Tim Hale - Smarter Investing

bigadaj

jamesd wrote: »

There are possible benefits to cost differences between trackers. Consider both tracking error and whether the tracker actually holds the shares, uses only derivatives plus unrelated security or some mixture. There can also be a degree of active management with trackers, as there is with the stock lending done by Vanguard funds. The degree of leverage or shorting used can also vary between trackers for the same market.

Yes, very true, and I can see the reasoning behind some of these options. I still don't hold with stock lending though, as it seems to work against the fund when primarily used for shorting, exacerbated by the fact that the fees in most cases get taken by the fund managers rather than the retail investors!

gadgetmind

bigadaj wrote: »

Yes, very true, and I can see the reasoning behind some of these options. I still don't hold with stock lending though, as it seems to work against the fund when primarily used for shorting, exacerbated by the fact that the fees in most cases get taken by the fund managers rather than the retail investors!

Not in Vanguard's case.

https://www.vanguard.co.uk/documents/inst/literature/securities-lending-still-no-free-lunch.pdf

As for it working against the fund, that depends on whether the shorter is actually moving the price downwards and whether they can keep it down long term.

guymo

bigadaj wrote: »

Yes but that's assuming a straight line graph, which isn't the case for investments. This could be recalculated on an annualised basis on actual data but to be accurate might need to be done daily which is a bit of an ask.

"Assuming" is a bit strong. "Being satisfied to live with the geometric mean" would be more accurate Given that I only had two numbers to work with (the return and the period) there wasn't much else I could do. You originally questioned whether the calculation included the compounding effect of the charges, which of course it does.

A relevant question would be whether the 0.9% gap was down to something systematic throughout the period or to a small number of larger events that had an adverse effect on the fund's index-tracking. Clearly the minimal data in the Which? report does not show that up. I also don't know which one would be more worrying from an investment point of view. But anyway, since this is a tracker fund charging 1%, I don't think it's going to be too popular around here

EDIT: I bothered to look up the fund (not that I'm that interested)
http://funds.ft.com/UK/Tearsheet/Summary?s=GB0031810434%3AGBX
and it is plain to see that the underperformance is a result of a huge plummet in late 2011 relative to the index. So bigadaj is right, the line was nothing like straight, but that was to be expected. No idea what caused the drop though. Anyone?

grey_gym_sock

vanguard wrote:

We conclude that indexing is a powerful strategy in all segments of the market, and that the active/index decision should therefore be predicated on an investor’s ability to identify low-cost, talented managers, and not on the indiscriminate selection of active managers in market areas perceived to be inefficient.

the main point is not active vs passive, it's that costs matter.

there are active funds in the US (including from vanguard) with TERs under 0.2%. (and there are also active funds with similar high prices to typical active funds in the UK.)

paying an extra (say) 0.1% for an active fund, compared to a passive fund, is not a disaster. it's when you're paying an extra 0.7% or 1.5% that it's difficult to defend.

what is expected real return from investing in the long run? perhaps 6% if you're optimistic, 3% if you're pessimistic. then if you pay 1.5% for active management, that's between 25% and 50% of your returns going to the manager instead of to you.

this of course applies where there are active and passive alternatives. there aren't for every area of investment.

gadgetmind

grey_gym_sock wrote: »

the main point is not active vs passive, it's that costs matter.

That's mostly true but you also want to avoid "dog funds". Even with lower fees, these will be found aplenty.

this of course applies where there are active and passive alternatives. there aren't for every area of investment.

True, but how much exposure do investors need to these areas? There is some evidence that EM and SC can both can small (and they are small) long term out-performance over developer large/medium cap, but both are far more volatile.

pip895

gadgetmind wrote: »

That's mostly true but you also want to avoid "dog funds". Even with lower fees, these will be found aplenty.

Very true

gadgetmind wrote: »

True, but how much exposure do investors need to these areas? There is some evidence that EM and SC can both can small (and they are small) long term out-performance over developer large/medium cap, but both are far more volatile.

Are SC funds so much more volatile - I understand that SC shares are much more volatile, but I cant see much evidence of SC funds being significantly more volatile. Most compare well for instance to a FTSE 100 tracker.

Linton

gadgetmind wrote: »

True, but how much exposure do investors need to these areas? There is some evidence that EM and SC can both can small (and they are small) long term out-performance over developer large/medium cap, but both are far more volatile.

The experience since 2000 is that UK smaller companies have greatly outperformed the FTSE Allshare TR though before that date as far as I can see from the limited data available this was not the case. From the graph it looks like the game changed 12 years ago. Whether this is significant, perhaps arising from the greater SC access available to private investors and the large number of online investors, or a bubble I guess remains to be seen. In the mean time I am more than happy to rake in the profits.

Glen_Clark

There is only one way the investor can average the full performance of the market, and thats to own a basket of shares directly. Because its the only way the investor can avoid recurring charges.
Probably best chosen at random to avoid market noise influencing the decision.
But you don't see this recommended by professionals, even Tim Hale.

JohnRo

Glen_Clark wrote: »

There is only one way the investor can average the full performance of the market, and thats to own a basket of shares directly. Because its the only way the investor can avoid recurring charges.
Probably best chosen at random to avoid market noise influencing the decision.
But you don't see this recommended by professionals, even Tim Hale.

So playing devils advocate. How big is the basket and how much will it cost to buy and sell it? A fund, whether index or managed, costs nothing to buy and sell on some platforms and can contain hundreds of individual companies. A "small" ongoing charge is perhaps a more efficient and painless way of paying for the investment pot than eating into a large chunk of it right at the outset.

The barrier to entry imho for any such endeavour is having enough initial capital to buy enough shares to dilute both the very considerable cost of purchase for smaller sums and the risk of holding any one individual company, and then having the time to monitor them all.

Glen_Clark

JohnRo wrote: »

the very considerable cost of purchase for smaller sums and the risk of holding any one individual company, and then having the time to monitor them all.

No one is suggesting holding one individual company, even a company that is well diversified.
You could chose 10 shares at random, and buy them all on Sippdeal for £49.95.
You mention small investment so we can forget about capital gains tax and leave the shares to look after themselves.
A simple portfolio would be shares and bonds (but at current bond prices you are probably better off holding cash)