Fees

Lokolo

gadgetmind wrote: »

So why are so many funds failures despite their "star" managers and previously top-end reputation?

Like what?

A lot of evidence for trackers is based upon chance. Well it's not always chance. Man U vs. Blackpool is 50/50 (lets say just say for example its a cup game and draws aren't possible). Well you do it 20 times, it won't come out at 50/50, or anywhere near. Do it 100 times and it won't be anywhere near 50/50 etc.

doubleJackD

Lokolo wrote: »

It doesn't matter whether they did or not. You asked how a fund manager could stop obvious failures and I gave you an example.



No that's not how it works. Fund managers buy and sell from investment banks (JP, HSBC etc.) not between themselves.

no i asked how you spotted the "obvious failures" amongst the active funds.

something like 90% of shares are owned by institutions, is it not within the confines of reason that a fund manager selling shares will sell his shares to another fund manager, either directly or indirectly?

i thank you for your input, but perhaps you could read the posts a little more thoroughly before posting again.

Lokolo

doubleJackD wrote: »

no i asked how you spotted the "obvious failures" amongst the active funds.

Oh yes so you did. Sorry, I was reading dunstons earlier posts and missed out the one about getting rid of the dog funds before picking one.

something like 90% of shares are owned by institutions, is it not within the confines of reason that a fund manager selling shares will sell his shares to another fund manager, either directly or indirectly?

Yes it is entirely possible, but doesn't mean that is the case. Don't forget the banks will buy and hold them for X period, so although you say "Well if one fund manager sells and another buys, then one has succeeded and one has failed" may not be entirely true. The investment bank could be sitting on the shares for a prolonged period.

So if we go back to the BP. A manager could have sold them in Month X 2010 but another fund manager may not buy those shares until Month X+3 2010, which means the IB has lost out.

gadgetmind

Like what?

Subscribe to Citywire and/or HL and you'll be able to see who the former are removing from their selection and the latter from the "Wealth 150".

Of course, if someone *really* can spot good funds in advance, and if they *can* judge the right time to jump ship, then hats off to them. The evidence is that this is a rare skill and most investors would be far better using a balanced portfolio of global trackers with a side order of fixed interest.

Lokolo wrote: »

A lot of evidence for trackers is based upon chance.

No, it's based on rigorous studies of what has actually happened in the real world.

bigadaj

It is incredible that active funds don't outperform more though, as there should be an opportunity to largely track and avoid some of the bad news. I suppose that the answer is that they might marginally outperform but not sufficiently to negate the cost of increased fees.

gadgetmind

bigadaj wrote: »

I suppose that the answer is that they might marginally outperform but not sufficiently to negate the cost of increased fees.

The fundamental laws of mathematics tell us that they can't all outperform, in the same way that it's impossible for all drivers to be better than average.

doubleJackD

bigadaj wrote: »

It is incredible that active funds don't outperform more though, as there should be an opportunity to largely track and avoid some of the bad news. I suppose that the answer is that they might marginally outperform but not sufficiently to negate the cost of increased fees.

that's certainly my understanding of the situation. with virtually all other services you buy the general rule is the more you pay the better the service. it seems with fund management that the more you pay the less you get.

i can only assume that the typical active fund consumer lacks the cognitive skill to appreciate this.

gadgetmind

doubleJackD wrote: »

i can only assume that the typical active fund consumer lacks the cognitive skill to appreciate this.

I'm not at all sure it's down to cognition as I think it's in many ways counter-intuitive. Of course investments should perform better if carefully tended by a skilled active manager! It stands to reason!

However, this theory fails real-world empirical testing, so we're forced to reject the theory, or at least tweak it to fit. One tweak is to say that it's their selection of active funds that's letting investors down, so they need to look at past performance and reject the duffers. Oops! Further evidence shows that this doesn't work either. And neither does adding additional layers of managers - see Buffett's "gotrocks" story.

Glen_Clark

gadgetmind wrote: »

One tweak is to say that it's their selection of active funds that's letting investors down, so they need to look at past performance and reject the duffers.

If the punters were smart enough to buy and sell the right funds at the right time, they would be smarter than the fund managers. So what are they paying the fund managers for?
(or maybe I should say 'lucky' rather than 'smart'.)

Glen_Clark

I've just done a rough calculation. Say, for the sake of simplicity, you save £1,000 for 50 years for a pension fund of £50,000. There is a 1% annual management charge. That works out at about 25% - (plus entry and exit charges, administration charges, etc etc.) You can avoid that by just buying shares and keeping them in certificated form. If you pick them at random they are likely to do at least as well as those chosen by the average fund manager. And if you buy in £2k chunks, 25 different shares or good quality bonds, that must be as safe as anything?