Record inflows of $236bn into Vanguard funds in 2015

dunstonh

And quite often the largest part of the investment fee for many investors is the cost of ongoing financial advice, often exceeding the underlying cost of holding the funds.

And so it should be when you look at the cost differences. Fund management is far cheaper per individual than advice.

I wondered on the thread about performance for the year how many people included the cost of their (I)FA in the stats, as well as platform and trading. Very few I hazard.

Most I would expect as a) they look at the bottom lines and b) historically the performance returns published were net of adviser charges.

bowlhead99

racing_blue wrote: »

And some are down, for example:
Alpha Pyrenees down 94.6% on the year.
RDP Global Resources Investment Trust down 73.2%

Is there data for average performance of active funds, as a group? For example iii lists the benchmark performance for flexible investment unit trusts for 2015 as +0.76%

I can't see there would be much of a point in a benchmark performance for 'active funds as a group'. Nobody with £5000 is going to invest £1 in each of 5000 funds. They are going to invest their money in one or more of the funds they actually want, whose strategies appear to meet their needs.

If I want to invest in a low volatility fund that only goes up or down by 3-4% a year it doesn't do me much good to consider together the aggregated returns of putting £1 in the active fund that turned it into £2.50 in three years and £1 in the active fund that turned it into 10p in three years.

Together that £2 turned into £2.60 which is an annualised return of 9%. That blended average return beats the 3-4% return I probably got from my Standard Life Global Absolute Return Strategies fund, and maybe it beats - or is beaten by - the blended average of all passive trackers available to UK retail investors across asset classes and geographies for that particular time period.

But is not a return I should expected to get from picking an 'average' active fund as I would have stayed a long way away from both of those funds because their return profiles were nothing like what I was looking for.

It is just the same concept as saying there's no point the Wall Street Journal telling me the average passive fund had a TER of 0.89%, because I am not very likely to choose to use a passive fund that has a TER of 0.89%

Similarly in a bad year it doesn't do me any good to know that the world total equities index is down 30% and the world bond index is up by 3%. I can't conclude that the 'average' performance of a passive fund is a loss of 13%; it's not meaningful. Especially if I included an Equities index from both Vanguard and Blackrock but I only included a Bond index from HSBC because the other companies didn't do bond indexes. I would then have two negative 30% s and one positive 3%, and my average would be a loss of 19% instead.

So, those are the sorts of effects you get by mashing together funds which come from overly broad sets of specialisms from multiple providers.

You can of course look with hindsight at the returns from a Europe-ex-UK market-cap weighted equities tracker and see that it is up about 4% in the last year. How does that compare to investing in an 'average' actively managed Europe equities fund?

Well, it may be a bit better than a broadly diversified (but not strictly cap-weighted) largecap managed equities fund or it might be a bit worse.

It likely produced a quite different result to a highly concentrated portfolio that had a strategy of avoiding oilers and miners and banks and cyclicals.

And a different result to a portfolio which was designed to deliver high rates of dividend income.

And a different result to a portfolio that was designed to only invest in companies with a market cap up to €150m, because such companies only constitute less than 0.1% of the total equity index, only end up included in the index by accident rather than by design, and have no material impact upon the total return of the index.

So I am not really bothered about whether active or passive "on average" beats the other type in a particular year. If you are using actives you are deciding not to leave it all to chance, to the whim of the index, but you are still of course taking a chance on what manager to pick based on your objectives.

For many people's objectives, there are likely some merits of sometimes investing other than in accordance with 'put most of your money in the largest company just because it is large'. However, it is difficult to decide what strategy you would like your manager to employ with all that money he is not going to put into the largest companies. You can decide that you would like to pay him to use his research and judgement, or you can decide that you would not like to pay him and just use a tracker instead. Likely, as Dunstonh said above, you might employ him for part of your portfolio and not for another part.

TheTracker

Speaking of averages, I have calculated that bowlhead99's broadly diversified posts contain on average 7.64 paragraphs each of an average 3.11 lines length. This puts him in the top quartile position on both counts for the sixth year running. The ongoing charge is 65 seconds reading time per post.

Pincher

Didn't Warren Buffett moan that there is nothing to buy, because the Berkshire Hathaway pot was getting too big?


The passive fund bandwagon could be creating its own Ponzi scheme. They are forced to buy what they track, whatever the price. Initially, this looks good, and early investors see their units shoot up in value. The latecomers then have to buy the units at a higher price. As always, when the inflow of funds dry up, the units stop going up.


In this new static situation, it's OK if the dividend is decent, but the share price had gone up, with the dividend staying where it was, so if you were getting 3% before the gold rush, you only get say 2%.

If the tracked shares represent poor value, the active managers can start selling. In conjunction with no further demand, the share price could start sliding. Seeing no growth and low income, some people start withdrawing: avalanche?

It's like the Spanish property market, get out while more lemmings are rushing in.

bowlhead99

TheTracker wrote: »

Speaking of averages, I have calculated that bowlhead99's broadly diversified posts contain on average 7.64 paragraphs each of an average 3.11 lines length. This puts him in the top quartile position on both counts for the sixth year running. The ongoing charge is 65 seconds reading time per post.

The power of Big Data, eh!

On a crudely high level view, I see I have 6186 "thanks" in about 10.5 years which is roughly 589 per year. You have 646 in 1.1 years which is roughly 588 per year. So the two contrasting styles are equally capable of building a satisfied readership and, presumably, ongoing repeat business.

However, I see I've been thanked in just over 70% of my posts while you only got thanked in just over 46% of yours. Either my posts are more effective at delivering a useful message, or, I guess people must be feeling guilty about having me solve their problems or pitying me for the amount of time I devote to waffling on.

Maybe my posts appeal more widely because I readily see both sides of a viewpoint. However, most would characterise that as 'fence sitting'

TheTracker

bowlhead99 wrote: »

The power of Big Data, eh!

On a crudely high level view, I see I have 6186 "thanks" in about 10.5 years which is roughly 589 per year. You have 646 in 1.1 years which is roughly 588 per year. So the two contrasting styles are equally capable of building a satisfied readership and, presumably, ongoing repeat business.

However, I see I've been thanked in just over 70% of my posts while you only got thanked in just over 46% of yours. Either my posts are more effective at delivering a useful message, or, I guess people must be feeling guilty about having me solve their problems or pitying me for the amount of time I devote to waffling on.

Maybe my posts appeal more widely because I readily see both sides of a viewpoint. However, most would characterise that as 'fence sitting'

On a thanks per word measure we rank similarly

gadgetmind

bowlhead99 wrote: »

I can't see there would be much of a point in a benchmark performance for 'active funds as a group'. Nobody with £5000 is going to invest £1 in each of 5000 funds.

No, but people do invest in multiple funds per sector to avoid putting everything into one that proves to be "A Dog".

They are going to invest their money in one or more of the funds they actually want, whose strategies appear to meet their needs.

Carefully chosen based on past performance and with a strategy that suits their needs until the fund changes strategy.

redux

racing_blue wrote: »

And some are down, for example:
Alpha Pyrenees down 94.6% on the year.
RDP Global Resources Investment Trust down 73.2%

I think it's fairly unlikely that anyone will have taken proportionately large bets on either or both of those, whereas a scenario of going a bit overweight in trusts in smaller companies in Europe and Japan seems a more likely choice, and may have turned out quite well.

grey_gym_sock

bowlhead99 wrote: »

Of course, 'trousered' is quite an emotive statement and implies the people getting paid are bad guys or crooks. If I pay money to a guy who built me an extension on my house, or maintained my car, or produced a hollywood movie for me to watch, or who arranged for fresh milk to appear in my local supermarket and ultimately in my fridge, I don't begrudge paying out cash that ultimately ends up as wages and business profits. They have done something for me that I couldn't do myself as effectively or efficiently. Of course, I could have tried to do it myself and keep the cash in my own trousers, but it may not end up so well.

well, video cameras are so cheap now that perhaps proper MSEers should be producing their own hollywood movies. (big sunglasses with fake brand name, for that movie producer look, also cost next-to-nothing.)

buying milk is, like paying rent, pouring money down the drain. buying a cow is an investment. whatever happens, at least you still have the cow. but when projecting the returns, do remember to allow for vets' bills, and for void periods in the rental/milk stream.

eskbanker

grey_gym_sock wrote: »

buying a cow is an investment. whatever happens, at least you still have the cow.

Try telling that to cattle farmers who remember 2001!

https://en.wikipedia.org/wiki/2001_United_Kingdom_foot-and-mouth_outbreak