Passive Vs Active Investing - Video On Monevator

Linton

Its a well known very highly regarded fund. Nothing wrong with hedging in principle, the problem is that if overused it can lead to large losses.

richyg

Linton,

I know nothing about investment but as a method of of managing a large amount of money as quoted "Well, when we had £6 billion, the top 30 clients accounted for a third of the business, or £2 billion." this is all i can find about the 2008 fall...


"Indeed.

Through a combination of luck and good judgement, in a week when you couldn’t trade almost anything, we were in a position to trade enormous sums of the Swiss Franc into the Yen. That was a fantastic. It was 20% of our portfolio. I used to try and muscle in and claim some credit for it, but now that Henry’s the Chief Executive Elect, I’m prepared to admit that I was on holiday [laughing]! I was having dung thrown at me down in some Dorset health farm."


Finding yourself in £1.2Billion in Swedish francs trading 20% of ta £6 billionn portfolio for Yen managing billioniarres portfolios while your boss is on holiday ? and thus avoiding the worst bear market in 50 years

:o:o:o:o


Is this really reliable and repeatable active management ?

RichgG.

Linton

I think you are reading too much into a silly gungho interview. Moving from one of the safest currencies in the world to another of the safest currencies in the world isnt a major risk. To refresh your memory, FTSE100 trackers dropped 30% in the year Dec 2007-Dec 2008. A tracker isnt a low risk option.

But I have no brief for the Ruffer fund beyond some admiration for its consistency. My preference is for higher risk but potentially very much higher return sectors.

koru

Bear in mind that this video was paid for by a financial adviser company who only recommend passive funds: Barnett Ravenscroft Wealth Management. (Business is obviously very good for them if they can afford to pay for this video including sending a reporter and camera team to the USA to do the interviews.)

I'm not opposed to passive investing; a large chunk of my money is in index funds. However, I do think the video is a bit one-sided for instance in suggesting that all of the evidence favours passive investing. If you really delve into this, you find that it is not quite that simple. I think what the evidence does clearly show is that the vast majority of active fund managers do not dare to depart significantly from the index against which they are measured and so they have no chance of outperforming that index. Unless you are willing to take some major risks (like Ruffer), you will just be a closet tracker, in which case you will underperform the overt trackers because they have lower fees which do not drag their performance down as much. There is some evidence that picking truly active fund managers does increase your chances of getting better performance than a tracker.

This was discussed at length in the following thread: https://forums.moneysavingexpert.com/discussion/2209297.

innovate

koru wrote: »

There is some evidence that picking truly active fund managers does increase your chances of getting better performance than a tracker.

So how do you pick the right/successful active fund manager?

Zebra

innovate wrote: »

So how do you pick the right/successful active fund manager?

Hindsight.

koru

innovate wrote: »

So how do you pick the right/successful active fund manager?

See the thread that I linked to, particularly the paper by Cremers and Petajisto.

jimjames

talexuser wrote: »

It would be interesting to see the real difference over say 10 years of a low cost tracker like HSBC or Vanguard compared with say a mix of 3 or 4 of the top income funds, say actively changing income funds as they fell out of the top 10 of their sector, the un-recommended follow the leader type of investing. And maybe a third graph of maybe a contrarian (random) income mix to see if that worked any better.

It would definitely be an interesting comparison. In particular changing to a fund that has previously done well is no guarantee that it will perform in future so you may find that switching out of a fund as it drops out of the top 10 may mean you miss out on a period of good performance and into a fund that is about to do badly.

There was previously a portfolio based on high yield run by Motley Fool as a Beat the FTSE but I'm not sure if they are still doing that.

talexuser

The only fund I have never changed from early 90s Peps is Woodford's High Income. Looking at Hargreaves charts it is about 10% ahead of Vanguard All Share and 5% ahead of HSBC All Share if I've got it right over their max of 5 years.

When I was in Jupiter Income in the days of Littlewood that consistently outperformed the Perpetual maybe for a decade, I sold a couple of years after Nutt took over and it was going nowhere. The next best in those days was Lazard when Frost was in charge, or Credit Suisse when Mott was running it, both sold many years ago now, but they earned their fees in comparison with trackers, and I'm still with Frost in Artemis now.

Basically I'm quite satisfied with "star" managers if you keep a regular eye on how things are going and give them some time to climb out of a contrarian hole. Took a small punt on Strategic Assets just because Littlewood made me so much in the past, the jury is still out on that.

If I did not want to worry and did not want to keep "track" (sorry!) of things too much I would definitely go for low cost trackers.

koru

talexuser wrote: »

Basically I'm quite satisfied with "star" managers if you keep a regular eye on how things are going and give them some time to climb out of a contrarian hole.

That's the tricky bit, judging whether they have lost their touch or they are just taking a contrarian bet that will pay off in the long run.