Help ! Money has more than doubled !

debbie42

jamesd wrote: »

I recommend not buying into the Fool argument but looking at the numbers yourself.

That's exactly what I have done, and why I'm switching from a tracker.

TMF is a fantastic resource, and does have some excellent discussion forums. However, the articles (including the one referenced) shouldn't be taken as read any more than editorials from any other source, IMO.

jamesd

nellykim, different parts of the market - UK big companies, mid-size or small companies, European big or small, emerging markets, Asia-Pacific and so on - do better at different times so if you're not leaving it to a manager to pick the sectors you'd want more.

Even where you are letting the manager pick sectors it's a good idea to have funds from a couple of different companies so you get the benefit of different styles and different mistakes or good ideas.

You should note that Jupiter Monthly Income mainly invests in UK funds investing in the UK whereas Jupiter Fund of Investment Trusts invests in funds in the UK which can invest worldwide. So there's a bit of useful diversification into different markets available from having some of each.

As well as those two you might add one from the UK Equity Income sector - something like Invesco Perpetual Income or Invesco Perpetual High Income, which are available in both income and accumulation forms. Funds in this sector tend to be fairly cautious so it's a useful sector to hold when the inevitable happens and the markets fall because it'll help to reduce the average drop.

Hmm, so far that's 3 different ones I've mentioned, each with a different reason for wanting them - maybe you're beginning to see why it's useful to have several, each with a different role, now.

Say you wanted a fourth. You might pick a corporate bond fund if you were cautious, maybe global corporate bonds if you were less cautious, or you might pick an Emerging Markets fund if you were more of a risk-taker and wanted faster growth, but with more up and down movement.

masonic

9 out of 10 managed funds don't manage to beat the index over the long-term.

All the research that has been carried out has shown that the average tracker still beats 3 out of 4 managed funds over the long-term.

How is this even possible? Surely, the performance of the index should equal the average performance of the funds making up that sector, e.g. 50% of funds should outperform the index by definition. Obviously trackers can narrow their scope within a particular sector, but how can a tracker fund outperform the sector average by such a significant margin as to put it in the top 25% of funds as implied above?

debbie42

masonic wrote: »

How is this even possible? Surely, the performance of the index should equal the average performance of the funds making up that sector, e.g. 50% of funds should outperform the index by definition. Obviously trackers can narrow their scope within a particular sector, but how can a tracker fund outperform the sector average by such a significant margin as to put it in the top 90% of funds as implied above?

From memory (haven't read it recently), the article uses the fact that higher charges are taken off managed funds than a tracker, and this is accounted for in the calculations.

dunstonh

Are there many (any?) trackers that have been going longer than 18 years?

There are yes, but you are welcome to pick lesser periods if you wish.

You should know better than to post a potentially misleading statement like this.

Whats misleading about it?

And please don't compare FTSE100 trackers and the All Share Index without explanation. The All Share Index, and any associated trackers, has outperformed the FTSE100 in recent years.

Both FTSE100 and FTSE all share trackers are in the UK all companies sector and many people find themselves in the FTSE100 rather than all share. I made no other comparison than mentioning you could pick either.

What about the first part of the statement from the Fool? What percentage of managed funds have beaten the index (100 or All Share) in the last 18 years?

FTSE all share trackers tend to come out mid table in the UK all companies sector. That is to be expected really because of the way it is made up. Figures have been posted a number of times in the past on the board showing L&G's index tracker against sector average and more often than not it is just below or right on sector average.

Have there been any studies analysing returns by switching to the best performing managed fund from the last year every year?

Thats not really the ideal way to do it either. By the time you find out which one has performed the best, you have missed out on it.

dunstonh

Ok, here is data for the last 10 years (cumulative)

L&G UK Index Trust Retail (sector average in brackets) in %

1 year = 11.90 (12.01)
2 years = 47.22 (49.10)
3 years = 61.34 (61.38)
4 years = 96.88 (102.26)
5 years = 53.97 (58.00)
6 years = 37.63 (41.31)
7 years = 35.82 (39.41)
8 years = 36.98 (47.63)
9 years = 53.89 (64.20)
10 years = 103.53 (115.19)

So, you can see, if you started a FTSE all share tracker at any point in the last 10 years, you would not have managed to get above sector average. So just over half the funds in the sector beat the tracker.

masonic

debbie42 wrote: »

From memory (haven't read it recently), the article uses the fact that higher charges are taken off managed funds than a tracker, and this is accounted for in the calculations.

Ah, well, that might explain it, although it is going to be a bit misleading for anyone buying through a discount broker, where some of those charges are refunded. For example, looking at some funds I have, the difference in charges between a tracker and managed fund is less than 0.5%. I'd be surprised if that was enough to bump the performance of the tracker up another 25% in the league tables. Add 0.5% per year onto the figures just posted by dunstonh above and it still looks like the tracker's performance is below average. E.g. 10 years = 103.53% + 5% = 108.53% (115.19%).

BigBelly

dunstonh wrote: »

Thats not really the ideal way to do it either. By the time you find out which one has performed the best, you have missed out on it.

In that case, how are you supposed to know what is going to be a market beating fund? Isn't that the logic behind the tracker 'lobby' - you can't pick a fund on past performance?

masonic

BigBelly wrote: »

In that case, how are you supposed to know what is going to be a market beating fund? Isn't that the logic behind the tracker 'lobby' - you can't pick a fund on past performance?

It's the worst funds that tend to perform consistently. Past performance can help you avoid those. Statistically, if you pick randomly and are able to avoid the worst funds, you have some advantage.

dunstonh

The figures are after annual management charges. Not before.