"Active" portfolio performance - did I do better than a passive strategy would have?

werutd

Firstly, yes i know there are loads of threads on portfolio performance on this board, I've read most of them but I don't believe any of them are addressing this particular question.

... maybe because its not straightfoward...

I've been investing monthly into a S&S ISA for over 10 years. All managed funds, one initially, then 5, now about 15. I've switched between funds along the way, and also made some one off larger investments between monthly contributions.

I've recorded every single transaction into a spreadsheet broken down by fund and use the XIRR formula to give me a rough idea of the performance (for the overall portfolio too).

However my knowledge of investing is relatively basic (I know roughly what asset allocation I want, and then I pick funds by ratings from various different websites) and the time I dedicate to this is very little.

I often read the old debate that on avarage, managed funds will underperform the market over time and I'd be much better off using trackers.

So what I'd really like to know is, how did I actually do over the last 10 years? Surely as I've kept track this shouldn't be too difficult. The hardest bit seems to be comparing on the basis of investing monthly and switching things around (assuming also that I can decide what index each of my funds would in theory have been invested in).

I look at the performance charts for my managed funds and they almost always seem to show outperformance of the sector average, but this isn't the same as comparing how the individual investments would have performed in an appropriate tracker.

I'd be happy with a ball park estimate or something just based on the overall portfolio vs Vanguard LS 80% (for arguments sake) or similar, but taking into account the individual investments (this would all be so simple with a lump sum investment made at the beginning and nothing else!).

Oh, for anyone still reading, the summary figures on my spreadsheet are:

Date Range: Oct 2002 - March 2014
Total Invested: £31695
Value Today: £45252
XIRR "Annualised Performance" : 6.47%

Not exactly breathtaking - maybe some of the more experienced investors here already know from this off the top of their head just how badly I've done compared to a passive strategy?

Chargem

based on the FTSE all-world total return index available here, returns from 1 October 2002 to 31 March 2014 were a smidge over 300%, or roughly double your returns (I am too tired to work out an annualised return).

werutd

beancurd wrote: »

It wouldn't be 300% as the money was added incrementally not in bulk at the start.

There is no debate that on average, managed funds will underperform the market over time. It is a statistical fact.

Yes exacty - I was only paying in 100 a month at the start, and was adding much more in the most recent years, which would give a much lower annualised figure than investing the whole amount at the beginning.

According to the charts, the funds I've picked have outperformed their sector average over the last five years...

guymo

werutd wrote: »

Yes exacty - I was only paying in 100 a month at the start, and was adding much more in the most recent years, which would give a much lower annualised figure than investing the whole amount at the beginning.

This makes it impossible for anyone to tell you what your performance would have been with a different portfolio: to do so we'd need to know when the money was invested and then make some fairly detailed calculations.

You could play around with the tools at http://www.portfoliovisualizer.com/ to get an idea.

dunstonh

There is no debate that on average, managed funds will underperform the market over time. It is a statistical fact.

You mean tracker funds will. Trackers track the market but due to tracking errors and charges, they will slightly underperform it on a consistent basis. They cannot outperform the market. They can only represent it.

Managed funds can underperform or outperform. Many have different objectives to the market and should not be compared on a like for like basis. If you wanted a bog standard UK equity fund then it would make sense to go with a tracker. However, if you wanted a focused fund (such as value, blend, income etc) then a managed fund is likely to offer the best choice. In a mature market, a tracker would likely offer the best option. In an immature market, a managed fund would.

It shouldnt be a case of one or the other but using the best of both.

Chargem

werutd wrote: »

Yes exacty - I was only paying in 100 a month at the start, and was adding much more in the most recent years, which would give a much lower annualised figure than investing the whole amount at the beginning.

According to the charts, the funds I've picked have outperformed their sector average over the last five years...

My previous calculation was a very rough one and I should have clarified it was on the basis of an initial lump sum with reinvested income.

Here is a more detailed calculation for you:

If you have invested £31,695 from 1 October 2002 to 31 March 2014, I make that a period of 126 months which averages as a monthly contribution of £251.55 per month.

Investing £251.55 every month into the FTSE all world total return index I linked to in my earlier post, I make that your pot would be worth £55,225.35 as of 1 April 2014.

Again, I know you've said you only invested £100 a month at the start and I've estimated more than this, but I can't really be more accurate than I have without exact timings of your investments etc. I also haven't factored in the cost of buying units in the index.

PS: How I'm calculating these numbers is adding columns to the total return index spreadsheet from the FTSE link which cover: the amount invested on a particular date, how many units of the index that would have bought, a cumulative total of the index units bought to that date and then the total units revalued to that current value of the index.

If that isn't clear, maybe I can email you a spreadsheet if you are really interested and you can add in the lump sums etc you have made for more accuracy, but do you really want to know how much you have lost out on? It may even be a moot point if a tracker for the particular world index I am modelling wasn't available to you at the time you started investing...

bigadaj

That sort of return is what represents a long term average given that we've been in a relatively low inflation environment for most of that time. Returns might be slightly better but charges also have to be considered so a net return of 6-7% a year sounds about right.

Linton

Chargem wrote: »

......

Investing £251.55 every month into the FTSE all world total return index I linked to in my earlier post, I make that your pot would be worth £55,225.35 as of 1 April 2014.

Again, I know you've said you only invested £100 a month at the start and I've estimated more than this, but I can't really be more accurate than I have without exact timings of your investments etc. I also haven't factored in the cost of buying units in the index.

PS: How I'm calculating these numbers is adding columns to the total return index spreadsheet from the FTSE link which cover: the amount invested on a particular date, how many units of the index that would have bought, a cumulative total of the index units bought to that date and then the total units revalued to that current value of the index.

If that isn't clear, maybe I can email you a spreadsheet if you are really interested and you can add in the lump sums etc you have made for more accuracy, but do you really want to know how much you have lost out on? It may even be a moot point if a tracker for the particular world index I am modelling wasn't available to you at the time you started investing...

Its far from clear the OP has lost out at all. Oct 2002 was near the lowest point after the dot comm bubble. By March 2003 the FTSE100 dropped to 3287, lower than in 2008. So if your calculations assume that he put in far more money in the first few years than in reality you are going to get very different answers.

Unless you know exactly when he put in how much money you cant make any meaningful comparison.

Doshwaster

bigadaj wrote: »

That sort of return is what represents a long term average given that we've been in a relatively low inflation environment for most of that time. Returns might be slightly better but charges also have to be considered so a net return of 6-7% a year sounds about right.

I track all of my investments in MS Money and it tells me that the annualised returns for all of my investments is currently 8.3% over the last 10 years. However, this covers a wide range of individual returns from over +150% to -50%.

I'm fairly happy with that.

masonic

werutd wrote: »

I often read the old debate that on avarage, managed funds will underperform the market over time and I'd be much better off using trackers.

So what I'd really like to know is, how did I actually do over the last 10 years?

As others have suggested it is very difficult to work this out going backwards. The best thing you can do is run a virtual portfolio of trackers alongside your real portfolio, making sure you mirror all of the contributions you make and compare performance that way.

Chargem

Linton wrote: »

Its far from clear the OP has lost out at all. Oct 2002 was near the lowest point after the dot comm bubble. By March 2003 the FTSE100 dropped to 3287, lower than in 2008. So if your calculations assume that he put in far more money in the first few years than in reality you are going to get very different answers.

Unless you know exactly when he put in how much money you cant make any meaningful comparison.

I think I was pretty clear in the post that you quoted about the limitations of my estimates. You are correct that my sentence should read "if you have lost out, do you really want to know by how much?". The underlying point I was trying to make was that short of a time machine, it's not incredibly useful information to know.

I guess I showed my bias towards passive investment in my post, and I also assume you are defending active investment in yours. My opinion remains that if the OP did actually crunch the numbers, he would find out that he would have been better off using trackers, if only based on his self professed basic investment knowledge and fund picking via "ratings on various websites".