Grist to the mill in the Active vs Passive debate (Morningstar research)

username12345678

Success rates for active European funds over 3/5/10/15 years versus their benchmarks.


http://news.morningstar.com/articlenet/article.aspx?id=827622

jamesd

The usual sort of silliness, asserting that it's impossible to avoid underperformers (while giving a rule that identified them!) and pick winners. Pretending that active funds are trackers and testing them as such while completely ignoring changes in human manager.

I don't think I've ever held a Europe excluding UK fund in my SIPP or ISA that failed to beat trackers and index over useful time frames, though I'm not sure about an emerging Europe fund I held quite a few years back. The three I hold today in pensions have all beaten the relevant index while I've held them, aside from relatively short periods perhaps. I don't think that I'm the only person who can pay attention. I do agree with this, though:

"buying an expensive actively managed fund will almost certainly prove a mistake"

Interesting but unsurprising to see that the most expensive active funds did much less well than the cheapest. Unsurprising because those are probably the ones sold to audiences who are offered restricted choices. Same for trackers. That does suggest an interesting selection rule, though: underperformance is concentrated in the most expensive quintile, avoid them.

Linton

Let's put this "research" to the test.

Say I want to invest in Large Cap Germany. Apparently only 45% of German active funds beat "the index" over 3 years and 42% over 5 years..

A quick search through trustnet and morningstar identifies only 2 large cap German GBP funds in the right morningstar category:

Allianz German Equity: 3 yr return 75.2%, no figure for 5 year
Baring German Growth: 3 yr return 82.6%, 5 yr return 137.8%

A typical German large cap index fund:
Amundi ETF MSCI Germany (GBP): 3 yr return 58.2%, 5 yr return 91.9%

So our funds show a large out-performance. Where are all the underperforming German active funds? Or perhaps where are the "good" German index funds? Are we lucky in the UK that only very good German funds are available?

And another point.....
They claim that 29% of German active funds have beaten the index over 15 years. For 29% to be the nearest whole number thery must have found at least 17 of them (6/17=0.294). And its the same % for Switzerland. There arent any GBP funds that have been around for 15 years.

Finally....

Why are all the examples large cap?

capital0ne

All this type of research is based on 20:20 hindsight - totally useless for any future planning

ColdIron

Yesterday you advocated momentum investing, the entire premise being to back yesterday's winners tomorrow

GDB2222

Linton wrote: »

Let's put this "research" to the test.

Say I want to invest in Large Cap Germany. Apparently only 45% of German active funds beat "the index" over 3 years and 42% over 5 years..

A quick search through trustnet and morningstar identifies only 2 large cap German GBP funds in the right morningstar category:

Allianz German Equity: 3 yr return 75.2%, no figure for 5 year
Baring German Growth: 3 yr return 82.6%, 5 yr return 137.8%

A typical German large cap index fund:
Amundi ETF MSCI Germany (GBP): 3 yr return 58.2%, 5 yr return 91.9%

So our funds show a large out-performance. Where are all the underperforming German active funds? Or perhaps where are the "good" German index funds? Are we lucky in the UK that only very good German funds are available?

And another point.....
They claim that 29% of German active funds have beaten the index over 15 years. For 29% to be the nearest whole number thery must have found at least 17 of them (6/17=0.294). And its the same % for Switzerland. There arent any GBP funds that have been around for 15 years.

Finally....

Why are all the examples large cap?

Your example only looks at funds still going. If there are any which have performed very badly, it's quite likely the managers will have 'restructured' the funds, so they are not in the current statistics.

What we need are not the funds still going but the totality of funds, including the ones that have been closed or altered.

I agree, by the way, that a group comprising just two funds is not big enough to get any useful stats from.

bigadaj

GDB2222 wrote: »

Your example only looks at funds still going. If there are any which have performed very badly, it's quite likely the managers will have 'restructured' the funds, so they are not in the current statistics.

What we need are not the funds still going but the totality of funds, including the ones that have been closed or altered.

I agree, by the way, that a group comprising just two funds is not big enough to get any useful stats from.

More simplistically they seem to have chosen some very bizarre sectors and areas, I wasn't aware of any Swiss only funds available but I suppose there might be.

LHW99

And how large would your portfolio have to be that investing in a Swiss only fund makes sense?