds.

Is this still a HYP? No!. Is it a balanced portfolio with very low fees? Yes.

cheerfulcat

jamesd wrote: »

HYPe is one of the concepts that Motley Fool brought over from its US site, where there is a higher capital gains tax on holding things for less than a year and where fund holders are taxed each year on the capital gains of he shares sold by the funds they hold.

Sorry, that's not true. The High Yield Portfolio concept was introduced to TMF UK by Stephen Bland as an alternative to an annuity. Nothing to do with US CGT.

jamesd

cheerfulcat, he was a paid article writer for the Fool UK and wrote articles for them advocating buy and hold forever strategies that had been promoted on their US site. It's not surprising that they promoted here the same sort of thing as they had been promoting there and his first articles about this were under their official site banner in the Fool's Eye View columns.

gadgetmind wrote: »

Yes, and it will be interesting to see what happens if/when reversion to mean occurs. Let's take another look at that fund in 10 to 20 years, if it survives.

It's very unlikely that it will still be useful in twenty years - the manager is sure to retire or move on at some point. Today it's already been useful, popular and successful for around twenty years. It'll presumably revert to mean when it's no longer really the same fund, with a different manager.

gadgetmind wrote: »

And equally well, the end result could have been much worse, and it has been for those who chose the "wrong" fund.

It could have been, but the retail investors who used it didn't get it wrong and voted with a large portion of the money placed in that sector. The wrong funds don't matter much overall if they have a tiny amount of money in them, except for those producing studies that try to show you can't win with funds by using equal weightings.

gadgetmind wrote: »

This isn't guesswork, it's got solid maths, statistics and history behind it.

It's got a large collection of systematically flawed studies and a hypothesis that's known just to be a convenient approximation behind it. Things like ignoring manager changes or which funds people actually use. If you stick a few pins in a list of funds you can expect to get what those studies suggest.

gadgetmind wrote: »

Also note that I don't follow the HYP model as I don't regard it as a "whole" investment strategy, As a result, I am going well beyond 15-20 holdings, hold shares from the 250 and even AIM shares, have added REITs, and infrastructure to the pot, and also hold some ITs for asset diversification, and to cover smaller companies and/or non-UK markets. I also hold a variety of fixed interest, including some retail and financial bonds.

Why are you bothering if you believe the efficient market hypothesis is true? Surely you should be using a passive fund instead?

Good that you're using more diversification and a more complete strategy.

gadgetmind

jamesd wrote: »

It's very unlikely that it will still be useful in twenty years - the manager is sure to retire or move on at some point.

So what? All studies that have looked for "hot hands" have failed to find it. In those cases where there was some evidence, it was only apparent after the fact.

It'll presumably revert to mean when it's no longer really the same fund, with a different manager.

See above.

The wrong funds don't matter much overall if they have a tiny amount of money in them

As on average the funds are the market, half of the money is right and half wrong.

Things like ignoring manager changes

No, these have been studied. See above.

Why are you bothering if you believe the efficient market hypothesis is true? Surely you should be using a passive fund instead?

I'm using passive for about 70% of our savings and a combination of HYP and ITs for 20%. The remaining 10% is in high-fee active funds, dating back from when I knew no better, but this will change over the next year - I wanted to tackle the big stuff first.

Good that you're using more diversification and a more complete strategy.

TBH, I find it easier to keep a handle on things in our equity+IT+REIT+pref+etc portfolio than I do the active ones. For instance, that Invesco Perpetual fund has 20% in pharma, and if someone holds a few other UK funds, how much pharma will they be sitting on?

BTW, if you compare the performance over the last decade of Personal Assets Trust with Invesco Perpetual High Income, then PNL seems to have been a better option over most periods. PNL is also lower risk as they hold a lot of fixed interest and gold.

PNL is now huge and popular because of this, but the bulk of the money arrived after this outperformance rather than before. What does this tell us?

jamesd

gadgetmind wrote: »

So what? All studies that have looked for "hot hands" have failed to find it. In those cases where there was some evidence, it was only apparent after the fact.

This was not done after the fact, it was done in advance with a huge amount of money placed in the fund by investors. And also in that thread from five years ago, which even back then was recognising that it'd already been hugely popular for a long time.

gadgetmind wrote: »

As on average the funds are the market, half of the money is right and half wrong.

Agreed that it's a zero sum game overall - well ignoring the growth of companies which hopefully makes it positive sum.

gadgetmind wrote: »

No, these have been studied.

Not without systematic flaws in the studies. Unless I've missed a study somewhere that did control properly for the things that those using active funds sensibly are known to do.

gadgetmind wrote: »

BTW, if you compare the performance over the last decade of Personal Assets Trust with Invesco Perpetual High Income, then PNL seems to have been a better option over most periods. PNL is also lower risk as they hold a lot of fixed interest and gold.

PNL is now huge and popular because of this, but the bulk of the money arrived after this outperformance rather than before. What does this tell us?

We agree on this to at lest some extent: sometimes the money goes in after the success, not before. But the funds I'm using in this discussion were hugely popular long ago and remain so.

Linton

gadgetmind wrote: »

As on average the funds are the market, half of the money is right and half wrong.

That is an argument against a strawman. It only works if funds are essentially all making random choices across the full spectrum of shares in "THE market". Then it seems reasonable that performance is random and the market index will eventually predominate given charges.

In the real world funds do not invest apparently randomly across the market, some may, but many just invest in a subsector. Various subsectors perform in different ways. For example Small Companies has a history of outperforming the wider market in any region in the longer term. Conversely it would seem that Ethical funds tend to perform worse at least in the UK. And there is clearly some correlation in the relative performance of sectors over successive years.

Now lets look at THE market against which all other equity investments should be compared. Presumably the only real market is a Global one based on global market capitalisation - anything else is a subset of that. If your argument was correct any single region over a reasonable time period cannot outperform the overall market. Do you believe that to be the case? If so, why invest in say Emerging Markets or the Far East, they cant outperform the Global Market, can they? Is it really random and completely unpredictable?

gadgetmind

jamesd wrote: »

Agreed that it's a zero sum game overall - well ignoring the growth of companies which hopefully makes it positive sum.

Yes, growth and dividends are where investors win, hence why you want so little fee drag between such sources of wealth and yourself..

Not without systematic flaws in the studies. Unless I've missed a study somewhere that did control properly for the things that those using active funds sensibly are known to do.

There have been *many* studies that looked at whether investors of various different "skill" levels could choose winning funds. None could, and a monkey with a pin would perform just as well.

If you feel certain studies are flawed, then please provide references with sufficient detail for me to track them down and analyse them further.

But the funds I'm using in this discussion were hugely popular long ago and remain so.

I congratulate you on your ability to cherry pick.

I'm sure that I could provide you with a *huge* list of funds/ITs that were the hot thing 3/5/10 years ago, and really rave about those that have done very well. Of course, I'd have to ignore those that have crashed and burned.

A certain "hot hands" manager had a dabble with China a while back. How well did those "hot hands" work? As the evidence is against hot hands, he got none of my money, but many less informed people lost a packet.

Same old same old.

gadgetmind

Linton wrote: »

Do you believe that to be the case?

No.

An investor can tilt their holdings away from an even global spread, with their argument being because they think a certain sector/territory/cap will outperform.

Over a certain time period, they might be wrong or they might be wrong. On average, it makes no difference, but if they pay someone a fat fee to make no difference on their behalf, then they loose over the long term

Is it really random and completely unpredictable?

Random, no, but I really do think that it's unpredictable.

jamesd

gadgetmind wrote: »

I congratulate you on your ability to cherry pick.

Given the amount of money that's been in those funds I'm hardly alone in that ability. Remember, the pair has more money than the total invested in all retail funds in each other investment group other than the top two and this has been going on for a good deal longer than a decade.

gadgetmind wrote: »

I'm sure that I could provide you with a *huge* list of funds/ITs that were the hot thing 3/5/10 years ago, and really rave about those that have done very well. Of course, I'd have to ignore those that have crashed and burned.

I could as well, perhaps starting with Fidelity Special Situations before and after it changed managers.

The ones that do it for a year or two are a somewhat different case since they don't necessarily have long enough to show ability rather than luck.

gadgetmind wrote: »

A certain "hot hands" manager had a dabble with China a while back. How well did those "hot hands" work? As the evidence is against hot hands, he got none of my money, but many less informed people lost a packet.

It wasn't the same fund so it got none of my money. Zero track record in the particular area concerned so it was a speculative punt IMO.