Active vs Passive

bugbyte_2

Are there any active funds out there that you think is worth it? Can anyone defend them? I used to have lots of active funds that historically did well but collectively did no better than my world tracker, so I have dumped them and now my portfolio now looks like this:

World Tracker (Blackrock Con. 100) 50%
L & G Health and Pharma Tracker 30%
BR Property tracker 7.5%
Asia - Japan 7.5%
Ftse 250 5%

Rationale:

Asia and Ftse to rebalance due to the effects of the Pharma tracker, but thinking of dropping the Ftse 250 as historically it is a bit rubbish, but then again so was Asia until this year.

Pharma - Going defensive - a foil for a market downturn. Would love to split this up with Utilities, etc. but cannot find a tracker or low cost option to do this.

The Property tracker will be dumped once it comes out of its slump as most of our money is in a house.

The portfolio is only £30K but grows monthly and the whole lot is hedged substantially by cash.

ColdIron

Cue long thread that will generate more heat than light
Hint: Use both

dunstonh

Are there any active funds out there that you think is worth it?

yes

Can anyone defend them?

yes

What is interesting is that you have said you prefer passive but you are actually making management decisions. So, you are not exactly as passive as you think you are.

The Property tracker will be dumped once it comes out of its slump as most of our money is in a house.

And how much in common does a house have with commercial property?

bugbyte_2

dunstonh wrote: »

yes

yes

What is interesting is that you have said you prefer passive but you are actually making management decisions. So, you are not exactly as passive as you think you are.


And how much in common does a house have with commercial property?

Thanks for the reply. After 4 years I still havn't got my strategy completely sorted.

I know I am making active decisions, but no more so than say picking a Vanguard Lifestrategy 60. I am just substituting bonds with a Pharma fund which for the last two dips stayed steady but grew more in bull markets. However, if I could find something suitable I would diversify this with other defensive funds - preferably utilities. The other trackers just rebalance to what Blackrock say is a good spread.

The property fund is a global commercial one so has little correlation with my house. It has been the highest performing fund in my portfolio over 10 years but its standard deviation is high and it takes a battering in downturns. I really am 50:50 on this one. It's the FTSE 250 tracker i'm finding a little pointless at the moment as I am keeping it for home bias purposes, and surely British companies must have their 'day' soon?

ischofie1

I'm mainly passive but do have active funds in 2 sectors:-
A Recovery fund which by nature can't be passive & smaller CO's. Which can benefit from from the managed approach.
You may want to look at these.
As has been earlier...A commercial property fund will have no correlation to your owed house hence I can't see any logic in not having this in your portfolio.

Regards.

AnotherJoe

I've been going passive gradually and now am about 75% passive in my general portfolio (I also have a HYP portfolio).
I do have a couple of active funds left , Fundsmith & BIOG.
I also have individual shares (which is heresy on this forum) but then again I learn in this thread that having more than one passive fund is being active, and no doubt since even if you have just one single passive fund you had to make a choice of which one, that counts as active also.

bugbyte_2

ischofie1 wrote: »

I'm mainly passive but do have active funds in 2 sectors:-
A Recovery fund which by nature can't be passive & smaller CO's. Which can benefit from from the managed approach.
You may want to look at these.
As has been earlier...A commercial property fund will have no correlation to your owed house hence I can't see any logic in not having this in your portfolio.

Regards.

One of my first funds was Neptune UK mid cap which historically did very well but had a management fee of over 1.25%. On closer analysis it just matched the FTSE 250 tracker which has a management fee of 0.18%, so I couldn't see what I was paying for. I guess we will see in a downturn the value of defensive active funds such as Woodfords as managers can pull out of falling stocks unlike trackers.

I was tempted by recovery funds once (Schroder Recovery Fund) as they do appear to make a lot of sense looking for value, but the Standard Deviation / Return did not feel worth it.

Linton

bugbyte wrote: »

One of my first funds was Neptune UK mid cap which historically did very well but had a management fee of over 1.25%. On closer analysis it just matched the FTSE 250 tracker which has a management fee of 0.18%, so I couldn't see what I was paying for. I guess we will see in a downturn the value of defensive active funds such as Woodfords as managers can pull out of falling stocks unlike trackers.

I was tempted by recovery funds once (Schroder Recovery Fund) as they do appear to make a lot of sense looking for value, but the Standard Deviation / Return did not feel worth it.

Perhaps you should look a bit more deeply.
Over 5 years: Neptune Mid Cap:109%, HSBC FTSE 250 Tracker:82.4%
Over 8 years: Neptune Mid Cap:350%%, HSBC FTSE 250 Tracker:250%

Isnt that worth paying for?

bowlhead99

Interesting point Linton, I haven't looked at the historic figures of that fund.

Alternatively you could take the argument that "On closer analysis it just matched the FTSE 250 tracker which has a management fee of 0.18%,", to be literally correct without fact-checking it.

But if it did match the net performance despite having a fee that was a percent higher, then it is demonstrably capable of getting greater gross returns, so it doesn't make sense to say "I couldn't see what I was paying for", because you were clearly paying for those better gross returns and you were not any worse off than if you had invested in the tracker and accepted worse gross return, offset by the fee saving.

Also, the contention was that the Neptune fund seemed to have a very nice return compared to other things one could have invested in (it "did very well"), but then when scrutinised, the Neptune UK midcap fund wasn't really better than a UK mid cap tracker, which matched it closely. Ok let's take that at face value rather than repeating the scrutiny for ourselves as it was bugbyte who did the scrutiny and concluded that the performance was very good but only the same as a mid cap tracker...

So, if the the implication is that *both* the Neptune fund and the UK mid cap tracker "did very well" against other sectors in which you could have invested, then it is surprising that in bugbyte's opening post he said

But thinking of dropping the Ftse 250 as historically it is a bit rubbish

So, Neptune historically is great, a really good fund that we would be happy to have, creating enough sector outperformance to cover its fee... but actually if you look at it, 250 tracker is just the same historically with its great net returns after low fees... so use the 250 tracker instead, because you will still get a great return... but actually if you look at it, the 250 tracker is a bit rubbish really so you should dump it... Forget using an ETF, I call '!!!!!!'!

I think the OP is guilty of either not doing the analysis properly or just following fashions and short term charts and dropping things if they don't produce the absolute top returns. Not all sectors are supposed to produce the absolute top returns all the time.

A world tracker outperformed UK mid cap over the last year largely due to USA and emerging market strength compounded by Brexit uncertainty cloud and sterling weakness /dollar strength. But what happens in a couple of years if USA performs poorly and sterling strengthens making our domestic returns better than the weighted global average for a couple of years? Are you going to look for a reason to dump global equities because your global tracker with a double-up in Healthcare is "a bit rubbish really"? What will you be left to invest in?

BananaRepublic

bugbyte wrote: »

Are there any active funds out there that you think is worth it? Can anyone defend them? I used to have lots of active funds that historically did well but collectively did no better than my world tracker, so I have dumped them ...

Your fund is too young to view more than 3 years of past performance data so it is hard to draw conclusions. But if you search for the best performing funds over the past 10 years, over all sectors, most are active. That will tell you something. The next question of course is can you identify which will do well over the next ten years.

One of the first funds I bought is the Jupiter European, which has done very well over the 20 years I have held it. So in that case, yes I was able to identify a good fund.

A world tracker is probably a safe bet.

bugbyte_2

Thanks for the replys. The (some would say blindingly obvious!) conclusion I came to was just because an active fund did well historically does not mean that it will do well in the future. For example, the Neptune UK mid cap from launch 2009 to 2011 did slightly worse than FTSE 250. Then it out performed for 1/2 a year adding +20% above FTSE 250. This was enough to put it near the top of the mid cap league for 3 and 5 year performance, and this is where I brought in. It then mirrored fairly closely the FTSE 250 for 2 years before putting on a slight jump (5%) then dropping back to the same level. In addition, the fund manager left in 2016. So apart from one good period since 2009 which was enough to make the fund look spectacular, it has mirrored the FTSE 250 +-5%, and lost the manager who was responsible for the one good period.
In the end, the one +ive period since 2009 wasn't enough to convince me that the fund would repeat this performance, and evidence from 2012 onwards shows that generally it just tracks the 250.

I am sure there are good managers out there like Woodford, but my own limitations mean it is difficult for me to identify them.

As regards the 250 being a bit rubbish, on the MorningStar analysis it has a 3 yr mean of 8.23% compared to my world tracker's 14.2%, so I have to ask what job does it actually do and can I do without it? My reasoning to date is it gives exposure to UK companies which I suspect would not make it into a world tracker and just like the Asia this year it may experience high growth after a year of not doing very much.