Active vs Passive

BananaRepublic

bugbyte wrote: »

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.

You have learnt a valuable lesson, which is that when looking at historical data for a fund what matters is not the overall gain but the consistency. The Neptune fund had one lucky year, but the rest were mediocre. Generally you want to look for consistent outperformance even if that means lower overall performance, as that way you have some justification for thinking that the manager knows his onions, rather than having had one lucky break.

bugbyte wrote: »

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.

Who knows. The whole point of diversification is to smooth out performance, and to account for the fact that you cannot predict which markets will do well, and which won't. What is the volatility of your world tracker like?

bowlhead99

BananaRepublic wrote: »

Who knows. The whole point of diversification is to smooth out performance, and to account for the fact that you cannot predict which markets will do well, and which won't. What is the volatility of your world tracker like?

According to Trustnet, his Blackrock Consensus 100 has done +34% over the last 12 months, but did -4% the 12 months before that, and +14% the one before that. So, not particularly stable, as -4 to + 38 is over 40% different from one year to the next... but on average it has been positive since inception; but the timescale far too short to draw good conclusions.

However if you look at a general world index tracker, such as FTSE All World, the largest peak to trough drawdown in the last decade was 58% for a USD investor (credit crunch /global financial crisis). In GBP the magnitude of the loss was smaller due to the direction that currency movements took in that time, but that's an example of the sort of adverse return you can get from trackers invested into global equities.

As the Blackrock Consensus fund isn't a free cap-weighted tracker (it only has about 45% in North America at the moment) and will have some periodic balancing between regions, you would potentially not suffer as much as the All-World did in the bad times, but anything that can leap up 35% in a year can easily have some very bleak years too.

The FTSE 250 is about 16% of the FTSE UK All share which is in turn about 15% of the Blackrock 100 fund which is in turn 50% of OP's portfolio. So, OP would have a little over 1% of his portfolio invested into the FTSE250 via the Blackrock Consensus fund in addition to his direct allocation to it.

As you say Banana, the point of diversifying is to smooth out performance and recognise you can't know what will be best next. The FTSE250 has been a perfectly reasonable performer over time. It is more representative of UK corporate life than the FTSE100 (which makes up 80% of the UK exposure of a fund like Blackrock's but has greater industry sector concentration and more international and foreign currency revenues).

Pincher

Pincher says: when in doubt go half and half.

Or, I suppose you can pretend to be a Passive believer, but secretly put some money in active funds.

Conversely, you must have heard of the phrase "closet trackers".

Transgender investor, Latent index fetishist, etc.

StellaN

Pincher wrote: »

Pincher says: when in doubt go half and half.

Or, I suppose you can pretend to be a Passive believer, but secretly put some money in active funds.

Conversely, you must have heard of the phrase "closet trackers".

Transgender investor, Latent index fetishist, etc.

Hilarious Pincher you did make me laugh! However, seriously 'half and half' is not such a bad idea?!