simple passive investment - is this OK?

masonic

Ryan_Futuristics wrote: »

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

My point is not that complimentary high conviction funds cannot be combined in order to generate a result that's better than either alone or give you a better chance of beating the index. Rather, my point is that many of the underlying funds that make up the MM fund tend to be constructed in such a manner that they provide the investor with broad market exposure, along with some conviction plays and they therefore have quite a lot of overlap. If you can get some exposure to the overlapping bits cheaper and add in some high conviction stuff on the sides, then you'd only be paying a premium where it mattered. The HL MM funds tend to contain funds that I'd consider core holdings, whereas the most efficient way of combining the high conviction plays would be through combining more specialist plays and then adding a cheap core.

'Diworsification' takes the assumption that there's no way of picking outperforming funds

Diworsification is more about combining highly correlated investments (and those with the same strategy), where the extra costs and management effort is not worth the extra diversification. The fact that you don't believe the extra cost of HL's funds is worth it, suggests there is some inkling of agreement between us. It would be an interesting experiment for them to release a MM fund with a tracker at the core (and therefore price it at around the same level as its active constituents).

masonic

Ryan_Futuristics wrote: »

That's basically my long portfolio

Thanks for posting this. It's very interesting and quite different from the impression I'd gained from the snippets gleaned from various threads. Presumably this is about 50% overall with the balance being split between cash and P2P?

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)

Interesting that you should mention JEO, which I've used for my European exposure. It may make sense to hold something at both ends of the spectrum and rebalance between them. This would be an example where you could hold two funds in the same sector that have very different strategies and holdings.

Kendall80

Ryan_Futuristics wrote: »

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)

With QE likely to reduce the euro in value versus the pound do you not believe its now time to use a hedged European fund? JPM European hedged is my active euro play and I have a euro tracker too.

Ryan_Futuristics

masonic wrote: »

My point is not that complimentary high conviction funds cannot be combined in order to generate a result that's better than either alone or give you a better chance of beating the index. Rather, my point is that many of the underlying funds that make up the MM fund tend to be constructed in such a manner that they provide the investor with broad market exposure, along with some conviction plays and they therefore have quite a lot of overlap. If you can get some exposure to the overlapping bits cheaper and add in some high conviction stuff on the sides, then you'd only be paying a premium where it mattered. The HL MM funds tend to contain funds that I'd consider core holdings, whereas the most efficient way of combining the high conviction plays would be through combining more specialist plays and then adding a cheap core.


Diworsification is more about combining highly correlated investments (and those with the same strategy), where the extra costs and management effort is not worth the extra diversification. The fact that you don't believe the extra cost of HL's funds is worth it, suggests there is some inkling of agreement between us. It would be an interesting experiment for them to release a MM fund with a tracker at the core (and therefore price it at around the same level as its active constituents).

Yeah, absolutely - I don't think the performance of the MM funds is worth it from a strictly returns pov, because as you say they're very correlated and could be done cheaper

But if you were designing a fund simply to beat an index (by a modest margin) and provide lower volatility, that's the way you'd do it

I think the average fund in the portfolios is generally around 0.6%, so I think they're being a little opportunistic with their pricing ... Perhaps it pays for them to keep researching the Wealth 150, but I think they could quite easily get those charges down to 0.8%

Ryan_Futuristics

masonic wrote: »

Thanks for posting this. It's very interesting and quite different from the impression I'd gained from the snippets gleaned from various threads. Presumably this is about 50% overall with the balance being split between cash and P2P?


Interesting that you should mention JEO, which I've used for my European exposure. It may make sense to hold something at both ends of the spectrum and rebalance between them. This would be an example where you could hold two funds in the same sector that have very different strategies and holdings.

I think overall I'm about 30% equities - but there are regions where I'm waiting for better buying opportunites

This is maybe the more interesting part ... Creates a regional index which uses value and momentum ... So Russia and Greece might be rock-bottom cheap, but they're ranked down a bit because they've been in free-fall (data's updated regularly, this is about a month out of date)



The idea is while markets are generally efficient, human behaviour always tends to slightly overestimate risk (creating undervalued opportunities), and gets greedy where past returns have been high (creating momentum)

Very low correlation between value and momentum indexes, but combine them and they work surprisingly well together

http://www.millennialinvest.com/blog/2014/12/9/value-momentum-the-tortoise-and-the-hare


http://www.starcapital.de/files/publikationen/2014-09_Value_and_Momentum.pdf

Ryan_Futuristics

Kendall80 wrote: »

With QE likely to reduce the euro in value versus the pound do you not believe its now time to use a hedged European fund? JPM European hedged is my active euro play and I have a euro tracker too.

I might well look into it ... I generally choose whether I'm long on a fund or whether I'll put a hedging rule in myself

I've got some funds where I'll go to cash as soon as they drop below their 300 or 200 day moving averages

The actual nature of the this QE hasn't been revealed yet - whether it's going to benefit peripheral Europe or central Europe more ... 50:50 Neptune's going to get a big boost (being very exposed to regions like Italy) ... And it might be like the US (where a lot of the QE money found its way to Emerging Markets), and some predict a lot of Euro QE might actually wind up propping up US markets even higher ... So value's the only certainty I've been going on so far

enthusiasticsaver

This thread appears to have been hi jacked but for what it is worth OP I am investing £1k per month in the VLS60 fund. I like the simplicity of it and it is so easy to do a monthly payment of £500 into it via the Cavendish online platform and then top up at the end of each month with a further £500 using my debit card. I am new to s and s investing so do not consider myself to have sufficient expertise to keep chopping and changing from active funds and also it tends to be accepted that buying and selling constantly whittles away at portfolio value because of charges.




It seems you have done the right thing in doing a bit of research and then starting off slowly as I am doing. Experience will come with time.


As for passive v active funds, I have read a lot of articles which say you do just as well with passive as with active but of course with much lower charges. Some undoubtedly would dispute this but as with anything you cannot get everyone to agree on something. Only time will tell.

Ryan_Futuristics

enthusiasticsaver wrote: »

This thread appears to have been hi jacked but for what it is worth OP I am investing £1k per month in the VLS60 fund.

And all I'll say is that while passive investing is just as valid as active, or core/satellite, or smart beta, or stock picking, or whatever you want to do ...

... passive investing's demonstrable strength is simply in keeping fund charges down

Trying to turn that into a holistic investing philosophy may come back to bite you ... Right now you're paying into two asset classes riding on some historically low yields and high valuations ... While some may be right in saying the US won't let markets fall again, what you're doing is pregnant with risk: there's a deep drop on the side of this strategy not working for another 5 years

moneyfoolish

As somebody who is at an age where he wouldn't normally keep his money in anything but Cash iSAs and who can live comfortably on his income, would the Standard Life Investments Global Absolute Return Strategies IT be a reasonable alternative as a low risk S&S ISA in terms of expecting a little more return than the current meagre low Cash ISA interest rates? Would I be wildly optimistic in the expectation that this fund would never lose more than a few percent in a year even if the market went South?

Linton

moneyfoolish wrote: »

As somebody who is at an age where he wouldn't normally keep his money in anything but Cash iSAs and who can live comfortably on his income, would the Standard Life Investments Global Absolute Return Strategies IT be a reasonable alternative as a low risk S&S ISA in terms of expecting a little more return than the current meagre low Cash ISA interest rates? Would I be wildly optimistic in the expectation that this fund would never lose more than a few percent in a year even if the market went South?

mm, I am not sure what age that would be, being over 65 myself with less than 10% in cash. However if you can live comfortably on your income, have no desire or need to leave a small fortune to your relations, and have no interest in investing why invest?

One good reason to invest for someone in that position could be inflation. Cash ISAs will usually lose out to inflation. If you are in your 90's it perhaps isnt a major concern, but if you are in your 70s and in reasonable health it could be.

It could be worthwhile looking at an Absolute Return fund, and the SL one seems to be one of the better ones. I have some money invested with it. The problem is that Abs Ret funds are pretty new and havent been tested in difficult situations. The SL fund started in 2008 near the bottom of the crash and has had a relatively easy ride since.

Whether I would advocate your investing in it would depend on how much spare cash you have. If its £10K I wouldnt bother, with a pot of £100K perhaps £20K would be pretty safe to start off with.