Great British Invest off or Passive V Active Discussion

Linton

ams25 wrote: »

To be meaningful I suggest we post active equivalents to passives, like I have done with vls60. This removes the asset allocation issue, which is going to drive perfrormance more than fund choice.

Why? I choose actives purely because of the allocation issue - try getting near Linton Growth with a finite range of real life passives. It is precisely because asset allocation drives performance more than fund choice that, in my view, actives can have an advantage.

Audaxer

TBC15 wrote: »

Similarly as time goes on and we hit some hard times how will the active investor fair against the investor will a tracker with bonds VLS 80,60 etc. .

I suppose if the bull market continues for say the next 4 or 5 years a 100% equity active portfolio will easily beat a VLS60, but if then if there is an equity crash and the 100% portfolio drops 50% it would be interesting to see if the gains already made would keep the 100% equity portfolio above the VLS60 despite it's 50% loss.

talexuser

There is also the problem of starting dates for comparison. I have both active and relatively recently passive. My totally unscientific and personal method was to compare my actives with the nearest passive I would have bought instead and then nearest market indexes, then nearest top funds in that sector. Since all funds have wildly different buy dates depending on allocation decisions along the way, the starting date for comparisons can make a difference to the result. Overall I'm happy the actives justified their fees and only went passive to diversify since there are a limited number of active managers with long term proven track records which were not necessarily luck.

All you need to do anyway is plug your funds into a comparison graph every couple of months to see what is happening long term.

Linton

Easiest way to create a consistent starting date is to set up a trustnet portfolio with Total Cost of each fund matching the % given for your actual portfolio - if you put in cost and today's date Trustnet portfolio will work out the right number of units at current price.

bostonerimus

Agreed Linton. I'll be looking at my Vanguard account to see the monthly numbers and to double check will use an online portfolio analysis tool like this

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

As far as asset allocation goes I think variations are part of the fun, the portfolios should be the same as we are currently using and we should discuss our circumstances. The variation in returns will be interesting to note. So I'll have 25% bonds rather than 100% equities if I was trying to "juice" my return, but that wouldn't reflect my actual asset allocation.

ams25

It is interesting to see different portfolios and approaches, but we seem to be heading down an asset allocation challenge rather than active vs passive. That's fine but not going to learn too much about active vs passive. Just sayin...

TBC15

Some members of the board invest actively others invest passively. If you are a member of the board I would assume some element of personal choice/Interest has taken place.

Have you ever wondered how the rest of the board are doing and how their decisions affect returns in a changing environment? Here is an opportunity.

Portfolio constituents are only mentioned so that any element of doubt is removed.

Linton

ams25 wrote: »

It is interesting to see different portfolios and approaches, but we seem to be heading down an asset allocation challenge rather than active vs passive. That's fine but not going to learn too much about active vs passive. Just sayin...

You cant split the two factors - an active manager isnt being very active if he simply invests in The Market. The key question in my view is whether the lower cost of passive funds outweighs any benefits of the greater flexibility of asset allocation of active. That is the real practical dilemma faced by investors. Passive fans say yes, active fans say no. It will be very interesting to see how it plays out.

Audaxer

ams25 wrote: »

It is interesting to see different portfolios and approaches, but we seem to be heading down an asset allocation challenge rather than active vs passive. That's fine but not going to learn too much about active vs passive. Just sayin...

The problem is that there will be so many different 100% equity active portfolios as regards different fund managers and asset allocations held, against one or two multi asset passive 100% equity funds like the VLS100, or a few individual passive index fund portfolios. I'm sure some investor's active portfolios will beat the VLS100 but I'm also sure that some will not where poor funds have been picked or poorly spread geographically etc. So I think it will really end up being a competition to see who has picked the best performing active portfolio, rather than an active v passive challenge.

Linton

Audaxer wrote: »

The problem is that there will be so many different 100% equity active portfolios as regards different fund managers and asset allocations held, against one or two multi asset passive 100% equity funds like the VLS100, or a few individual passive index fund portfolios. I'm sure some investor's active portfolios will beat the VLS100 but I'm also sure that some will not where poor funds have been picked or poorly spread geographically etc. So I think it will really end up being a competition to see who has picked the best performing active portfolio, rather than an active v passive challenge.

I believe the passive line is that it is not possible to pick an unusually well performing portfolio except by random luck - one is just as likely to pick an unusually poorly performing one. And that a well performing portfolio cannot be well performing for a usefully significant amount of time. If that is correct one should see that the active portfolios are scattered evenly on both sides of the passive ones and that over time no one active investor should be seen to have the golden touch.

Sadly I doubt whether we will have enough portfolios or time to show anything of great significance but hopefully the exercise will be fun, interesting and educational anyway. With any luck there will be another Great Crash so we can look at the effect of risk as well as performance in the good times.