cheap Index Trackers, where to find?

Ryan_Futuristics

Ah, I didn't realise L&G's offer was exclusive to Hargreaves - I'll come back to these replies

ChopperST wrote: »

Ryan would you care to elaborate on this a little more.

As a biologist rather than a economist I researched alot before I decided to start investing. My research time and again showed me that a strategy of losing the fewest points via cheap index trackers was the best approach over the long term and this is supported by long term empirical data as there is no way to pick stocks or fund managers who will do well over a long term period.

I watch with interest your posts and also bowlheads excellent replies to try and learn more.

I semi-comprehend your use of CAPE weightings and do top up my own portfolio, like last month when the markets dip but I do stick to my geographical allocations when doing so - I recall you saying that you were only invested in the US to the tune of 2-3% if I remember correctly - yet the US has produced some of the strongest returns over the last 5 years? Does that mean that you bought in after the GFC and sold at some point acording to CAPE?

Also if I may ask if you don't believe that a passive portfolio is the way to go - how do you manage yours? Is it with individual stocks or funds - I know you like the new Woodford. I was also be interested in any peer reviewed empirical data you could share that I could read which could give some balance to the passive investment arguments that are so strongly held.

Hope this makes sense!

I started off as a passive investor, but coming from a maths and computing background, I started to spot things I didn't quite agree with in the logic people had been touting (especially recently again) to sell tracker funds and passive investing principles

Much of the fervent belief that you can't beat indexes (or make any decisions on investing) started with the 1970s book A Random Walk Down Wall Street, in which Burton Malkiel used broad statistical analysis to show how active funds beating the index seemed to come down to little more than chance

Warren Buffett rebutted this in the 1980s with his article, The Superinvestors of Graham-and-Doddsville ... He peered into the statistics Malkiel had used and found that it wasn't exactly random: the investors who did beat the index were far more likely to be *value* investors ... If you broke the statistics up, you'd find many different types of investor - some of whom consistently beat the index, and some of whom always lagged it (and many who shouldn't be investing at all who just lose lots of money)

Then we could always take the managers who lagged the index and see whether they'd provided clients with lower volatility, and better protection through crashes (which are things we do place actual value on - we place a financial value on insurance policies; many of these funds have higher cash holdings than an index tracker)

So I think you have to be cautious when companies like Vanguard use these very broad statistics - another bugbear I have with them is their use of averaging results (which takes risk out of the equation, and could be used to draw some very questionable conclusions)


For me, the principle of buying cheap (and selling at fair value) is much more important than active vs passive ... It's difficult to backtest this, but my feeling at the moment is that you can predict an active or passive fund's performance reasonably well by valuing its current holdings

When I do that today, you get the results you'd expect: many active funds holding too many overvalued assets and predicting poor returns, with trackers generally producing good, middle ground returns, and solid value investors at the top (a metric I like for funds is the PEG ratio - price/earnings divided by growth forecast - Morningstar gives you that data for the top holdings at least on the Portfolio pages ... And I'm experimenting with my own PEGD ratio p/e divided by (growth forecast + dividend) )

Equity income funds are a slight exception, because people have piled into dividend payers and pushed valuations up as bonds have become unattractive (the reason I got on board with Woodford is partly because he's publishing his holdings, and many fund managers and private investors are copying him ... I do think UK equity income is one of the safest investments for foreseeable future - with potentially flat markets for a whole - and it's simply a case of being with shepherd and not the sheep)


I've never held many US assets - it's not been attractively valued since I started investing (and these cyclic bull markets, where valuations are just pushed higher, shouldn't be invitations to buy in - the dips tends to lump you back about where you would've been if you'd just held bonds)

PS - My other concern with index funds is something I saw a while ago, which was that their growing popularity simply pushes cap-weighted shares further out of proportion to their underlying value ... Part of the reason I think trackers work as well as they do is because some of the cap-weighted holdings actually seem quite unwise to own - like buying Shell at the moment ... And this gives them some good contrarian principles ... But at some point that goes from contrarian to consensus-buying problem stocks (which I can't imagine working out so well)

TheTracker

Kendall80 wrote: »

You might want to check when that data on Monevator was

September 30th, 2014. They update it every quarter. The comments on the article are updated constantly. It is the place to go for accurate consolidated tracker options.

compound

Hi All, thanks for all your responses. I didn't expect such an enormous response to this thread. It is clear investing is a hotly debatable topic.


I think I will need to rethink what I will go for as I feel I have a significant knowledge gap (I am new to this). I don't want to rush into anything without researching and understanding things more.


Could any of you kind people point me in the right direction to websites/ books that I could read to increase my knowledge?


It would be much appreciated.

Ryan_Futuristics

Well if you're interested in my perspective (which partly comes from my own pessimism that developed markets will keep rising, or that the strategies that have worked up until now will necessarily keep working through a real period of global transition) I'd recommend Meb Faber's Global Value book

http://www.forbes.com/sites/moneybuilder/2014/03/21/review-mebane-fabers-global-value/

As much as I accuse people of being Vanguard cult members, I'm certainly just as guilty when it comes to CAPE ratios

But this would probably be a good 2nd or 3rd book to read after something a little broader