The switch from my OEIC portfolio to my ETF one - one year on

bowlhead99

aberlyfid_2000 wrote: »

Bowlhead - w.r.t the prevelance of hedged products : if you consult your experience, you may find that around 1 in 3 fixed income funds will hedge out GBP exposure.

If somebody's goal is fixing their income, then hedging out changes to it that would result from fx movements seems quite reasonable and not something that will screw up their wealth.

Still, from your figures, the vast majority of fixed income funds don't do it. If you picked one out of a hat, it would be twice as likely to not hedge as hedge.

What you were telling us was confusing and inaaccurate, by citing your Microsoft example, was hedging foreign equitiies in an equities fund. What proportion of funds from the OEIC/UT/ETF universe holding foreign equities hedge those foreign equities? It's not even as much as one in ten, is it?

If not, take a closer at their KIIDs, factsheets and prospectii.

When you try to make yourself sound more clever by imagining how a latin scholar would pluralize 'prospectus', it only works if you get it right.

aberlyfid_2000

jamesd wrote: »

I'm far from perfect, though:

1. I had a high for me cash weighting around brexit vote time. Expensive, but it delivered the protection from extreme events, which didn't happen, that it was for. By far my most expensive recent choice.

2. I normally have close to 100% equities but now I have a steadily increasing P2P fixed interest positioning that I expect to be over 50% by summer 2018. Will equity markets rise enough that any fall, whenever it happens, does less well than the fixed interest? Time will tell. (shrug) I know why I made the choice and am happy with it but only hindsight will tell whether I could have done better.

3. For equities I tend to have very high small cap weightings and also have and have had lots of Europe including heavy small cap weight. Has worked well but small caps aren't where you want to be in a big drop or very late in an economic cycle. Will I adjust enough in time? We'll see.

thank you for sharing your insight, here are my two cents.

1. it was a tough call ! I had the opposite problem, being underweight the GBP this year ate away most of the alpha i earned else where

2. That does seem to be the consensus view, there doesn't seem to be anything on the horizon that could augur a fall in equities in the short term, but i've transitioned into lower beta equities, and increased my FI alloc. A lower maturity profile could limit downside risk on the FI side.

3. the euro economics picture looks rosy atm and small caps should out-perform however, i took profits on mine early august (Baring Europe select) and havn't been back in since.

aberlyfid_2000

bowlhead99 wrote: »

Still, from your figures, the vast majority of fixed income funds don't do it. If you picked one out of a hat, it would be twice as likely to not hedge as hedge.

agreed, no one said majority - i said it was more than you think, which is a phrase that should not be taken literally, nor being confused with the majority !

bowlhead99 wrote: »

What you were telling us was confusing and inaaccurate, by citing your Microsoft example, was hedging foreign equitiies in an equities fund. What proportion of funds from the OEIC/UT/ETF universe holding foreign equities hedge those foreign equities? It's not even as much as one in ten, is it?

what is wrong with that example? you asked for proof of my assertion, and that was it. Fortunately, due to the nonsensical nature of this hedging, these products are not that popular, and quite rightly so. Its a lot more extreme if you look at the FTSE 100 components, of which the majority of revenues are in foreign currency.

bowlhead99 wrote: »

When you try to make yourself sound more clever by imagining how a latin scholar would pluralize 'prospectus', it only works if you get it right.

I prefer the sound of prospectii to prospectuses, but I do apologise if that offends you!

IanManc

aberlyfid_2000 wrote: »

I prefer the sound of prospectii to prospectuses, but I do apologise if that offends you!

"Prospectii" isn't offensive - it just isn't an English word.

On this site people usually write in English, and according to the OED the English language plural of prospectus is prospectuses.

Nor, for that matter, is prospectii a Latin word.

Prospectus in Latin is a Fourth Declension noun, and the declension is as follows:
NOM. singular: prospectus plural: prospectus
GEN. singular: prospectus plural: prospectuum
DAT. singular: prospectui plural: prospectibus
ACC. singular: prospectum plural: prospectus
ABL. singular: prospectu plural: prospectibus

Second and Fourth Declension nouns have nominative singular forms ending in -us. If prospectus had been a Second Declension noun in Latin - which it wasn't - then the Nominative Plural would have been prospecti, not prospectii.

Third Declension nouns may have nominative singular forms ending in -us too. If prospectus had been a Third Declension noun in Latin - which it wasn't - then the Nominative Plural would have been prospectes if the noun were masculine or prospectura if feminine, but not prospectii in either case.

So in short, "prospectii" doesn't exist as a word in either Latin or English, and you've just made it up.

aberlyfid_2000

I can only apologise if my continuing use of "prospectii" offends your sensibilities.

IanManc

aberlyfid_2000 wrote: »

I can only apologise if my continuing use of "prospectii" offends your sensibilities.

Aw bless!

Actually you've already apologised, and I've already said that it isn't offensive.

I'm sure you're not offending anyone by continuing to use your little made up word if it makes you happy, and there really isn't any need to carry on apologising.

:beer:

Voyager2002

IanManc wrote: »

"Prospectii" isn't offensive - it just isn't an English word.

On this site people usually write in English, and according to the OED the English language plural of prospectus is prospectuses.

Nor, for that matter, is prospectii a Latin word.

Prospectus in Latin is a Fourth Declension noun, and the declension is as follows:
NOM. singular: prospectus plural: prospectus
GEN. singular: prospectus plural: prospectuum
DAT. singular: prospectui plural: prospectibus
ACC. singular: prospectum plural: prospectus
ABL. singular: prospectu plural: prospectibus

Second and Fourth Declension nouns have nominative singular forms ending in -us. If prospectus had been a Second Declension noun in Latin - which it wasn't - then the Nominative Plural would have been prospecti, not prospectii.

Third Declension nouns may have nominative singular forms ending in -us too. If prospectus had been a Third Declension noun in Latin - which it wasn't - then the Nominative Plural would have been prospectes if the noun were masculine or prospectura if feminine, but not prospectii in either case.

So in short, "prospectii" doesn't exist as a word in either Latin or English, and you've just made it up.

A very helpful discussion, thank you.

However, this arose from a suggestion to check the prospectus of each fund that is of interest. Surely that puts the word into the Accusative rather than the Nominative?

(My only knowledge of grammar comes from learning Spanish: at my school we only did a year of Latin.)

IanManc

Voyager2002 wrote: »

A very helpful discussion, thank you.

However, this arose from a suggestion to check the prospectus of each fund that is of interest. Surely that puts the word into the Accusative rather than the Nominative?

(My only knowledge of grammar comes from learning Spanish: at my school we only did a year of Latin.)

You may well be right. However the plural of prospectus in both Nominative and Accusative is ....... prospectus.

You were lucky. I had five years of compulsory Latin at school. Not that I'm bitter about it or anything .......

:rotfl:

ivormonee

Say the tracker find manager guy buys and holds the index each year and gets 4.8% return after fees. The active fund manager guy flips the whole portfolio once every single year and charges more fees but still gets 5.0% after fees.

In the US, the investor in the active fund pays his 20% tax on the 5% in-year capital gains and is left with 4% return. After that 4% return compounds up for a decade, he has 1.04^10 =1.48, or 48% return.

Meanwhile the US investor in the passive fund which doesn't realise a gain from year to year will not have any in year taxes to pay and will get the 1.048^10 which is 1.60. Then pays his 20% tax on the 60 and is left with 48% return.

So for that US investor he ends up in the same place whichever fund he uses and given the passive fund had lower fees, might as well just use that in the hope that it's consistent even though the headline return of 4.8% a year is worse than the headline rate of what the active fund offered.

In the UK it's different. We can buy the higher performing 5% fund, pay no tax from year to year, and turn the pot into 1.05^10 = 1.63, then pay our 20% tax on selling out of the fund, and be left with 1.50. So we get 1.50 instead of 1.48 by going active instead of passive. We get to keep our high gains from going active, but the US investor would not.
From https://forums.moneysavingexpert.com/discussion/5763901 bowlhead99



I must confess I know nothing of the US tax system and its treatment of investments so the information you provided was rather revelationary. It does sound a tad more complicated than what we are used to in the UK, despite the UK tax system being already very complex itself!

Your comments also demonstrate why US based investors may be better off taking the tracker route as opposed to the active one and it seems to boil down to the whole tax treatment thing.

I suppose there is one proviso that would apply to UK based investors though and that is the use of appropriate tax efficient wrappers. In your example, 5% compounded over 10 years yielding a pre-tax gain of 63% but 50% after tax, if the investor in question were able to and had been able to wrap this investment up in an ISA s/he'd still be left with the full 63% gain. Also, in the event that s/he hadn't ISA'd the investment and, depending on the monetary value of the gain, it may well have fallen within the annual capital gains tax exemption anyway - £11,300 for 2017/18. Alternatively, if invested in a SIPP the amounts invested up to £40k would have received tax relief at the highest rate of the investor's income tax, and then only subject to tax when taking the money out later.

Despite this, and not everyone would of course be able to benefit from the ISA or SIPP treatment (eg. they may already have used up their ISA allowance with a P2P account or something else), I can see that there is a distinct difference, as you've outlined, between investors in the US and the UK and this appears to be the main factor behind the choice of going full on with trackers in the US but not necessarily so in the UK (apart from the US or global large caps already identified).

ps. somehow I wasn't able to multi-quote and then the quote facility didn't work, hence the highlighting appears as an orange font!

ivormonee

jamesd wrote: »

You need to pay attention to changes of human manager. If you won't do that, even as a UK investor, use trackers. Too much of the performance is human manager dependent for it to be sensible to use actives without paying attention.


So don't gamble on a new manager, switch to another established team or passive until you see whether the change works well. The odds don't favor sticking and you don't need to take the risk.

This is interesting. There seems to be a lot of evidence suggesting that an individual fund manager may actually not be consistent in their performance and that is one of the key arguments in favour of trackers.

For a number of years, Neil Woodford's UK equity income fund was doing very well, generally a few percentage points ahead of the FTSE All Share index. So many investors in the UK jumped onto his bandwaggon, myself included. Why hell, he was a star; a household name; a person with virtual god-like status in the world of private investing!

If we look at the performance of the UK equity income fund that he manages over the past three discrete years (to Sept.) -

.........................................2014/15 .....2015/16 .....2016/17
Neil Woodford's fund ..............13.05 .........10.62 ..........0.59
FTSE All Share index .............-2.30 .........16.82 .........11.94

[source: https://static.woodfordfunds.com/prd/2017/12/weif-fund-facts-woodford-funds-112017-1513762706.pdf ]

So although Neil did very well in 2014/15, exceptionally so in fact, he failed to match the index (let alone beat it) in 2015/16 and further, in 2016/17, his performance was really rather poor.

To make sense of the figures, the three year annualised percentages are:

Neil Woodford : 25.79%
FTSE All Share : 27.76%

One, who is in favour of active fund management, could argue that an investor would have been wise to stick with Mr. Woodford's actively-managed fund during its good year, earning substantially more than the respective benchmark index, and then bail out and move to a different actively-managed fund to continue the outperformance (which was not subsequently offered by the Woodford fund). But then this raises the question: how are we, the private investor (or even the institutional one for that matter) to know whose fund is that which will perform better than its underlying index year to year? The answer has to be, surely, that we simply do not, and cannot, know.

Alternatively, again the proposition from the fan of active management, an alternative approach would be to simply stick with the manager you believe in (as per the post I quoted from). Sure, we could do this. Maybe Neil's performance in 2017/18 may be much better than the index. The point is we simply don't know. And, taking this thought process a step further, the proponent of passive investing would argue that, really, sticking to the index will provide a better overall return. Looking at the three year annualised figures based on actual performance for the three years in question, that would have been true in this case (and probably many others too).

There is an article in the news that mentions Neil Woodford and his performance and states that his UK Equity Income fund actually came 84th out of 84 funds in its respective sector. I hadn't realised it was that bad!

[source : https://www.theguardian.com/money/2017/dec/30/terry-smith-fundsmith-beat-market-2017 ]

Incidentally, the same article talks about Terry Smith and his amazing and consistent performance over the past five years. The article states that his Fundsmith Equity fund has delivered "stellar" returns - "Someone who put £1,000 in Fundsmith Equity at launch in 2010 has enjoyed a remarkable total gain of 264%".

Not sure why the Guardian (author and publisher of the article in question) qualifies that someone who had invested £1,000 has "enjoyed the remarkable gain" of 264% - would someone investing a different amount have enjoyed a gain less remarkable/ more remarkable? Perhaps it's just the way they've worded it!

The point, returning to Terry Smith, is that with his excellent and consistent performance, he is the new Woodford.

Neil was excellent and consistent once too.