Sell at a loss now and buy new to make gains

gadgetmind

jamesd wrote: »

If a fund has under-performed the sector for say ten years there'd better be some really good other reason for holding it, or it deserves to be dumped.

So, if you've held a fund that's underperformed for nine years, you should hold for another year? Or is eight years closer to the mark? I'm just trying to come up with a metric that can be applied so we can back-test this approach.

jamesd

Personally unless there's a change of manager or economic cycle I wouldn't look more than five years back. It's already getting pretty hard to justify by then. Instead of back-testing yourself you might have a look at the FSA funded report I think you've mentioned from time to time, which did mention that there was some evidence that under-performance persisted. It's not the only one.

While I think the controls in such studies aren't adequate to eliminate persistence of over-performance, they are adequate to demonstrate persistence of under-performance because the things that cause over-performance tend not to happen in under-performing funds. trackers with captive audiences tend not to just arbitrarily lower their AMC to improve relative performance, say, though ti does happen sometimes

gadgetmind

jamesd wrote: »

Personally unless there's a change of manager or economic cycle I wouldn't look more than five years back.

So, is it 10 years or 5 years? BestInvest have a "Spot the dog" report, which is quite amusing even if not that informative, and they classify a fund as a dog after only three years.

which did mention that there was some evidence that under-performance persisted.

I'll have to have another read I know it found little evidence for over-performance persisting, so jumping ship at every sign of a twitch down over to another fund on the basis that "it's just gone up" is a great way to lose money.

things that cause over-performance tend not to happen in under-performing funds.

What evidence do we have for that? Funds that will under-perform in the future are impossible to identify in advance because they have good track records, star managers, and do and say all the same things as funds that go on to out-perform.

I guess what I'm saying is that I'm not sure either LTBH OR careful monitoring and switching are successful strategies for investing in funds. Studies into the long-term outcomes for investors tend to support this.

de1amo

the last batch of gold i bought has depreciated so its no safe haven!--i am sitting on it as a safer punt than shares but i see little growth in it unless QE starts again and in that case shares will go up.
selling and buying another asset class all costs fees!

gadgetmind

nxdmsandkaskdjaqd wrote: »

I have some underperforming funds (e.g Standard Life UK Equity High Income ) which has had average performance.

That one made BestInvest's "spot the dog" report for spring 2012.

They said, " Standard Life UK Equity Higher Income has also earned itself a spot in the dog house. Once renowned for consistency of performance, Karen Robertson’s stock-picking skills have been waning in recent years. During 2011 she was guilty of too pro cyclical a view as markets corrected into the second half, which is an affliction that several Standard Life UK equity funds were culpable of during the same year."

There are worse performers than Standard Life, such as Marlborough UK Equity Income but the "Best of Breed" section is also worth a look. One UK equity income fund has outperformed the All Share TR. Just one. The rest, even though they are the best of the best have lagged.

The best performer over the three years is Blackrock UK Income, which has outperformed the index by 5%. Five years ago, it was one of the worst performers. Which fund that they mention was performing best five years ago? Yes, of course, it's Marlborough UK Equity Income!

(I wish they gave 5 year TR figures and I can't be bothered to work them out! I'll play on HL later.)

gadgetmind

OK, here is how the "best of breed" funds have performed versus the FTSE All Share TR over the last five years.



As with the three year data, only Blackrock seems to have beaten the ASX.

Would I be happy having held the yellow line of the ASX rather than trusting my skill to pick the red lines over one of the others? Well, we're doing to investor psychology there, but I know what the figures say.

srcandas

gadget reminds me of the graphs I did of the Vanguard life style funds (20% bonds, 40% bonds, .....).

Just an observation but it suggests where you start from and end is quite critical and that some funds might appear poor but in fact are simply less volatile. So if for example we have a really bad time as the Euro implodes it could be the so called worst funds are the place to be.

Just a thought but interesting stuff. Please keep going :beer:

gadgetmind

srcandas wrote: »

Just an observation but it suggests where you start from and end is quite critical and that some funds might appear poor but in fact are simply less volatile.

Yes, and also what data you look at. For instance, I posted the graph from HL as their numerical data tells a different story for one fund, for which I have no good explanation.

The moral is to never trust any "point to point" data (unless over a few long term) and instead use the mk1 eyeball. For instance, I've seen some p2p data that shows trackers having big errors, but the graph shows them hugging the index close to their low-fee busoms!

Just a thought but interesting stuff. Please keep going :beer:

If you change the batteries every now and then, we could go on forever!

jamesd

gadgetmind wrote: »

OK, here is how the "best of breed" funds have performed versus the FTSE All Share TR over the last five years. ... As with the three year data

That is three year data. Have a look at the horizontal axis of your graph. You appear to have somehow presented a screen shot of graph for three years with a time span pulldown that says five years.

Here's the live chart for the same choices/colours but this time really over five years:
Compare to yours:

gadgetmind wrote: »

Would I be happy having held the yellow line of the ASX rather than trusting my skill to pick the red lines over one of the others? Well, we're doing to investor psychology there, but I know what the figures say.

What the real five year figures say is that all but Newton Higher Income beat the FTSE. The five year cumulative returns for the funds are 2.34% (Blackrock), 9.57% (Threadneedle), -5.44% (FTSE), -1.94% (Artemis) , 5.03% (IP), -9.29% (Newton).

It's also worth looking at the maximum drawdown over the period and observing that the FTSE was the worst of the collection. Reduced volatility has some value and is quite often sought by income investors.

The Newton Higher Income fund has adjusted its investment approach to seek less income in the hope of getting more capital growth. In recent years it was seen to be sacrificing too much total return by being overly restrictive in the shares it would use. Too soon to say whether that will help but given the long and generally more positive track record I still mention it as a fund example, haven't decided yet when I will cease to do that.

The Invesco Perpetual High Income fund took a deliberately cautious approach in 2009 that hurt returns compared to the FTSE. If you wanted that you'd have chosen to be in that fund, else to be somewhere else. If you didn't know its stance then you should consider whether using active investments is appropriate, because it matters and the manager is known to be cautious in such circumstances.

grey_gym_sock

that graph says it's for 3-and-a-bit years (28/01/2009 - 01/06/2012), not 5.

benchmarking equity income funds against the whole market doesn't tell you much - unless you do it over a very long term (and with dividends reinvested), because there can be quite long periods in which good dividend paying shares do better or worse than the market generally.

specifically, ISTR that cyclical shares had fallen a long way before january 2009, and then bounced back more strongly than defensive shares, so defensives are not unlikely to look good on this timescale. (OTOH, income funds might have previously held high yielding banks, whose dividends then disappeared.)