Robo or VLS?

BLB53

You wouldn't have exposure to that much Alpha/Jensen - or not at all, or far more?

Any chance of a translation please? (..or are you just trying to impress?)

Al.

BLB53 wrote: »

Any chance of a translation please? (..or are you just trying to impress?)

Alpha is a measure of how a fund compares, like for like with a comparative fund. Normally, aligned with Beta (which measures volatility, or a risk premium), it gives you a quick look under the bonnet without being distracted by the fancy paintjob. Put the two together (there are many other factors) and you get an accurate measure of fund performance.

Continuing the automotive analogy, what's more efficient.. a boy racer being ragged constantly on its red line, or a lazy V8 burbling away? If you can get similar returns to a comparative fund with half the activity, you have a fund manager that (usually) knows what he's doing - and with clarity of thought.

The equivalent with Passive funds is tracking error. In many regards, fund returns and quartile rankings are red herrings - it's important to know HOW those returns were gained. See my point about fund managers selling the crown jewels.

Given the exposure to the US, and the traditionally low tracking error, it's going to be interesting to scrape that fog away and see just how well many Passive baskets have done after such a year.

masonic

Al. wrote: »

You make a good point about the cap weighting. Do you think that small mid caps have seen the decent growth in value though, that they're gong to see, for a while?

The past 15 years have been good for small-mid caps, whereas the 15 years prior to that looked rather better for large caps. Perhaps we will see that pattern repeat. I'm not going to bet on it though. Other than for the US, I am getting my small cap exposure using active funds. I think there will continue to be opportunities in the small cap markets.

Your final point is prescient. I'm a long term convert of Passives, but not in any circumstance. I hope to offer an active/passive option in Feb/Spring next year. My one big reservation is that I started Fiver a Day with a view to achieving simplicity and affordability. I'd dilute that ethos if I went into Active.

On a conventional level, I am not averse to Actives. In summary, and not wanting to dodge the question, I am not oblivious to the faults of Passives (I love smart Beta) but for Fiver a Day, it's the most ideal solution. It captures what I'm trying to achieve - less outgoings in costs, more for compounding and critical mass.

It may be important for you to have a clear position on this issue. If I were seriously considering some sort of advice route, I'd feel very short changed if I had been pushed into a passive portfolio as a compromise to keep the headline costs down and at the expense of constructing a portfolio aimed at delivering the best net returns. The majority of advisors will extol the virtues of active funds and one of the reasons people have for using an advisor is to navigate those waters, which require more monitoring and research. If your position is that those advisors using actives are unlikely to deliver superior returns after taking into account the difference in fund charges, then the decision not to participate in that arena yourself may be reasonable.

Notwithstanding your opinion of the service (I appreciate your earlier constructive criticism), what was your view of the mechanics of the process?

It is a very well designed and intuitive process. I was impressed.

Al. wrote: »

You wouldn't have exposure to that much Alpha/Jensen - or not at all, or far more? Bear in mind that it's a principle that's being applied, and the principle applies to portfolios across the risk spectrum. Just as it also might, to fixed interest.

I like to follow the KISS principle, so I wouldn't take such small positions in funds. In a small portfolio, say 1 years ISA allowance, 1% would amount to £150. At what point does that warrant rebalancing? If it grew to £180 while the rest of my porfolio remained static, it would represent a 20% overweight vs. target and would normally trigger me to perform a rebalance - and all for a net 0.2% gain in my overall portfolio value.

masonic

On the subject of 1 years ISA allowance, it might be nice if the 'Your Investment' section didn't assume that investments in excess of £15,240 would need to be held in the general investment account. There are apparently a few ISA millionaires around and ISA transfers are possible if you are able to accept them. Not that there seems to be any impact from the split of investments between ISA and non-ISA accounts in the proposal.

Al.

masonic wrote: »

The past 15 years have been good for small-mid caps, whereas the 15 years prior to that looked rather better for large caps. Perhaps we will see that pattern repeat. I'm not going to bet on it though. Other than for the US, I am getting my small cap exposure using active funds. I think there will continue to be opportunities in the small cap markets.


It may be important for you to have a clear position on this issue. If I were seriously considering some sort of advice route, I'd feel very short changed if I had been pushed into a passive portfolio as a compromise to keep the headline costs down and at the expense of constructing a portfolio aimed at delivering the best net returns. The majority of advisors will extol the virtues of active funds and one of the reasons people have for using an advisor is to navigate those waters, which require more monitoring and research. If your position is that those advisors using actives are unlikely to deliver superior returns after taking into account the difference in fund charges, then the decision not to participate in that arena yourself may be reasonable.


It is a very well designed and intuitive process. I was impressed.


I like to follow the KISS principle, so I wouldn't take such small positions in funds. In a small portfolio, say 1 years ISA allowance, 1% would amount to £150. At what point does that warrant rebalancing? If it grew to £180 while the rest of my porfolio remained static, it would represent a 20% overweight vs. target and would normally trigger me to perform a rebalance - and all for a net 0.2% gain in my overall portfolio value.

Thanks. One or two quick points. The exposure to EM (why we call China emerging, is still beyond me), produces volatility not just return.

I think Standard Life small caps was the darling of fund pickers for a while. Not so, this year. We saw good earning multiples as the spate of IPO took hold in 13/14.. that's died away a little, and it reflects in the sector. I'm conflicted. A lot of money went into AIM and we're seeing a slowdown there. The money will either go back into 'value and growth' or DIY investors will limp away to lick their wounds in BP.

Most advisers are no longer fund pickers, that's the reality of it. I can sit down with maybe 10% of my clients and sift a list of funds for consideration. I love the research aspect and I'm coming to the conclusion, like mid size saloon cars, there's not much difference or added value. Many so called active managers are in reality, closet passive so anyway.

But the enabling objective for Fiver is to fill the advice gap; namely, help those clients who want to start, and to help established clients who crave simplicity, find an advised service. If I offered a wide choice of funds with it, I'd lose sight of the aim. Notwithstanding that, it's big brother is being developed and will provide a broader cross spectrum. The issue I have though, is decumulation. I don't think there exists, yet, an algorithm to deal with it.

You might find this interesting. Half of 'approved' Active platform funds fail to hit the sector average.. not even the benchmark. You can have a canny adviser and his fund might be well researched, but what's the reduction on yield on an expensive, underperforming fund?

http://www.ft.com/cms/s/0/9ece8882-6063-11e5-9846-de406ccb37f2.html#axzz3mb7Hr5i4

If you get pinged for a paywall, Google <<FT underperforming platform active funds September 2015>>

gadgetmind

Al. wrote: »

why we call China emerging, is still beyond me

Let's just say that their accounting practices and corporate governance haven't quite kept pace with their economy.

grey_gym_sock

Al. wrote: »

I wouldn't calculate it like that. I'd determine the portfolio NAV and divisible into trading activity (less sales or purchases).

my point was that AFAIAA proper turnover stats aren't generally available, only stats which are distorted by including sales and purchases which are due to net redemption or creation of units. or do you have access to better info?

Al.

You're referring to pure trading turnover. If I need to speak with a fund rep or a fund manager, or more likely (with one or two notable exceptions) a close flunky, I get the trading activity (the gross churn). Some DFM will promulgate both, some fund managers (no names, no packdrill) will give an opaque, rather distorted and skewed perspective.

Some large managed passive managers (ahem) will field legions of bank staff who don't have a clue. Ordinarily, I submit a proforma'd research and due diligence questionnaire for them to complete and in it, I get to ask some pretty pointed questions. If they are less than forthcoming, they'll get a call; if they still fail to be helpful, you know you're dealing with wilful obfuscation or slack admin. Either way, hardly endearing.

PS: If you have a specific requirement, message me and I'll see what I can do (I might even have it). It will be data that (in all likelihood) won't be retail client facing mind, so I can tell you only anecdotally (I'll take advice on it) - and if they require confidentiality, then I'm afraid I have to observe that too.

masonic

Al. wrote: »

You might find this interesting. Half of 'approved' Active platform funds fail to hit the sector average.. not even the benchmark. You can have a canny adviser and his fund might be well researched, but what's the reduction on yield on an expensive, underperforming fund?

http://www.ft.com/cms/s/0/9ece8882-6063-11e5-9846-de406ccb37f2.html#axzz3mb7Hr5i4

If you get pinged for a paywall, Google <<FT underperforming platform active funds September 2015>>

I don't think that will come as a surprise to anyone who has been around these parts for any length of time. In particular, HL's Wealth 150 has always been eyed with a lot of suspicion. These lists were constructed in the era of kickbacks, and it seems after that was banned, they are influenced by exclusive discounted unit classes. At the end of the day, funds recommended by fund supermarkets are selected in the interests of customers about as much as products promoted on the shelves of actual supermarkets.

I did particularly like the quote from the TD Direct spokesperson: “The most important factor when making the right investment is timing" :rotfl:

Al.

Very true. Terry Smith made a stand last year, it was interesting to read the Hargreaves feedback on the fund this year.

http://www.moneyobserver.com/tv/terry-smith-why-you-won-t-find-my-fund-wealth-150

http://www.hl.co.uk/funds/fund-news-and-investment-ideas/fund-news--and--alerts/fundsmith-equity-research-update-2015-02-23

It underlines the rather mercenary, commercial nature of the business.