Active managed or index fund

Legacy_user

Im newly in an actively managed fund @ about 0.7% p.a. total fee, but when i looked into its performance more it looked similar to an index and it's holdings are just a mix of other funds. It made me wonder if I'm better off cutting the management and just going for an index fund? Or just buying the other funds that that mine is investing in.

Ive read that index funds generally outperform but in bad times a manager can beat them, so is managed safer? Or would the better gains of an index fund make that safer long term?

masonic

It depends on the fund and fund manager. Some tend to underperform in rising markets, some tend to underperform in falling markets, and some underperform in both rising and falling markets. The average investor would be safer in an index fund.

dunstonh

when i looked into its performance more it looked similar to an index and it's holdings are just a mix of other funds.

That would make it a fund of funds. These can be good solutions for people that dont want to pick their own funds. Although they do cost a little more than actually holding individual funds directly.

It made me wonder if I'm better off cutting the management and just going for an index fund?

Single sector investing is poor quality (caveat about high risk investing 100% into global equity).

Or just buying the other funds that that mine is investing in.

If you do that, what ratios are you going to buy them in and how frequently will you rebalance and what data are you going to use to decide the allocation?

Ive read that index funds generally outperform but in bad times a manager can beat them, so is managed safer?

There is no difference in risk by using a tracker or a managed fund just because of one is managed and one is passive. The risk comes from the underlying assets. So, a lower risk managed fund would likely have more downside protection and a higher risk managed fund would likely outperform the tracker. It is the investment style that matters.

using a multi-asset fund is probably the best solution for. Or even two. However, whether you use passive or managed is a secondary decision to how you want to invest.

bigadaj

MatthewAinsworth wrote: »

Im newly in an actively managed fund @ about 0.7% p.a. total fee, but when i looked into its performance more it looked similar to an index and it's holdings are just a mix of other funds. It made me wonder if I'm better off cutting the management and just going for an index fund? Or just buying the other funds that that mine is investing in.

Ive read that index funds generally outperform but in bad times a manager can beat them, so is managed safer? Or would the better gains of an index fund make that safer long term?

Which fund is it?

Terminology can be problematic but if you look at vanguard lifestrategy, or blackrock consensus, or l&g multi index, they are effectively trackers but technically fettered fund of funds. They all use a combination of tracker funds to get a good balance of investments, but maintain low fees. They will rebalance which you wouldn't with trackers unless you manage them and you would need a number of pure trackers to replicate their asset and geographical spread; you'd need to rebelance a portfolio of trackers, though you could save a fraction of a percentage by doing so.

System

Dunstonh -

If you do that, what ratios are you going to buy them in and how frequently will you rebalance and what data are you going to use to decide the allocation?

Since its so early for me (2 months in) and about 99% of my worth is in my house and mortgage and cash, I'd just go 100% into equities, I need to diversify and there's no point doing bonds when I have the mortgage (and even that is beaten by cash). I'm only putting about 20% of my monthly savings into this fund, the rest is going into 5% regular savers, so I've balanced it by only making the fund a small part of my finances and can afford a little speculation.
I need yields that beat 5% to be worth bothering, but even if it doesn't its an experience for me

Bigadaj - Scottish widows growth fund 6 I think

I suppose diversity of trackers is a good thing, and there will always be new ones come about that I won't know about but a manager would

dunstonh

Scottish widows growth fund 6 I think

Did you buy from Lloyds Bank? I could only imagine them selling that fund.

System

Halifax and it goes through horsey

System

Is that because they get a backhander from it and other companies wouldn't?...

masonic

MatthewAinsworth wrote: »

Is that because they get a backhander from it and other companies wouldn't?...

Based on past events, it is reasonable to assume any investment product sold by a high street bank is tailored to the interests of the bank and not in the interests of the customer.

bigadaj

MatthewAinsworth wrote: »

Is that because they get a backhander from it and other companies wouldn't?...

Believe so, I know that nationwide get an initial charge of 5% on their arrangement with l & g. I also wouldn't be at all surprised that you might be paying more than 0.7% on that fund, as you might be charged fees on the underlying funds as well.

If it were me, with small amounts, I'd probably be putting the £100 a month into a vls80 product, held through Charles Stanley direct, 0.24% vls charge, 0.25% csd charge, no initial or additional fees. Then it's fire and forget, the fund will do its own rebalancing, then review when you get to £10k

dunstonh

MatthewAinsworth wrote: »

Is that because they get a backhander from it and other companies wouldn't?...

It is because they own Scottish Widows and are tied agents of Scottish Widows. It isnt a fund you would expect an IFA or an individual to use.