New to investing

jon3001

Aegis wrote: »

In some sectors you will see such occurances. In others, you won't see a tracker even in the 2nd quartile for such a timespan (from memory, feel free to correct me if it's not the case).

I haven't looked into it deeply personally. But the academics say that in large, well-developed, efficient markets it's harder for managers to get a long-term edge over the average. Statistically the ones that did could well have gotten lucky (even over long periods) and you can't rely on the same results going forward. Managers will have more success in specialist sectors and less efficient markets.

Aegis wrote: »

I did a look on the citywire fund data site recently for someone who claimed that trackersdidn't have much of a spread of performances, and demonstrated that the top tracker in the UK All Companies outperformed the bottom one by 100%. The issue then is selection. How do you pick one tracker over another when the stated goal of all trackers for one particular sector is essentially the same? I'm not an expert by any means, but I can't see how you pick a tracker except by replication method, which would either be full replication or sampling, I believe.

AKA tracking error. Ideally you choose one with a history of low tracking error and a large fund size to do this efficiently.

Aegis wrote: »

Conversely, when picking a managed fund you can look at a variety of characteristics if you so choose. Number of years outperforming the market, beating the average managed fund for that sector, level of outperformance of indices, company weighting, manager experience, risk level, etc.

And fund size. Smaller is usually better. But not so small that it gets killed off with any lack of interest. (Quartile rankings can distort the survivorship basis of managed funds). If his recent hot performance is attracting new funds he may not be able to employ them as efficiently. New entrants might not get the great grains that previous investors had because of market impact costs.

Aegis wrote: »

Essentially my belief is that managed funds leave you with a lot more direct control of your portfolio and its risks, and with a little research offer the very real possibility of beating the index year on year.

Of course, you have to keep working at it and revising your selections as the funds and markets change, but that should be encouraged anyway, I feel!

Yes - ideally you keep track of any management changes, make sure the fund is becoming bloating with hot new money and make sure the fund isn't exceeding its investment mandate. Such things are out of your control. With the tracker it's usually pretty transparent what you're buying.

Aegis wrote: »

I don't have year on year performance data for my funds before 2002-03, but during that year I believe all of mine that existed back then (I have a couple that didn't) outperformed the declining index, some turning a small profit, others retaining their value in a falling market, others declining, but less so.

Well - if you're interested in bear market performance you may well have a chance to find out in the near future. How did managed funds behave during the subprime blip btw? Did they successfully time the market?

Aegis wrote: »

That all boils down tot he skill of the manager at dealing with a bear market. The more skillful managers can turn that situation to their advantage, while trackers have no such resources. In a bear market, the ideal strategy for trackers would be to stop using them, but the problem then switches to possibly lost opportunities. Recently someone posted an interesting poitn about what happens if you miss just the 10 best trading days for a fund over a 5 year period... It can be quite astonishing!

If you're using trackers as part of a balanced portfolio then the opposite happens. After a market decline you sell funds from the more profitable parts of your portfolio and buy into the underperforming parts. The rationale is that they are probably now undervalued. This strategy forces you sell high and buy low.

What is it you're expecting the managers to do exactly in a bear market? Say he is managing a UK equity fund and things are turning sour. Another manager is running a Far East tracker and things are booming. The UK guy might be the most skilled manager on the planet but there is no he will beat the Far East tracker. His mandate won't allow him to buy securities on the Hang Seng etc. And being an equity fund he shouldn't really be buying bonds or have large cash holdings etc. If you wanted that you would have bought a bond fund instead. He's meant to choose UK equities and they're all tanking.

If you would have sold the UK tracker in this situation then you should probably have sold the managed UK equity fund too.

Academic research shows that 90% of your returns will come from asset allocation rather than security selection. Choosing say whether to invest (and in what portions) in bonds, UK equities, Far East equities, etc will have far more bearing on your returns than the fund selection you made against that sector. If you think a bear market is coming then you can tactically increase the defensive allocation of your portfolio. That's contol.

Anyway... I'm sure we've diverged massively off what the OP was seeking. I was attempting to give him a safe, cheap, transparent suggestion that would suit his budget.

noviceinvestor_2

Hello money experts,

Firstly, what I've read here is incredibly interested - yet a little depressing as it only serves to highlight how little I know about investing!!

I do have one quick question though - As a novice, I think I’m missing something re self select/stocks and shares mini ISA’s and would appreciate some advice.

Hargreaves Landsdown charge an admin fee of up to £200 + VAT p.a. to have a self select ISA, whereas Selftrade have no administration charge whatsoever to just have a normal dealing account.

Surely the £200 + VAT admin charge must be more than the tax savings of a self select ISA, so why would I get a self select ISA?

Any explanation would be greatly appreciated.

Aegis

noviceinvestor wrote: »

Hello money experts,

Firstly, what I've read here is incredibly interested - yet a little depressing as it only serves to highlight how little I know about investing!!

I do have one quick question though - As a novice, I think I’m missing something re self select/stocks and shares mini ISA’s and would appreciate some advice.

Hargreaves Landsdown charge an admin fee of up to £200 + VAT p.a. to have a self select ISA, whereas Selftrade have no administration charge whatsoever to just have a normal dealing account.

Surely the £200 + VAT admin charge must be more than the tax savings of a self select ISA, so why would I get a self select ISA?

Any explanation would be greatly appreciated.

That would be an excellent question if they had such a charge.

They don't, so no need to worry!

noviceinvestor_2

Ok. Well I feel sheepish.

Under "shares and investment trusts" and "gilts and corporate bonds" in the below link they refer to an annual management charge to hold shares and investment trusts. What is this in relation too?

http://www.h-l.co.uk/our_services/isa_charges.hl

Sorry if this is a stupid question - just trying to get my head around all this.

Thanks

dunstonh

IIRC, HL charge if you dont use funds which generate a trail commission.

Aegis

noviceinvestor wrote: »

Ok. Well I feel sheepish.

Under "shares and investment trusts" and "gilts and corporate bonds" in the below link they refer to an annual management charge to hold shares and investment trusts. What is this in relation too?

http://www.h-l.co.uk/our_services/isa_charges.hl

Sorry if this is a stupid question - just trying to get my head around all this.

Thanks

They're talking about the maximum fee for holding shares and investment trusts (which are essentially shares in companies that invest in other companies). This fee isn't £200 flat, it's 0.5% of whatever you are holding within the Vantage ISA, but only for the aforementioned shares and investment trusts.

The ISA is free for unit trusts and OEICs (no idea about bonds or gilts, but I assume those are free too), so no need to worry about that £200 fee if you're only planning in investing in these types of investment.

On the other hand, if you were planning on using your ISA for shares rather than funds, you'd be much better off going elsewhere because Hargreaves Lansdown is pretty expensive for those!

Aegis

dunstonh wrote: »

IIRC, HL charge if you dont use funds which generate a trail commission.

Would make sense given that they're so cheap because they rebate most of the commission that they'd usually get for their services...

noviceinvestor_2

That makes sense to me also.

So basically if I purchase unit trusts or OEIC's only (presumably those that generate a trail commission) then I won't be paying the admin charge.

If I choose to hold shares or funds not generating a trail commission I will incur the charge.

As I'm intending to hold a majority as shares is there a highly recommended provider? I've seen Interactive Investor mentioned in these threads a number of times.

Thanks all for you responses so far - much appreciated.

Aegis

noviceinvestor wrote: »

That makes sense to me also.

So basically if I purchase unit trusts or OEIC's only (presumably those that generate a trail commission) then I won't be paying the admin charge.

If I choose to hold shares or funds not generating a trail commission I will incur the charge.

As I'm intending to hold a majority as shares is there a highly recommended provider? I've seen Interactive Investor mentioned in these threads a number of times.

Thanks all for you responses so far - much appreciated.

I'm not a fan of shares as an investment personally, so I can't really comment, but haver heard that people use SelfTrade and BestInvest, so they might be worth looking in to.

noviceinvestor_2

Can I ask why you're not a fan of shares as an investment?

Is this just your personal risk profile?