The regulators thoughts on passive vs active

Thrugelmir

Fatenbread wrote: »

But I think you are right - the larger the passive sector gets, the more self-fulfilling asset values become, which creates opportunity for active managers. The fact that active funds fees have been significantly reduced in recent years has already begun to erode the advantage that passive investing had 5 years ago.

Number of listed stocks has diminished. With increasing numbers either taken into private hands or private equity ownership.

Cost of listing on a recognised exchange has increased considerably over the years. With it has reduced the number of new listings. As companies have decided to stay off market.

If Aramco comes to the market as expected. Will pose an issue for the passive funds. As by market value should be included, 5% could be as much as $500 billion. In any measure wouldn't meet the necessary criteria for inclusion.

You cannot track smaller companies with passive funds either. Not enough stock liquidity to even consider doing so. A good reason for holding both in ones portfolio. As holding a diversified portfolio is what really matters.

bostonerimus

username12345678 wrote: »

I've only been paying any sort of attention to this debate (or indeed investment generally) for 6 months or so.

I was initially blinded by the obvious attraction to a new investor of the simplicity of a methodology that offered to encompass most of the investable (sp) universe at a rock bottom cost.

Why wouldn't you grab on to it...simple/cheap/effective!

However, as i've learnt a little more it's become apparent that perhaps the active vs passive debate isn't quite as black and white as i'd thought at first glance and there is room to employ many different vehicles to get you to wherever your investing destination happens to be.

After all is said and done, being dogmatic rather than pragmatic probably isn't going to add much to your bottom line.

I'm glad that people are still attracted to active investing.

dale_cotterill

There surely has to be some point, we might be there already, where passive investing becomes a self-perpetuating.

The inflows into passive funds by definition must push the market up as these funds have to buy regardless of the price.

By the same note, a market panic or significant drop would be likely to see significant outflows from these funds, which by its own very nature, would further push the market down and so on and so forth.

Audaxer

dale_cotterill wrote: »

There surely has to be some point, we might be there already, where passive investing becomes a self-perpetuating.

The inflows into passive funds by definition must push the market up as these funds have to buy regardless of the price.

By the same note, a market panic or significant drop would be likely to see significant outflows from these funds, which by its own very nature, would further push the market down and so on and so forth.

In a market panic or significant drop, I'm not sure why greater numbers would pull out of passive funds than active funds.

dale_cotterill

Audaxer wrote: »

In a market panic or significant drop, I'm not sure why greater numbers would pull out of passive funds than active funds.

I'm not really suggesting that they will, more just that since the last time something like that has happened, the value of passives is around 20% of the market, (from around 10% a decade ago) so the impact that indiscriminate buying and selling would have should in theory be larger.

cashbackproblems

My active funds have outperformed the passives over the last 5 years, however i only invest in managed funds for specific sectors such as small caps, india, technology, frontier markets, latin america and AIM funds. This is as mentioned above passives are not an option plus even if they were a fund manager can add lots of value, and filter out the crap. Just be aware of managed funds with 300+ holdings, its basically a passive with an active fee.

Also as vanguard now offer super low cost direct investing, i am more inclinded to go this way than pay hl 0.45

TBC15

At last the likes of Buffet,Train,Wright,Smith etc exposed for what they are.

TBC15

cashbackproblems wrote: »

My active funds have outperformed the passives over the last 5 years, however i only invest in managed funds for specific sectors such as small caps, india, technology, frontier markets, latin america and AIM funds. This is as mentioned above passives are not an option plus even if they were a fund manager can add lots of value, and filter out the crap. Just be aware of managed funds with 300+ holdings, its basically a passive with an active fee.

Also as vanguard now offer super low cost direct investing, i am more inclinded to go this way than pay hl 0.45

Would you mind sharing who you use for technology.

SnowMan

Further information about the FCA's reasearch into active vs passive is contained in this 'annex 1 additional feedback document and detail in our responses'

https://www.fca.org.uk/publication/market-studies/ms15-2-3-annex-1.pdf

skip to paragraph 11 on page 6 for the relevant discussion

seacaitch

I await the results of the Investment Platforms Market Study that the FCA has begun.

Depending on the findings, this could result in some far-ranging changes and benefits to retail investors, continuing the good work that was begun by RDR.

Specifically, I would like to see strong proposals in the area of account transfers (the ending of fees; faster transfers) to reduce the relative lock-in that currently exists with brokerage/platform accounts. The hope would be to see similar competition benefits in this market as the current account market has enjoyed since its account switching processes were simplified.