Vanguard Life Strategy

black_taxi_2

when u watch analysts on TV,or fund managers

they come out with quotes that have double meaning,or the way they say it sounds very technical or knowledgable about past & future.

bigadaj

minimumcost wrote: »

Does this help... In the best years 60% of all active managers under perform their index. Funds that perform above their index have never managed to sustain this level of performance for more than a few, single digit years. No one has work out how to identify a high performing manager in advance. If you invest through a manager that is above average, due to ‘regression to the mean’ they’re more likely underperform in coming years.

Best quote of preaching to teh converted I've heard ina. Long time.

Linton

minimumcost wrote: »

1. OK over 10 years, but over all average investment lifecycle since WW2 and before they are similar, with small caps being depressed by higher trading costs. If you could predict a coming successful 10 year cycle and when to get out you'd be in the money.

2. The manager performance I refer to is their performance against the index their particular assets contribute to. Again over the average investors lifecycle asset classes even out. On occasion they die out 'cause they can't keep up (tulip bulbs). If they didn't all that 'efficient market' stuff they teach in business schools is nonsense. Google... "More than half of active funds underperform, study shows" article on Trustnet. I'm being kind at 60%. Mind you a lot of what they teach at business school IS nonsense.

3. You use an interesting choice of words 'fund associated with an index'. An index is a consequence of trading activity, so it might be more appropriate to say that an index is associated with a set of trades. As far as I know all mutual funds cite an index they contribute to with the trades the execute. Any and all trades on all the various stock markets are represented in some index. There is a ethical index and a small cap index. If you wanted to you could define your own index... all companies with a z in there names. Fact is the data says that active managers have to date under performed indexing for every average investor lifecycle in every asset class since records began.

Investor lifecycle is the key constraint. If you could pick a 1 to 5 year investment period in which you did all your investing, when the variance is high and that variance is positive you'd be OK, but you can't.

- You are using some interesting phrases in your posts - "slam dunk", "mutual fund". Are you a UK investor or US??

- Had a quick check on some managed funds of interest to me - frequently the index is something relatively obscure for which no trackers exist. So whether a hypothetical tracker could beat the fund is of little interest if there isnt one. The important question is not whether a theoretical managed fund could beat a theoretical index tracker but which real funds one should invest in.

- I agree your point about me creating my own index. The problem is that it lacks any intellectual justification in terms of matching the global market. Very few investors are actually investing within the bounds of the "market" defined by my index. I guess on that basis any fund manager could create an index defined as the shares the manager likes and claim his fund is a tracker. Perhaps the Vanguard UK Equity Income fund could be said to operate in this way with its highly artificial specially commissioned "Index".

- you accept my point about 10 year data. The problem with using old data is that there were very few trackers, fewer funds operating outside the traditional FTSE UK markets, charges were much higher than now etc etc so I would contend that older data needs to be treated rather cautiously.

- Until recently managed fund charges covered things like platform, sales and advice commission whereas tracker charges didnt. With RDR we will see a more level playing field. If the advantage of trackers isnt currently detectable over the past 10 years it cant be greater than a fraction of a % annually (if it exists at all) and so the boost we should see in the performance of managed funds could well exceed it.

gadgetmind

Linton wrote: »

2) Suggest you look at the Trustnet data.

Yes, but make sure you look at 10+ years of data and also correct for all of those funds that under-performed year and year and were quietly closed, merged, rebranded, renamed or hidden away by some other means.

It isn't easy for investors to do this as the data isn't easy to obtain, but many academic studies have done it. It's from these studies that we get our understanding regards how active investing works in the real world.

If after seeing these results people still choose to try their hand at active investing, then good luck to them. They are going to need it.

Marazan

Linton wrote: »

- Until recently managed fund charges covered things like platform, sales and advice commission whereas tracker charges didnt.

Tracker fees most certainly did cover those things as well - thus you saw FTSE trackers with outrageous fees of 1% a year or more. Trackers are cheaper than actively managed funds because the whole organisation of trackers is geared to reducing costs and making them cheaper - it is a simple fact. If you think you're going to see a clean class managed fund get down to a TER of 0.15% + platform fees then you are crazy.

Marazan

gadgetmind wrote: »

Home bias is done for psychological reasons, which I have little time for.

I thought home bias was a sensible decision to defray exchange-rate risk.

gadgetmind

And here it is with pictures.

https://personal.vanguard.com/us/insights/article/infographic-outperformance-112013

gadgetmind

Marazan wrote: »

I thought home bias was a sensible decision to defray exchange-rate risk.

This makes sense for fixed interest but less so for equities as these represent real assets so tend to have a high degree of inflation proofing built in.

My memory (which may be hazy) is that the home bias was mainly so that someone's portfolio behaved in similar ways to the stock markets they saw reporting in their local news, but maybe I need to fish out Smarter Investing.

Anyway, after reading the justification I promptly ignored this bias and went for a more global exposure.

minimumcost

Linton wrote: »

- You are using some interesting phrases in your posts - "slam dunk", "mutual fund". Are you a UK investor or US??

- Had a quick check on some managed funds of interest to me - frequently the index is something relatively obscure for which no trackers exist. So whether a hypothetical tracker could beat the fund is of little interest if there isnt one. The important question is not whether a theoretical managed fund could beat a theoretical index tracker but which real funds one should invest in.

- I agree your point about me creating my own index. The problem is that it lacks any intellectual justification in terms of matching the global market. Very few investors are actually investing within the bounds of the "market" defined by my index. I guess on that basis any fund manager could create an index defined as the shares the manager likes and claim his fund is a tracker. Perhaps the Vanguard UK Equity Income fund could be said to operate in this way with its highly artificial specially commissioned "Index".

- you accept my point about 10 year data. The problem with using old data is that there were very few trackers, fewer funds operating outside the traditional FTSE UK markets, charges were much higher than now etc etc so I would contend that older data needs to be treated rather cautiously.

- Until recently managed fund charges covered things like platform, sales and advice commission whereas tracker charges didnt. With RDR we will see a more level playing field. If the advantage of trackers isnt currently detectable over the past 10 years it cant be greater than a fraction of a % annually (if it exists at all) and so the boost we should see in the performance of managed funds could well exceed it.

- I'm UK, but worked all my life in US high techs. I have lots of foolish mates that have dumped their commission checks into 'sure things'... I still talk to some regularly and all of them have blown up. BTW... index investing is taking off in the US.

- As more investment in made in more trackers there is an increasing recursive effect. This means it's a mathematical impossibility for the mean of all active funds to beat the index and hence the passive funds. As it has so far improved impossible to pick successful managers in advance the probability is that you'll make more money in the tracker than in the active.... nothing to do with underlying performance, simply the difference in the cost structure. Question is why are you interested in managed funds?

- Because of 'efficient market theory' the sensible thing to do is invest in a broad spectrum that represents the whole market. I.e. the markets are fungible such that over your investment lifecyle the sectors balance out. That's what the data says for every 30 year period since records began. The exceptions are new ideas that don't catch and die out. You don't want to be near any of these. The success rates are stunningly poor.

- The only historical trends that have any relevance to a private investor is all the data... all classes and time. That is because nature has locked you into fixed time frame. Assuming that the average person invests for 30 years you can analyse every 30 year period and work out the best investment strategy to maximize your returns based on probability. Which Bogle and Hale have done for you. A single 10 year period is meaningless as is individual fund performance.

- What Marazan says 'Tracker fees most certainly did cover those things as well. If you think you're going to see a clean class managed fund get down to a TER of 0.15% + platform fees then you are crazy. ' Index funds are traded automatically on computers. Managed funds need people. People cost money.

Linton

minimumcost wrote: »

...

Question is why are you interested in managed funds?

I am not as such, what I am interested in is being able to invest in whatever sectors I like. I dont want my choice restricted to those sectors that happen to be covered by a meaningful index.

In my view whether a fund is managed or a tracker is a secondary concern. Even you seem to admit the difference is only worth perhaps a few % over decades. The differences between sectors are orders of magnitude larger. You may be right in believing that sectors average out over say 50 years, I have no idea but dont care as I am not investing for 50 years and I reserve the right to occasionally change my allocations. What is clear is that particular sectors can outperform for a decade, more than enough for an investor to take advantage.