DIY or IFA?

bowlhead99

BLB53 wrote: »

Looking at the multi asset returns
https://www.trustnet.com/Investments/MultiManagerMixedAsset.aspx?univ=O

OK let's look.

LS100 is currently 14/713

It shouldn't even be on a list of 'multi manager' funds where it gets compared to all the funds-of-funds that use multiple managers, incurring multiple levels of fees from different management groups many of which are trying to achieve diversification across different asset classes.

It is a fund managed by a single group, investing into a single class of assets: global equities. So, compare it to the 197 funds in the global equity sector with a five year history, as Linton did, and observe that it came in 99th. Very middling - not something you should put into a much broader sector with lots of incomparable funds and say it is in the top two percentiles.

LS60 is 26/137

You've made the mistake of including 37 funds which score 'n/a' for their five year returns because they haven't existed that long and have been put below Vanguard in the ranked list, even though some of them have been outperforming it in recent months. What you should have done is eliminate them, leaving only 99 funds. Then it would no longer be top quartile.

Then I'd observe that you skipped straight from LS100 to LS60 without mentioning LS80, and the reason for that was presumably because I had so thoroughly debunked the reasons for its apparent top-tier performance in my earlier post: outperformance not attributable to being a tracker and saving a fraction on fees, but due to its rigid allocation to a high proportion of equities & strongly non-sterling exposure and no non-equities other than bonds which went on a good run at the same time as the equities and sterling devaluation which we happened to have within the last few years.

You could apply some of those same arguments to LS60 to explain its relatively strong performance in this 'medium risk' sector, where it is knocking on the door of the top quartile. Not actually *in* the top quartile though, once you eliminate the funds without track record which you erroneously included as being worse than LS60 even though some could be quite a bit better.

LS40 is 25/144

You were presumably happy to see LS80 right at the top of the 40-85% category, and the LS100 to be right at the top of the multi-manager fund of funds category, even though it gave them an unfair advantage. So, why not transplant the LS40 into the 'mixed asset, 40-85% equities category. After all, they aim to be not less than 40% equities, so it seems fine to do that. No less fair to put them in the 40-85 pigeonhole when they won't really go above 40, just like you put a fund which would never go below 80 in there.

After you do that and arbitrarily change the grouping to something that doesn't suit Vanguard's marketing so much, instead of having just 99 funds with five years of history in the 40-85 grouping, you'd have 100. The LS 40 wouldn't make the top 75 on the basis of its five year performance, making it bottom quartile.. But bottom quartile performance wouldn't suit your argument. See how making arbitrary fund sector classifications without considering risk etc, can give funny results?

LS20 currently 9/57

Again, it's not a group of 57, because over 20 of those funds don't have a five year history and so are arbitrarily dumped at the bottom of the list. So, just like the LS 60 and 100 you suggested were top quartile, it's not top quartile after all.

The ones without five year history in the 0-35% equity sector include L&G Multiindex 3, which uses management judgement to allocate money among sectors, and whose performance over both 1 and 3 years was a percent or so better than Vanguard. Also includes the Blackrock Consensus range, another rival with flexible allocations in the 0-35% bracket whose returns over one and three years are somewhere between 1.5 and 2x the returns of Vanguard 20.

Or for something very far removed from an index there's Royal London Sustainable Managed Growth, using esoteric selections from Amazon & Google to Co-op Bank and Residential Social Housing bonds to return more than Vanguard's tracker in this equity range, over 1 and 3 years. But none of those funds have the full 5 years history so get kicked towards the bottom of the list.

So all top quartile performers over the past 5 years and I would suggest likely to remain so going forward.

You can suggest all you like, but basically only one of them (the VLS40) is a genuine top quartile performer, by the very slimmest of margins - per the link you provided, in the mixed asset 20-60 equity range its five year performance comes exactly 25th out of 100 funds which actually have a 5-year history.

Your assumption that they are all likely to remain there through thick and thin because of the inherent power of index tracking, may be optimistic.

TheTracker

bowlhead99 wrote:

You've made the mistake of including 37 funds which score 'n/a' for their five year returns because they haven't existed that long and have been put below Vanguard in the ranked list, even though some of them have been outperforming it in recent months. What you should have done is eliminate them, leaving only 99 funds. Then it would no longer be top quartile.

But conversely, how does TrustNet, or bowlhead99, account for funds that have closed / ceased trading during the period? Where is survivorship bias accounted for in trustnet leaderboards?

My go to reference for active v passive performance are the SPIVA scorecards. I post them here occasionally, but trustnet leaderboards seem to be the active investors cheat sheet of choice.

http://www.etf.com/sections/index-investor-corner/swedroe-how-survivorship-biases-results?nopaging=1

"Using Morningstar’s unadjusted rankings, we see that Vanguard’s funds had an average ranking of 36 ... Once we account for survivorship bias, Vanguard’s average ranking improves from 36 to 21"

bowlhead99

TheTracker wrote: »

But conversely, how does TrustNet, or bowlhead99, account for funds that have closed / ceased trading during the period? Where is survivorship bias accounted for in trustnet leaderboards?

I'm not particularly trying to account for them.

If I'm looking at a prospective investment in a passive fund or an active fund which are both ranked joint 24th out of 50 funds on a list of vehicles which have a fifteen year track record, then does it matter if the original list fifteen years ago had another 50 names on because there were 100 funds to choose from at that time ? Not particularly, to the task I am performing. Both the active fund and the passive funds which have delivered the (say) 150-200% return, would have been comfortably in the top half of the original list of 100 funds, if they are half way out of what is left and some other ones already fell by the wayside. But that doesn't mean I should pick the passive fund A over the active fund B or vice versa, just because A survived, or because B survived. Both survived.

As dunstonh noted earlier, of trackers: "Discrete performance tends to be mid table. Cumulative performance tends to move them up the table due to mid table consistency." So; not unusual to find a passive fund at position higher than 24 out of 50, even when the 50 was originally 60 or 70, because they will creep up the table. It doesn't mean that they are inherently a better choice than another (active) fund that also has performed well enough to have that same long term performance and same good ranking.

Nor am I saying the trustnet list is my 'cheat sheet of choice'. BLB53 was the person suggesting we look at how good his funds were on a trustnet list and my contention was that the lists were imperfect, failing to group together funds of comparable risk anyway. My comments in relation to the trustnet order-of-performance lists were really just to highlight that although they let you see what funds are currently out there, they mix together funds of very different style, strategy, volatility and risk in broad sectors.

When a fund like VLS80 gets into the top 5% of its sector list by delivering 70% total return over 5 years instead of only 50% for the 50th place finisher in 100 surviving funds, it is not because it has saved a fraction of a percent of management fee for those five years, or because IFAs are rubbish. It is because it held a very different set of assets to the median fund, which happened to work out well in that particular time period.

The passive investment fans will be the first clamouring to correct active investors who claim that their fund has got to the top of the list over a long time frame through superior stockpicking. "Oh no", they'll say every time, "you only got to the top of the list through good asset allocation and a risky approach that worked out in the prevailing market circumstances, it could have gone the other way, so that doesn't count". Whereas if a passive-based product tracker is at the top quartile, quintile, decile or percentile, it is apparently all because of how inherently efficient the passive products are, and they should expect to stay there long term, and it's not luck at all, honest guv.

bigadaj

Surely the issue of volatility is being missed.

If trackers are mid table then they are not being necessarily beaten by the same funds for varying time periods. So your chosen active fund may be great of a particular five year period for example, but perform poorly over two years and ten years. That's added risk as no one is investing for a definitive period in most instances, and if it is a fixed period this will typically be for say 39 or 40 years and there isn't the data to actually prove that argument one way or another.

Relatively few active funds perform consistently well, the market changes, investing styles go in and out of fashion, managers leave or go off the boil, at least over multi decades.

TheTracker

bowlhead99 wrote:

The passive investment fans will be the first clamouring to correct active investors who claim that their fund has got to the top of the list over a long time frame through superior stockpicking. "Oh no", they'll say every time, "you only got to the top of the list through good asset allocation and a risky approach that worked out in the prevailing market circumstances, it could have gone the other way, so that doesn't count". Whereas if a passive-based product tracker is at the top quartile, quintile, decile or percentile, it is apparently all because of how inherently efficient the passive products are, and they should expect to stay there long term, and it's not luck at all, honest guv.

That's a fairly accurate summation of my investing philosohy. Though I don't do clamouring.

BearWhite

I'm curious as to why Warren Buffet made his comments about advising his wife to stick her money in a tracker?

I'm not firmly in the passive or active camp, but surely if a man like him makes a point like that then we should take notice. Or were his comments taken somewhat out of context?

dunstonh

I'm curious as to why Warren Buffet made his comments about advising his wife to stick her money in a tracker?

Because they are Americans and he was speaking to an audience that was subject to US taxation.

I'm not firmly in the passive or active camp, but surely if a man like him makes a point like that then we should take notice. Or were his comments taken somewhat out of context?

Context is key. Plus, do remember that he is actually a value investor. So, he doesnt follow what he tells Americans to do.

MPN

It's always a varied discussion on the passive/.active point and many of you have already decidd on which to invest in! However, some of us also think there is room for both passiveand active funds in a portfolio?

For instance, as we've been discussing the VLS funds in this thread as well as the OP's FTSE All World tracker then I personally feel there is always room for both types of funds in a portfolio. With VLS why not have for example 5% of your portfolio in mid/small cap companies and property plus maybe a smaller percentage with any specialist companies you take a fancy to?

Selecting the right active funds is the difficult task. For instance, take the CF Woodford Equity Income Fund as an example (only because he seeks marketing exposure so he should be open to critics). In the first year it did very well, then not as good in the 2nd year and this year as been very average so I think people are looking for more consistent performers from active funds especially because this is a defensive fund. There are many better performing funds in the UK Equity Income sector over the past 3 to 5 years but most people keep piling the money into the Woodford Fund?

I believe he did very well at Invesco Perpetual for many years but then the last 3/5 years were not as good?

BananaRepublic

ColdIron wrote: »

In the last 10 years are so we have seen broadly rising markets. Index funds by definition track a market. During a downturn many managed funds can act to mitigate the worst effects of a falling market whereas an index fund can only slavishly follow it down which won't be reflected in the last 5 years performance

That is for sure the marketing angle many active funds promote. In practice many if not most active fund managers fail to achieve this claim. As a real example, many of my active funds took a hit from the Brexit vote, but have since made amends.

It would be intresting to look at performance before, during and after the great crash. My pension index fund did poorly, whereas my active funds did quite well, but that is a small sample.

JohnRo

http://www.finalytiq.co.uk/woodford-vs-ftse-uk-equity-income-lets-set-the-record-straight/