How you pay for the City

Ark_Welder

cepheus wrote: »

I could certainly have predicted this response!

Why......?

John1993_2

cepheus wrote: »

There is enormous evidence that active management funds perform worse than passive funds over the long run.

This is to be expected, why is it a problem?

It sounds like you maybe don't understand why they may still provide better value.

Let me try an analogy for you. If you contract cancer you'll pay less for medicine if you send a monkey into boots to pick the first thing it finds than if you go to a top oncologist and take what they recommend.

Does this make the monkey's savlon the better choice?

doughnutmachine

Lokolo wrote: »

What I don't agree with is the premise that showing the costs will benefit in any way. As I gave an example above, once you know what return you get, why does it matter how much it cost to get there? If you are happy with the end result, you are happy with the end result.

because it's been shown that low costs in fund management correlate with superior returns?

grey_gym_sock

John1993 wrote: »

Let me try an analogy for you. If you contract cancer you'll pay less for medicine if you send a monkey into boots to pick the first thing it finds than if you go to a top oncologist and take what they recommend.

if the results for monkey into boots vs top oncologist were the same as for monkey with a pin vs professional fund manager, then the monkeys in boots would have very consistent, mid-table clinical outcomes, and the top oncologists would have wildly varying outcomes - some far better than the monkeys, some far worse - but there'd be no consistency from year to year for which oncologists did well, so there'd be little point in picking last year's top performers.

i conclude that the analogy doesn't work

doughnutmachine

John1993 wrote: »

This is to be expected, why is it a problem?

It sounds like you maybe don't understand why they may still provide better value.

Let me try an analogy for you. If you contract cancer you'll pay less for medicine if you send a monkey into boots to pick the first thing it finds than if you go to a top oncologist and take what they recommend.

Does this make the monkey's savlon the better choice?

ehhhhmmm If the monkey picked medicines that cured the cancer and the oncologist picked medicines that killed the patient I would rather go with the monkey.... with respect, you don't seem to be able to understand the argument that has been presented in this thread.

no one can be sure of what geographical areas/ investment themes will prosper over the coming decades. but we can all be sure that picking a fund with low charges is likely to increase our chances of picking a fund that will do well.

dunstonh

cepheus wrote: »

In a comparison of funds in the same sector, one with returns of 12% and costs of 5%, verses a fund with returns of 6% and costs of 1% the second may be better. The costs will stay similar into the future, but any out-performance will probably return to the norm since this was more likely achieved by chance than ability.

That is a really bad way to compare fund performance and net return. I was reading a bulletin about risk analysis on sectors a while back and on it took one sector as an example and found that the funds in that sector were spread across 5 different risk profiles (out of 10). Typically, the funds with the greatest risk tend to do the best in a growth market but the worst in negative market.

'Active' managers are forced to closet index track,

Some are. Which is why you filter those ones out when researching. Just because some do that, does not mean all do.

Ark_Welder

grey_gym_sock wrote: »

if the results for monkey into boots vs top oncologist were the same as for monkey with a pin vs professional fund manager, then the monkeys in boots would have very consistent, mid-table clinical outcomes

Wrong. Sending the monkey into Boots to pick up the first thing will result in consistently inferior results.

My experience of Boots is that the first thing encountered is the perfume counter...:p

doughnutmachine

dunstonh wrote: »

Some are. Which is why you filter those ones out when researching. Just because some do that, does not mean all do.

or you just invest in low cost trackers.....

dunstonh

doughnutmachine wrote: »

or you just invest in low cost trackers.....

What about in areas where there are no trackers or there is not a tracker that covers the investment style you are looking for or you have a preference for lower volatility than that of the tracker or a preference for higher volatility?

doughnutmachine

dunstonh wrote: »

What about in areas where there are no trackers or there is not a tracker that covers the investment style you are looking for or you have a preference for lower volatility than that of the tracker or a preference for higher volatility?

well I will admit that if you want exposure to some of the more obscure areas of the investment universe there might not be a tracker. but for most mainstream investment areas there will be low cost/ tracker option.....