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Index vs managed funds the great war
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So if you know roughly what allocations you want in term of geography, sectors, industry areas etc, could it make sense to use low cost passives to build the allocation model you want??
You could try. There are problems though...
Market capitalisation weighting gets in the way. For example if you invest passively in the USA you are stuck with Apple, Google, Facebook etc as your largest holdings. You are constrained by the asset allocation of the index. And you cant easily remove what you may consider to be overweight sectors by adding subsidiary funds. With active funds you have a much better choice of asset allocations within a geography.
Another example - every major exchange has a few world class banks at or near the top of the main index. As we saw in the great crash, given the global economy these can be highly correlated. Oil companies are similar though they havent yet suffered a global crash, but they could in the future. With active funds you can spread the risk.
Small Companies can be a problem for index funds. Again market capitalisation weighting doesnt help, neither does the inability to select out the many companies that probably arent going anywhere,
Then the question is why would you want to try to do it with passive funds. It is hard enough to juggle the allocations as it is, why would you do it with one arm tied behind your back?
It seems to me that if you really believe in passive funds the only logical equity investment approach is to buy a single global index tracker, preferably an all cap one, and leave it at that. After all if anything is The Market that must be about as close as you can get to it. Messing about with allocations is counter to the whole spirit of passive investing.0 -
Hahaha very funny
Current thoughts re portfolio structure are:
Index funds:
73% VLS (60% equity)
10% Asia ex Japan tracker
3% Global tech tracker
Managed funds:
3% Japan small caps
3% Europe growth ex UK
3% China
3% UK small caps
2% India
Top two sectors of equities currently work out at: 19% tech, 14.4% financial, after that it's like 6-7% industrials, healthcare etc
I figure this is geographically diverse enough. All I need to do now is find decent funds that aren't too expensive and make sure as I choose that my sectors don't get un-diversified. Easier said than done really :rotfl:0 -
If you set up that portfolio, it would be interesting to see whether the returns on your overall portfolio are higher than on your VLS60 alone.Hahaha very funny
Current thoughts re portfolio structure are:
Index funds:
73% VLS (60% equity)
10% Asia ex Japan tracker
3% Global tech tracker
Managed funds:
3% Japan small caps
3% Europe growth ex UK
3% China
3% UK small caps
2% India
Top two sectors of equities currently work out at: 19% tech, 14.4% financial, after that it's like 6-7% industrials, healthcare etc
I figure this is geographically diverse enough. All I need to do now is find decent funds that aren't too expensive and make sure as I choose that my sectors don't get un-diversified. Easier said than done really :rotfl:
Also, if some of your active funds take a dip when the VLS60 makes gains are you prepared to sell some VLS60 and buy more of the active funds to rebalance back to your original percentages?0 -
BananaRepublic wrote: »What you say is not contradicting what I have said, and yes they also show a UK domestic bias.
As an aside, several pensions advisors over the decades suggested to me that roughly one third US, one third UK and one third Europe was a good equities split. I mention this as a comment on the UK advisors mentality in my experience.
Agreed, I was not contradicting you, more questioning your emphasis.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
So if you know roughly what allocations you want in term of geography, sectors, industry areas etc, could it make sense to use low cost passives to build the allocation model you want??
That's what i suggested above. You can certainly use a number of index funds to create you own portfolio, Vanguard does just that in their VLS multi-asset funds. It can get a little complicated, but managing say 10 funds in a portfolio, be they active or passive, requires some work. If you want to keep allocations stable it can be a bit more work with actives as they have more latitude to change their internal allocations, but they do have stated guidelines and rules for that. The laser focus on allocations within sectors seems like diminishing returns to me as there are so many unknowns and plain guess work involved. People desire control but I fear that the active approach only gives the illusion of control and that bigger and more random powers ultimately decide the outcome.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
If you set up that portfolio, it would be interesting to see whether the returns on your overall portfolio are higher than on your VLS60 alone.
Also, if some of your active funds take a dip when the VLS60 makes gains are you prepared to sell some VLS60 and buy more of the active funds to rebalance back to your original percentages?
I think it will be higher but only if chose funds I am confident in. If I don't feel like I can do that, after all of my research and reading etc, I might just go the passive route.
I haven't really got my head around re balancing yet, but I think my percentages refer to the initial investments - i.e if I have 1k it will be split up that way, not how I will rebalance it....0
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