Active Funds or Passive for my ISA investments

dunstonh

MPN wrote: »

So if you manage to pick some very decent active global funds with managers with a great track record over many years it may well work out better than having passive funds?

Yes. Although again, global equity funds tend to be better suited with trackers. The best managed funds tend to be focused or niche. Not general sector funds. Exceptions can apply.

MPN

Thank you dunstonh.

When you say the best managed global funds tend to be 'focused or niche'and not general sector funds please can you give me an example because I'm not sure what this means?

george4064

MPN wrote: »

Thank you dunstonh.

When you say the best managed global funds tend to be 'focused or niche'and not general sector funds please can you give me an example because I'm not sure what this means?

Allianz Global Agricultural Trends is an example of a global niche fund. Below is quote from part of the fund's objective and investment policy:

The fund aims to generate capital growth in the long term.

We invest at least 90% of the fund's assets directly or using derivatives in equities and equivalent securities of companies which we believe should at least partially profit directly or indirectly from the sectors "Raw Materials Production" or "Product Processing & Distribution".

TLDR: It is a niche specialist fund because it invests in agricultural related securities to generate long term capital growth.

Linton

MPN wrote: »

.............
I have no experience with ETF's but would like to know any opinions on whether to stay active or go passive with funds?

In my view the question you have raised Is literally the last question you should be asking, not the first. I suggest the following questions be considered first....
1) Why am I investing - what are the objectives?
2) What are the timescales?
3) What return is required to achieve (1) and (2)?
4) What short/medium term losses can I accept during the investment period?
5) What underlying assets could achieve (3) within the constraints of (4)?
6) What fund sectors would provide this set of assets?
(7) What funds should I buy?

Whether to go passive or active is only one of many factors to be considered for (7)

Ray_Singh-Blue

If in doubt, do both?

There is no reason this has to be an either-or decision. You can hold both active and passive investments. And maybe get a little kick-ette out of comparing their performance once in while.

MPN

Yes, so basically keep my active ISA funds and try out some passive funds with my new ISA allowance such as Vanguard All Share or Life Strategy 80% and have fun comparing their performance!

AnotherJoe

Yep thats what I would recommend MPN.

dunstonh

MPN wrote: »

Yes, so basically keep my active ISA funds and try out some passive funds with my new ISA allowance such as Vanguard All Share or Life Strategy 80% and have fun comparing their performance!

Do remember that those have very different risk profiles and will almost certainly be different to what you hold. So, you need to make sure you are comparing like for like and also give long enough to decide. An economic cycle is around 10 years. So, that should be your typical comparison period.

MPN

Thanks dunstonh

I hold the following active Isa funds, Royal London UK Equity, CF Lindsell Train UK Equity, Liontrust Special Situations (& UK Growth), Fundsmith Equity, Artemis Global Income, Newton Global Income, Jupiter European.

Do you think these will compare favourably to the Vanguard trackers?

bowlhead99

MPN wrote: »

I hold the following active Isa funds, Royal London UK Equity, CF Lindsell Train UK Equity, Liontrust Special Situations (& UK Growth), Fundsmith Equity, Artemis Global Income, Newton Global Income, Jupiter European.

Do you think these will compare favourably to the Vanguard trackers?

They will certainly perform *differently* to the vanguard trackers.

Whether they give a "favourable result" depends on what your objectives are (as well as what the markets happen to do).

For example, even just looking at a couple of "vanguard trackers" you mentioned and ignoring the pile of funds you actually hold for a moment- the different vanguard funds are trying to do different things. You said vanguard All Share and vanguard lifestrategy 80, right?

-Vanguard UK All Share invests exclusively in UK listed equities allocating the biggest amounts of its portfolio to the biggest companies; the big UK companies will often be multinational, but as the largest companies in the UK index are in a concentrated set of industries it focuses the risk towards those industries as well as to UK-specific issues;

-Vanguard Global Equity does the same thing but investing globally so UK will be under 7% of its holdings and you will get a wider coverage of industry sector and a more international perspective;

-Vanguard lifestrategy 80 has a fifth of its assets in bonds rather than nothing in bonds, and it weights the international holdings differently so that a quarter of its equities are UK listed rather than only 7% in the global tracker.

So, the various Vanguard funds will deliver quite different results among themselves, so you can see that asking whether your portfolio - with some unspecified proportions in each of eight different UK and global funds - will perform better than "those Vanguard funds" (when the vanguard funds are each quite different from each other) is an impossible question.

On the question of "performing better". The best performance is one that gets as close to the result you'd like without taking the risks you don't want.

At the moment you have set your portfolio up with its global elements having a bias to income-producing equities. A world tracker does not have a focus on producing high levels of income, so even if it happens to get a high return over the next year it would not necessarily be giving you the result you "want" so it is not necessarily a "good performance".

At the moment over half of your fund (by number, we don't know the mix by value) has been set up to invest entirely in, or significantly in, uk equities. A world tracker does not have a 50% focus on the UK so will clearly produce a different result. It might be an overall higher result in sterling terms over the next 12 months or 120 months, but if your reason for historically having 4+ uk funds in your ISA was to (for example) limit fx exposure, you shouldn't use a world tracker which only has a few percent in the UK and creates its UK exposure by allocating to the largest oil companies, mining companies and international banks in the ftse.

Getting a 10% return by taking risks you don't want (industry concentration, international exposure, a lack of income in pursuit of relatively higher capital growth, fx translation exposure, etc etc) and getting lucky with them, is not necessarily a better "performance" than getting 9% from investing in the type of assets you are comfortable holding and may meet your objectives more reliably.

Of course, if the only reason you have those particular funds in your portfolio is that you bought some funds you'd heard of and they performed ok while you had them, then there is no problem having a complete change of strategy.

I would go so far as to say that building a passive portfolio having made some specific decisions on what you want it to do and deciding that a certain mix of passive funds is the way to go, is a much better thing to do than simply "hold what I've got because the result has probably been fine so far".

However I wouldn't say that either the funds you have, or the funds you're considering, will "perform better". Because I don't know how they'll perform, just how they're likely to perform, and I don't know how you'd like them to perform because you haven't given us any proper objectives.

In your other threads you have suggested seeing an IF A about your SIPP. Imho you could benefit from having him take a look at your ISA too if you are not too hung up on keeping control. If you want to learn to DIY properly instead now you have time on your hands, that's fine - but it will need significant legwork. That is, if you want to understand the results you're getting and the range of options available, rather than sitting back and going "yeah, seems fine" as you've been doing for the last few years without really looking into it.