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simple passive investment - is this OK?
Comments
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Warning to OP:
Stop reading this thread at post #7!
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Ryan_Futuristics wrote: »Woodford Equity Income's about 10% ahead of the index since launch, but it's only 10% of my portfolio ... so ... 1%
In an effort for me to broaden my understanding of and review my own practices, I would be extremely interested to hear how your remaining 90% is allocated.0 -
Back to the OP.
You can spend hours, months and years trying to sift through the arguments about this portfolio or that allocation. It will drive you mad if you let it. Despite what some say, there is not a perfect way to set up for investments, you can only do what feels right for you.
However, what you have proposed is certainly a solid enough start and a very good choice. If it feels right to you - go for it.0 -
Chickereeeee wrote: »Warning to OP:
Stop reading this thread at post #7!
C
how will they get to read your warning if they take your advice?
i would say read everything, never stop learning. Come to your own conclusions which can of course be deviated from down the line if that at that time appears the best plan.
too many people trying to rubbish others' ideas.
anyone with average intelligence willing to put the research in can get good results active, passive or a mixture of both.
Woodford gets shot down a lot on here. Its an active fund run by someone that may be looked back on as a true success of our generation
it charges only 0.75%. im in.
personally, my approach is to hope for solid gains... But with rates as they are my s+s isa needs to only beat 5% before tax returns on the cash im holding and 6.2% returns before tax on the peer to peer investments I have.
Woodford pays a 4% dividend. It doesn't have to grow much to beat my other holdings.
50% of my monthly payments go into the lifestrategy 80. This is something i intend to keep for life. realistic expectations is the key. Not trying to score the most points, just looking for higher returns than cash and p2p over 20 years.0 -
Edit: Incidentally, how does one achieve 100% active share? Does that mean the fund does not invest at all in any of the constituents of its benchmark? Doesn't that just mean it's being compared to the wrong benchmark?
Under the 'active share' premise you give the fund points for how close its holdings were to the benchmark. So if two funds are allegedly picking from the UK all-share space being compared to that benchmark, and one fund manager partially or entirely avoids HSBC, it will add X or Y points of 'activeness'.
If it then puts the uninvested cash into Apple, which is not even in the index, it will add a further Z points of 'activeness' and likewise if it just holds uninvested cash or bonds rather than automatically redistributing the cash that would have gone into HSBC into everything else in the index proportions, it will add points of activeness.
So you might have an equity income fund like Vanguard FTSE UK equity Income index appear with a certain number of points of 'activeness' because it is favouring BAT and Vodafone and Glaxo and AstraZeneca over HSBC due to the dividend yield, but still holding a great big chunk of HSBC (albeit down at 4.5% of portfolio instead of 5.6% per all-share index). While Invesco Perp Income or Woodford would have more points of activeness because they may drop HSBC partially or totally AND also buy some high yielding European, US or unlisted companies.
Then you put all the funds in a row and see which ones have most points of activeness and split them into quintiles, quartiles, or percentiles or whatever. There isn't an expectation that some fund will be 'pure' 100% active as some absolute measure. It would just have a lot of 'active' points and be ranked top of the list.
There are no fixed boundaries on what constitutes high or low Active Share, as these definitions vary for different segments of the equity market, so obviously you have to be careful jumping to conclusions with this sort of data about 'active' funds and know how you've defined the data set.
For example if it is a set of largecap core US equity managers, there might only be a tiny fraction of them with an active score above some arbitrary figure of 'X'. While a set of smallcap managers might find that over half of them are over 'X'. That difference arises from smallcap benchmarks having more constituents, and a flatter distribution of positions, than largecap indexes. Similarly, the nature of the opportunity set results in higher 'active share' measures for managers using global largecap or emerging markets equities rather than just staying with US largecap.
So, it can be really hard to sift and sort the data. If we are saying that smallcap and EM managers are likely to have higher 'active' scores by the nature of the opportunity set and the way the score is calculated... and we know that smallcap and EM can in positive markets give massively higher returns than general domestic largecap... then you have to be careful to split out the data and NOT jump to a general conclusion that a higher active score 'leads to' higher outperformance against some general global benchmark. Even though the data is showing you a higher absolute measure of activeness and a higher return than you saw in another sector.
That then gives you a problem when you have specialist strategies that you want to compare. Many strategies don't have suitable benchmarks for you to compare your 'activeness' against. Should the IP and Woodford funds be compared against a sythnetically and arbitrarily constructed 'equity income fund index' (e.g. the Vanguard one) which follows certain formulas to decide what's in and what's out? Or should they be compared against the FTSE100 index - because their top 10 holdings, accounting for half their portfolio by value, are nearly all from the FTSE100? Or the UK All-share index. They are not trying to specifically 'follow' any of these indexes.
The graph shown did at least say it was dealing with US all-equity mutual funds. Perhaps that includes smallcap funds which take their portfolio components from within the all-equity universe. Or perhaps they were excluded and put into a different table.
As the table doesn't show anything groundbreaking anyway, it is not worth going to buy the Cremmers / Petajisto Yale paper to try to find out, particularly as the same blog noted that later papers on the same subject did not necessarily conclude the same thing. You could run around in academia for a long time without having the answer. Those who are dedicating their lives to academia and to professional fund managers do not have it all sewn up yet so there is little hope for us to chase down every graph from Ryan Futuristics and get to the bottom of it.
So, it's difficult to benchmark funds to derive meaningful conclusions over what activeness means and how it relates to performance. In some circles it has become trendy to discuss 'active share' but only while being acutely aware of its limitations. Here, like in other areas which try to normalise for something when bringing together disparate data (like prospective returns from CAPE), you have to be very careful how much faith you place in it, and what other things you may be accidentally or deliberately missing or downplaying or disregarding to draw the conclusion that you want.
- Apologies for all the above distraction to the OP, vouch0r, who already had their answer within the first few responses on the thread. Starting to invest a £3k pot, adding £2-3k or so a year, it is absolutely fine to use a diversified set of international indexes looked after by a cheap fund manager. If you want to reconsider the opportunities once you have been doing it a few years and have £10k or more, that would be fine too. But what you propose is fine as a 'toe in the water' and the platform you've picked is nice and cheap.
- Be aware that in any one year you might lose a sizeable chunk of your portfolio because a global equities crash can certainly happen more than once during the decade in which you are planning to invest, and while only 60% of what you have is equities, the bonds might fall in value at the same time too.
- But long term things will probably be OK because what goes down usually comes up. And if all the companies around the world crash in value and interest rates go through the roof, underperformance of your £5-£10k ISA will not be the greatest worry you have, given you don't need the money in the next 7-10 years anyway which could probably be extended if it needed to be.
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bowlhead99 wrote: »The '100%' is not a literal '100% active'. It is a percentile of standing all the funds in line and then just splitting them into chunks (in this case, 5 chunks with the most active chunk getting everything from 80th to 100th percentile of that list)There are no fixed boundaries on what constitutes high or low Active Share, as these definitions vary for different segments of the equity market, so obviously you have to be careful jumping to conclusions with this sort of data about 'active' funds and know how you've defined the data set.0
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Absolutely: high active share doesn't guarantee outperformance, but does put you in a category with more scope to outperform ...
If you look at Hargreaves Lansdown's Multi Manager funds (which I can't recommend because I think the charges are too high) they do consistently beat their indexes - and with lower volatility - and they do it by selecting funds with high active share, AND by using a number of them covering the same sectors
So in their UK Income & Growth fund they'll have Woodford, Threadneedle UK Income, Marlborough Multicap Income, etc. and while it dampens prospects of high outperformance, it seems to average reasonable and predictable outperformance
Re: killing off active funds that fail
While this may be skewing results, we also have to remember cost seems to be the most consistent factor in performance, and gone are the days of 10% entry fees and 5% annual charges0 -
Ryan_Futuristics wrote: »If you look at Hargreaves Lansdown's Multi Manager funds (which I can't recommend because I think the charges are too high) they do consistently beat their indexes - and with lower volatility - and they do it by selecting funds with high active share, AND by using a number of them covering the same sectors0
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ExMugPunter wrote: »In an effort for me to broaden my understanding of and review my own practices, I would be extremely interested to hear how your remaining 90% is allocated.
For the UK my main funds are Woodford and Edinburgh Investment Trust - with about 10% in a Vanguard equity income tracker
For Asia I've got First State Asia Pacific Leaders and Newton Asian Income
Europe: Neptune European Opportunities and Sanditon European ... Neptune's one of my most interesting funds ... It's one of the worst sector performers over 5 years, but one of the best over 10 ... This is where I choose value - peripheral Europe's been extremely cheap, but you have to be thinking longer term (Jupiter European Opps is the other end of the spectrum - very strong in the medium-term)
Emerging markets: Lazard Emerging Markets - may add 10% to a Vanguard tracker here if the sector gets much cheaper
Global: Murray International
That's basically my long portfolio - funds I'm happy to hold and not mess around with ... About 75% dividend funds (matching the 75% of long-term equities returns that have come from dividends); always buy cheap, top up on dips, but moving towards Asia longer term0 -
The trouble is, when you start combining high active share funds in the same sector, like these MM funds do, you end up with something that more closely resembles the index through diworsification. Better to take a helping of cheap bland index as your base and serve it with a few really high active spices, than make a dish composed of lots of different blended cook-in sauces.
Only if you're picking them out of a hat
The statistic that high active share, when averaged out, gives you outperformance, means you should be able to diversify and consistently improve your risk/return; consistently improve yours chances of beating the index
'Diworsification' takes the assumption that there's no way of picking outperforming funds0
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