Active vs Passive investing

badger09

jimjames wrote: »

I even managed to find the post I made!

https://forums.moneysavingexpert.com/discussion/3261990

Are you bored jj?:p

Can you please jump in your time machine now and pick a good home for my £20k recently xferred from cash ISA into S&S ISA?

Dird

Time machine & you want a fund? While you're traveling through time PM me Tomorrow's EuroMillions numbers

badger09

Dird wrote: »

Time machine & you want a fund? While you're traveling through time PM me Tomorrow's EuroMillions numbers

:rotfl::rotfl::rotfl::rotfl:

N1AK

TheTracker wrote: »

One would absolutely not expect this. You might expect on the timeframe of around one year for a middling result to be the case (studies actually shows 40%) but as years progress statistically the vehicle that tracks mean performance will rise. Studies such as Roth and Martin estimate these chances at around 30% after 5 years versus one active fund or about 20% if your portfolio is 5 active funds, 10% with ten active funds.

The odds rise because of lower fees. If fees were the same for all funds then you would expect one that mirrors the market to remain in the middle of the pack.

To put it in context an effective index tracker should perform as well as the median performing 'dollar' in the market, with an edge from lower fees. That's because its holdings are influenced equally by all actively invested 'dollars'.

kidmugsy

slowpoke_rodriguez wrote: »

and......?

I do apologise for assuming that you might be intelligent.

Linton

TheTracker wrote: »

You should be looking at SPIVA (S&P Active vs Index) scorecards. As of end 2015, the data shows in GBP Global Equity (S&P Global 1200) outperformed 89% of funds measured against that benchmark over ten years, UK Equity (S&P UK BMI) 72%, US Equity (S&P 500) 95%. SPIVA also covers survivorship in their scorecards.

How do I invest in the S&P indexes? How do I find out their constituents? How do I find out their performance? I seriously would be very grateful for a reference.

TheTracker wrote: »

One would absolutely not expect this. You might expect on the timeframe of around one year for a middling result to be the case (studies actually shows 40%) but as years progress statistically the vehicle that tracks mean performance will rise. Studies such as Roth and Martin estimate these chances at around 30% after 5 years versus one active fund or about 20% if your portfolio is 5 active funds, 10% with ten active funds.

Lets see some real evidence from UK data. Or a reference to Roth & Martin. Google doesnt help here. In this debate I am finding that the original papers may not actually say what the journalists and commentators claim.

TheTracker wrote: »

None of these presupposes that you Linton do not hold some special power to pick some of the best funds year by year, but in the universe of investors thats the statistically estimated outcome.

I dont need or try to find the "best" funds. My investing is primarily driven by asset allocation considerations, so "appropriate funds" would be a better term. As to special powers you might like to consider a somewhat arbitrary set of funds I nominated in December 2013. See in this thread, post #13. Since Dec 2013 that portfolio has gone up about 41%, VLS100 is up 31%. Early days though, we will see. My large "growth" portfolio was reorganised on a more considered basis in late 2014 and is also comfortably beating VLS100. Again we will see.

TheTracker

Linton wrote: »

How do I invest in the S&P indexes? How do I find out their constituents? How do I find out their performance? I seriously would be very grateful for a reference.

You can find the SPIVA scorecards here. You can directly find the UK/GBP report here and see the table in the middle of page 4. It gives the benchmark indices (e.g. S&P 500) but leaves as an exercise for the reader to find a tracker for each index. Of course trackers will have their own fees and tracking errors that slightly underperform the index itself.

The linked page even has an article published today "How much do fees affect the active vs passive debate?" You and I have parried over this SPIVA analysis before, and it re-iterates "In the small-cap space, over 80% of managers on both fronts (mutual and institutional) underperformed the S&P SmallCap 600. The findings in the small-cap space dispel the myth that small-cap equity is an inefficient asset class that is best accessed via active management."

Linton wrote: »

Lets see some real evidence from UK data. Or a reference to Roth & Martin. Google doesnt help here. In this debate I am finding that the original papers may not actually say what the journalists and commentators claim.

In this Forbes article Rick Ferri has a nice summary table from Roth's book "How a Second Grader beats Wall Street". You can see Roth give the same table himself at this link.

Linton

TheTracker wrote: »

You can find the SPIVA scorecards here. You can directly find the UK/GBP report here and see the table in the middle of page 4. It gives the benchmark indices (e.g. S&P 500) but leaves as an exercise for the reader to find a tracker for each index. Of course trackers will have their own fees and tracking errors that slightly underperform the index itself.

The linked page even has an article published today "How much do fees affect the active vs passive debate?" You and I have parried over this SPIVA analysis before, and it re-iterates "In the small-cap space, over 80% of managers on both fronts (mutual and institutional) underperformed the S&P SmallCap 600. The findings in the small-cap space dispel the myth that small-cap equity is an inefficient asset class that is best accessed via active management."



In this Forbes article Rick Ferri has a nice summary table from Roth's book "How a Second Grader beats Wall Street". You can see Roth give the same table himself at this link.

I am afraid that SPIVA Scorecards arent what I want. What I am after is a list of the the S&P UK Small Cap Index constituents, the detailed daily /weekly or even monthly performance figures and some investments that track the index. I can easily get that data for the FTSE100. If it isnt possible to actually invest in an index, whether it beats individual funds does not help very much.

The S&P SmallCap 600 is presumably a US index. Simply plotting general US Small Cap funds against an all share US Index shows that the performance is very similar - the US market does seem to be much more efficient than others in the world and very different to the UK one. The Forbes article again is 100% US based. I contend that the findings, even if true, do not apply to the UK or European markets.

bigadaj

Linton wrote: »

Unless one is a professional or academic the data available is very limited. The only broad long term data I know of is the 10 year performance figures from Trustnet, and 10 years is hardly long term. One can also say that 30 years ago investing and the composition of the world markets were very different to what it they are now, and in any case very few funds from that period are still around. So you may or may not be right. Time will tell. From the 10 year data it would appear that the effect isnt overwhelming.

So how do you account for survivorship bias?

That has to be significant given the effect on the overall numbers. Successful active funds will continue, those not will be quietly dropped and wound up.

Linton

bigadaj wrote: »

So how do you account for survivorship bias?

That has to be significant given the effect on the overall numbers. Successful active funds will continue, those not will be quietly dropped and wound up.

Without public data being available you cant. My anecdotal evidence is that in the past 10 years or so as far as I can remember I have only had one fund shut down and that was actually first in its sector the previous year. The other factor is that presumably those people in such funds are moved to other more successful ones. There was an academic paper referenced by "The Tracker" last year which I read and I noted that it happened to say that the survivorship factor was relatively small. So dont know. I believe that if you stick to mainstream funds with the major fund managers that it's not that important and that those closures that do happen are more to do with fund manager mergers and removal of small uneconoomic funds than poor performance, but who knows?