DIY or IFA?

ColdIron

MonroeM wrote: »

Most world index funds are better than mid table?

Most index funds will be mid table almost by definition

grey_gym_sock

ColdIron wrote: »

Most index funds will be mid table almost by definition

yes. and when you look at longer-term (multi-year), periods, they're more likely to be a bit above the middle, due to the cumulative effect of lower charges.

bigadaj

grey_gym_sock wrote: »

yes. and when you look at longer-term (multi-year), periods, they're more likely to be a bit above the middle, due to the cumulative effect of lower charges.

And survivorship bias.

dunstonh

grey_gym_sock wrote: »

yes. and when you look at longer-term (multi-year), periods, they're more likely to be a bit above the middle, due to the cumulative effect of lower charges.

Yes. Discrete performance tends to be mid table. Cumulative performance tends to move them up the table due to mid table consistency.

The bit that many passive investors forget is that you can filter out so many duff or poor managed funds that often you are left with a much smaller number of viable funds that may cost more but do offer potential. You are not randomly picking a managed fund. You may pick a high risk volatile fund that can go from top to bottom and back again in no time or a long term steady eddie with an investment style that has a track record and risk profile of performing well in that period of the economic cycle (but not necessarily all the economic cycle - so would need changing out of at some point).

Managed needs a bit more work as you shouldnt invest and forget with them.

bigadaj

dunstonh wrote: »

Yes. Discrete performance tends to be mid table. Cumulative performance tends to move them up the table due to mid table consistency.

The bit that many passive investors forget is that you can filter out so many duff or poor managed funds that often you are left with a much smaller number of viable funds that may cost more but do offer potential. You are not randomly picking a managed fund. You may pick a high risk volatile fund that can go from top to bottom and back again in no time or a long term steady eddie with an investment style that has a track record and risk profile of performing well in that period of the economic cycle (but not necessarily all the economic cycle - so would need changing out of at some point).

Managed needs a bit more work as you shouldnt invest and forget with them.

Sounds great in theory but determining where you are in the economic can be a bit tricky, particularly in recent years.

It also sounds a bit like market timing.

grey_gym_sock

stock market prices anticipate the economic cycle - e.g. they fall if the market expects a recession. so you need to anticipate what the market is going to anticipate. or identify when the market is mistakenly anticipating something that won't happen (or at least, when it will be a smaller effect than is anticipated). which is all very difficult.

picking the right point in the cycle to hold certain funds is a very similar problem to picking when to time the whole market. since presumably these are funds which favour certain market sectors. some sectors do tend to do well/badly at given points of the economic cycle, or of the market cycle which anticipates the economic cycle. so you are in some sense hoping that you know more than "the market".

AlanAlan

As you already DIY why don't you check the costs and fees of the IFA's suggestions and see how that compares with yours. Then look at any funds in the list from the IFA that are expensive and see what they actually contribute to the portfolio. Finally check how well you have done with your selections compared to the IFAs suggestion, you could easily do a comparison with all the free portfolios available on the web - should only take a hour or so, and thats £300 saved right away in IFA fees :-) Be seeing you AA

bowlhead99

AlanAlan wrote: »

As you already DIY why don't you check the costs and fees of the IFA's suggestions and see how that compares with yours.

As others have said, fees is not the only thing to focus on. As an example take the First State Global Listed Infrastructure fund (I hold this myself). It costs 0.8%.

The nature of utilities and infrastructure being what they are, defensive companies with solid revenues (demand is somewhat price-inelastic) it is unlikely to face as severe a downturn as other more volatile types of equities in a market recession. So even though it has performed very well in recent four or five years as investors have been on a quest for yield, it shouldn't be compared with, for example, a standard 'global tracker' fund - as it is doing a different job.

You could perhaps compare it to a sector-specialist niche index fund focussed on global infrastructure only. However, because that is a niche, you don't get the super-cheap index funds like the 0.1% you pay for the highly volatile S&P 500. Instead you would pay quite a bit more for an index focussing on that sector, due to it being niche and low demand. Blackrock's LGIM Infrastructure index, which has been going for a little less than two years so does not have much track record, but at least could bear comparison as a benchmark, charges 0.6%. So if FS Global Listed Infrastructure costs 0.8% it will be worse and should be rejected, right?

No, not necessarily - because over the period the Blackrock index fund was available, it has been outperformed by the active First State one: over the last 12 months for example, First State cost 0.2% more in fees but delivered 4.9% better net return after fees. The index beat the sector average by half a percent and the First State fund beat the index by almost 5% more.

Similarly, what is the suitable index comparator for a strategic bond fund. Or for that Architas real assets fund? What are they bringing to the table? Well, in the first case, moderation of the overall volatility versus following a bond index; in the second, a big bag of diversification which is difficult to access through indices.

GLG Japan is a decent fund. If you looked exclusively at the fees (some 0.75 of AMC, 0.9% of OCF) and you were following the 'passive is best' mantra, you would think a simple Japan tracker is maybe a better way to go due to the fee advantage. But over three and five years the Man GLG fund is top quartile. Over three years its net total return is 15% better than the IA sector average. Over the last twelve months, 20% better, and over five, more. Over ten, 153% vs 67% for the IA Japan average. Since the end of 2000, 190% vs about 60%. Still, that followed a crash. Go back to the end of 1999 and the return to now is only 100%. Still, the IA sector average was only 15% total return over that timescale, nowhere near the 100% that the GLG fund delivered.

I expect if you look at the fee on its own, and see you can get a Japan equity tracker for 0.2%, you wouldn't go anywhere near GLG Japan because it's so expensive and it's better to just rely on the solid mid-table performance available with the tracker. Still, over a year, 3 years, 5 years, 10 years, 15 years and all the way back to inception, GLG has outperformed the index.

So, starting at fees and maybe never going further than looking at fees; and assuming the fund manager can't add anything; and that the IFA can't change your return profile to be more suitable than the return profile of a global index - is the wrong way to go about it.

Then look at any funds in the list from the IFA that are expensive and see what they actually contribute to the portfolio. should only take a hour or so, and thats £300 saved right away in IFA fees :-)

Certainly doing the evaluation yourself in full will help you find out that the IFA portfolio is not a load of rubbish, rather than relying on the word of the IFA. However if you are not experienced in investing, you could perhaps benefit by speaking to an IFA to understand why those funds are better than an arbitrary pile of trackers ; what do they 'bring to the table' in terms of potential outperformance or what changes do they bring to the potential profile of returns in different economic conditions.

Be seeing you AA

Cheers fj, good fun to have your misguided pro-tracker and anti-IFA posts back, despite your other accounts getting banned.

BLB53

Most index funds will be mid table almost by definition

Surely as active funds account for 90% of the market and most underperform the index over the longer periods, it should follow that index funds will be higher than mid table.

I had a quick look at Trustnet for the Vanguard Lifestrategy 5 yr performance and all are top quartile which makes sense to me.

Linton

BLB53 wrote: »

Surely as active funds account for 90% of the market and most underperform the index over the longer periods, it should follow that index funds will be higher than mid table.

I had a quick look at Trustnet for the Vanguard Lifestrategy 5 yr performance and all are top quartile which makes sense to me.

Suggest you look again. From Trustnet data for the global equity sector over the past 5 years VLS100 is at position 99 out of 197 of those funds with data going back 5 years - that looks pretty middling to me.

Looking at the data for the individual years it appears VLS100 is rather more volatile than the average doing relatively better in the good years and much poorer in the bad ones. The year before last when prices fell it was towards the lower end of 3rd quartile. Perhaps this is not too surprising as active funds can be expected to have some nod towards reducing volatility.

However there is a major problem in that the global equity sector includes a very wide range of funds with very different performance characteristics - eg ethical, global energy, global resources, global health, global small companies etc etc. So getting a meaningful comparison is very difficult.