Hargreaves Lansdown HL Portfolio+ vs Vanguard lifestrategy

jamesd

d70cw6 wrote: »

so which one is better?
:P

Today? The balanced managed one because it has a higher bond requirement and because the ten year cyclically adjusted price/earnings ratio for many major equity markets is correlated with low or in the US negative returns over the next ten years or so. So it's better to recognise that and have a lower than usual equity weighting. But both have high equity levels for that situation so neither looks like an actual good choice.

Usually I've been close to 100% equities but I'm not at the moment.

Linton

grey_gym_sock wrote: »

......
the 1 bit i'd question is the idea (though perhaps you didn't mean it quite like this) that you might sensibly allocate fixed percentages to market sectors, and rebalance to maintain those percentages. yes, you might expect to gain some "rebalancing bonus" from that - i.e. buy more of a sector when it's down, and sell some of it when it's high. but you also are running the risk of sinking more and more money into a sector which continues to go down because it's becoming obsolete.

Keeping fixed % allocated to sectors is exactly what I meant. Perhaps not too religiously, but I believe the sector balance is something to keep an eye on and correct from time to time. This approach has helped me keep biotechs under control during the time they did very well and ensured that I invested into raw materials during the very bad times. In the past year raw material funds have been among the best performing in my portfolio.

Looking at the past, by keeping control of sector allocations, one could have gained significantly from the tech bubble of 15 years ago whilst the trackers boomed and crashed as they followed the frenzy that pushed new small unprofitable software .com companies into the FTSE100.

There is the danger that one ends up investing in steam engines, but the breadth of all the sectors for which data is available is such that I cant really see any of them permanently declining. The technology underlying "health", "energy" "manufacturing" "finance" etc may change but these must continue to be important at least for long enough to last me out.

SabNys

,
Regarding the debate about the performance of "active" versus "passive" funds, here is a recent link from FT, March 20, 2016. Because of the date format, maybe it's the the US Financial Times:

https://www.ft.com/content/e555d83a-ed28-11e5-888e-2eadd5fbc4a4

The title is "86% of active equity funds underperform"

BTW: If you need to log in, try clearing your cookies. For me, it sometimes works, and sometimes doesn't - like my investments.
.

dunstonh

SabNys wrote: »

,
Regarding the debate about the performance of "active" versus "passive" funds, here is a recent link from FT, March 20, 2016. Because of the date format, maybe it's the the US Financial Times:

https://www.ft.com/content/e555d83a-ed28-11e5-888e-2eadd5fbc4a4

The title is "86% of active equity funds underperform"

BTW: If you need to log in, try clearing your cookies. For me, it sometimes works, and sometimes doesn't - like my investments.
.

Worth noting that the stat was linked to funds domiciled in Denmark, France, Netherlands, Spain and Switzerland but not the UK.

There was a a comment on the UK though. copied and pasted:

Equity funds domiciled in the UK — one of Europe’s largest asset management markets — performed relatively well, by contrast. The majority of UK large and mid-cap funds beat their benchmark over one, three and five years. Over 10 years, however, all UK fund categories underperformed.


“There are no guarantees with active management, but there is clear evidence that the UK investment industry offers a range of compelling active products that add value for investors.”
---

jamesd

SabNys wrote: »

The title is "86% of active equity funds underperform".

It's the usually structurally biased junk that ignores the key things investors in active funds pay attention to, like changes of human manager, the correct time in the economic cycle to hold certain types of fund and the elimination of consistent under-performers from consideration.

That shouldn't be a surprise. The report behind the story is from S&P Dow Jones Indexes which makes money by charging passive funds for use of their indexes so they have a strong financial incentive to favour index trackers.

What matters to those considering active fund isn't how an average fund that nobody would choose to buy in the free market does, it's whether it's possible to eliminate the bad ones and pick better ones then get out before there's a change that will reduce performance - that manager change case among others.

JohnRo

That sounds a bit like speculative market timing to me.

How can anyone get out before there's a change, without inside knowledge, or make any sort of fair comparisons with an index tracker in such a case?

Linton

JohnRo wrote: »

That sounds a bit like speculative market timing to me.

How can anyone get out before there's a change, without inside knowledge, or make any sort of fair comparisons with an index tracker in such a case?

Jamesd's approach doesnt require exact timings. Changes in manager take some time to have a significant effect and the economic cycles operate over years, not days. It may be unfair or difficult to compare this with holding a tracker, but that isnt the objective of the exercise.

Personally I dont follow James's strategy, believing more in looking after the underlying assets. So in my case changing funds over time is required to coumter the tendency of the manager or the index to mess up my strategy by changing their allocations. Again though, good timing isnt a requirement.

jamesd

JohnRo wrote: »

How can anyone get out before there's a change, without inside knowledge, or make any sort of fair comparisons with an index tracker in such a case?

Unlike trackers, the performance of an active fund is related to the performance of the individuals running it. So if those change, the safest approach to take is to get out and wait for the new team to prove themselves. Or more often, to fail to prove themselves.

Back in my earlier days here I took a look at how persistent the performance of the top ten UK-based global equity trackers persisted and posted the results. What I found was that they normally stayed in the top ten unless the human manager changed. That was always associated with a substantial drop in performance. It's one reason why I at an absolute minimum greatly reduce my holdings of any fund after a manager change, whatever I think of the new manager's chances.

Similarly it's well known that particular asset classes tend to do better or worse at different points in the economic cycle, so it's worth considering not sticking around during the times when an asset class habitually under-performs others.

Like PE10 this is at least medium term stuff, not what I'd normally consider to be market timing.

I assume that when buying a tracker you'd be at least trying to eliminate the consistent under-performers. Likely at least partly the more costly ones in the tracker world since for trackers the price is one of the biggest differentiating factors, rather than the human performance in actives. I'd hope that buyers of active funds in a free market would be looking to do at least that elimination of the consistently bad ones.

It's not about trying to be fair or otherwise towards trackers, but rather about not ignoring the things that make active managed funds different from trackers and reflect common recommendations about how to use them. Instead of pretending that they are trackers and measuring them as if they were.

I use both active and passive funds, depending on what I'm after from them at the time. Usually quite a substantial chunk in global equity trackers.

AlanP_2

jamesd wrote: »

It's the usually structurally biased junk that ignores the key things investors in active funds pay attention to, like changes of human manager, the correct time in the economic cycle to hold certain types of fund and the elimination of consistent under-performers from consideration.

Whilsy I can't disagree with you on what you set out there James I suspect that only a small subset of "investors in active funds" actually take a lot of notice, or are even interested.

Consider how many questions we get on here from people who are unsure what options to select from within what they are offered by their DC pesnion provider, or overwhelmed by the options available within their S&S ISA.

Statistically only a small portion of that "population" is asking for advice and guidance on here, a smaller group is interested and aware enough to offer sensible comment - the REST are just making random choices.

Trackers may be their "safest" option for Fire & Forget investing even if not the most optimal.

dunstonh

Trackers may be their "safest" option for Fire & Forget investing even if not the most optimal.

Single sector investing is bad whether it is active or passive. The best option for fire and forget is multi-asset.