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

Prism

ivormonee wrote: »

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!

Before I invest a significant amount into a fund I keep a watch over that funds holdings for a while in a model portfolio and I also read up on the ethos of the fund manager. It was this research that led me not to invest in Woodford (however my wife did for a few months due to lack of a better fund choice in her pension). I decided that I didnt particuarily like the companies he was invested in. I also didnt like his complete avoidance of anything tech - this isnt 1999 all over again. I am also not a fan of income funds since I don't believe that companies that pay high dividends are doing the right thing for themself. I'm not against Woodford in any way - I just don't want his style of investment.

I think that if you do this kind of research over any active fund you can decide if its for you - rather than just picking based on a star name or previous gains. Other than that trackers are probably the way to go

jamesd

ivormonee wrote: »

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.

Not much of a key argument, then. Remember that the job of an active manager includes not being a closet tracker. They are supposed to perform differently from the index. Over the term they are using, better, but that can mean months or years doing less well even if the active manager is seeking the same volatility as the index.

Volatility targets matter because a manager with a lower volatility target is supposed to grow and drop less while underperforming on growth long term.

ivormonee wrote: »

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

The approach you're taking isn't one which can make sense of the figures because you're looking at the wrong thing. To understand it you need to be looking at the reasons for the numbers, not just the numbers.

First thing you should really do is look at why he came close to being fired as a fund manager in 1999 and why he also underperformed relative to the fund's index in 2007-8 period. The reasons were not investing in the tech bubble first time around, not in banks the second. His approach worked very well but not without underperforming because he was deliberately and correctly avoiding what was doing well. It's getting big calls right that made his name more than single year comparisons that are expected to be better and worse. Three years is also too short.

His new fund has been and is positioned differently from the market. This year some of the firms it held relatively big positions in did badly, perhaps most notably Provident Financial badly screwing up its doorstep collector/sales organisation. No surprise that a notably bad year resulted.

ivormonee wrote: »

The point is we simply don't know.

Actually, that isn't the point. You're pretending he's running a super- tracker fund that's supposed to consistently beat the index year by year. He isn't. He's supposed to be inconsistent vs the index. The approach is bogus because the underlying super-tracker assumption is wrong. An active fund is expected to do less well than its index from time to time. It's an inevitable consequence of the manager doing their job of investing differently from the index.

ivormonee wrote: »

Neil was excellent and consistent once too.

Yes on excellence, no on consistency vs index and too soon to tell whether it's was or still is. You're taking a far shorter term view than his positions.

A manager moving to a new fund house or area of investing is also something to avoid. You just can't know whether the change will work out or not.

ivormonee

jamesd wrote: »

the job of an active manager [...] can mean months or years doing less well even if the active manager is seeking the same volatility as the index.

So why would anyone want to invest with an active fund manager?

jamesd

For the same reason people invest at all: the good years are expected to produce better long term results even though some are less good. If you don't think that'll be true, don't invest. If you don't think you can find active managers who can do better than trackers (of something) go passive instead.

Eco_Miser

ivormonee wrote: »

So why would anyone want to invest with an active fund manager?

Because they want a result different to that of the index (whatever 'the index' is).