Tim Hale - Smarter Investing

Marazan

Linton wrote: »

You can compensate for survivorship bias by using the IMA sector indexes which show the performance of the overall fund universe. In my view survivorship bias isnt as significant as you may believe for two reasons...

Apologies, I don't understand how using the IMA sector indexes help eliminating the effects of funds closing when analysing the performance of active funds.

Linton

Marazan wrote: »

Apologies, I don't understand how using the IMA sector indexes help eliminating the effects of funds closing when analysing the performance of active funds.

It shows the performance of an average fund including those subsequently closing in the same way as the FTSE100 index shows the average largest 100 share performance including those companies which have subsequently disappeared or been relegated.

jamesd

I didn't think that the the IMA sector indexes were weighted by funds under management in the same way as the FTSE is weighted by market cap, so the biggest have a bigger effect than the smaller ones. This is very significant because a key reason for closing funds is that they didn't attract much money and just weren't worth keeping open.

jimjames

pip895 wrote: »

My point is that it only needs to be a small bit relevant to swing the odds. In any case the average SC fund (UT UK Smaller Companies) beats trackers anyway.

Which trackers are you comparing?

Can an average SC fund can beat the SC index? I'm sure it can beat the FTSE100 but that isn't comparing like with like.

Edit - just checked and the FTSE Fledgling index has beaten the UK SC average over the last 5 years. So an average SC fund has not beaten the index.

Glen_Clark

pip895 wrote: »

Agreed - but you might well have spotted (Anthony Bolton) in say 1996 -

Was his track record much good then? I recall went through a bad period at some point - when people were bailing out, and he was carpeted by his managers.

Glen_Clark

dunstonh wrote: »

Where would it leave them?

It would leave them suffering mis-sale complaints for doing things wrong. There are other ways of keeping it simple without resorting to bad advice.

But I didn't suggest giving them bad advice
I suggested simplifying matters

jimjames

Glen_Clark wrote: »

Was his track record much good then? I recall went through a bad period at some point - when people were bailing out, and he was carpeted by his managers.

Yes he has, around 1990 I believe. Luckily for them they stuck with him and didn't give the boot when many others would have lost their jobs. It does show that even good managers go through periods of underperformance despite having good long term records.

pip895

jimjames wrote: »

Which trackers are you comparing?

Can an average SC fund can beat the SC index? I'm sure it can beat the FTSE100 but that isn't comparing like with like.

Edit - just checked and the FTSE Fledgling index has beaten the UK SC average over the last 5 years. So an average SC fund has not beaten the index.

The FTSE 100 is clearly irrelevant. Is the fledgling index the right one? - how about FTSE AIM or FTSE Smaller Companies -UT UK Smaller Companies certainly beaten both of them. The likes of Unicorn, and Cazenove have beaten the FTSE Fledgling too.

guymo

Glen_Clark wrote: »

Well you certainly would see data and analysis supporting passive investing in Tim Hales book, with pages of reference to studies and books. I haven't waded through it myself because there is so much of it. If you want to see the evidence supporting his view you need to get the book, its just too much to post here.

I do have the book and I think it makes a certain case quite well, but I don't quite buy the conclusion.

Sec 4.4 of the third edition, "Can active managers win?", presents a fair bit of data showing that fund managers on the whole do not outperform their indices. E.g. data on p59 that only 27% of funds beat their benchmarks over 15 years; data on p63 showing that good fund performance in one period does not carry over to the next, at all. Very similar findings are presented in the Vanguard report and infographic

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

But saying that 73% of active funds underperform only tells you that active managers don't deliver on their aims. It does not tell you that passive investing is better: 100% of passive funds underperform their benchmarks! (All I am saying here is that this piece of information does not help you make an informed decision.)

So if your aim is to beat the market, pick an active fund at random and you have a one in four shot at it; pick a passive one, and you will fail.

But that is not your aim, is it? Your aim is to get a good return on your money with tolerable risk, so what you need is information comparing the performance of active funds versus passive ones. I haven't seen such information in the Hale book, or in the Vanguard report, or in the academic papers I linked which concluded that passive approaches are better.

If you could guarantee a tiny tracking error then no further study would really be needed, but the Which? report gives some very worrying information about the variation in performance of passive funds, and I think this deserves a closer look.

If anyone knows any more sources of information on this, I'd be very glad to hear of them.

dunstonh

Glen_Clark wrote: »

But I didn't suggest giving them bad advice
I suggested simplifying matters

Cash and an index tracker would likely be bad advice for most people. Single sector investing is not considered appropriate nowadays unless justified as to why multi-asset was not suitable.