Index vs managed funds the great war

A_T

I tend to go active for small cap and index for large cap. There seem to be very few if any satisfactory (for me at least) small cap trackers.


I also go active for China because if you go index you are stuck with Emerging Markets which include Russia, Brazil, India, etc. in which I have little confidence.

Audaxer

I think there is room for both passives and actives. Although I have recently set-up an income portfolio of active funds, and think I have picked a decent allocation to get income and some growth, I am not as confident as I am when selecting a low cost multi asset fund. Time will tell whether my income portfolio does better than my VLS funds.

For experienced investors with a large single sector portfolio, the consensus seems to be to use a mix of passives and actives. For inexperienced investors I think multi asset funds like VLS containing passives are a good option. Some other low costs multi asset funds of passives like L&G MI and HSBC Global Strategy funds have actively managed allocations so also good options for inexperienced investors. I'm sure that I read that asset allocation in a portfolio is as important if not more important than the actual funds used, so the fact that asset allocations in these multi asset funds are professionally selected and managed gives me a good bit of faith in them.

sixpence.

So helpful to read through this. Thank you everyone.

Linton's comment was particularly helpful. I suppose it comes to whether or not you trust a particular market/sector as a whole to preform better than a fund manager. Something to think about. A US index is obvious but a Japanese one maybe not so much.

In Benjamin Graham's The Intelligent Investor (revised edition, 2003) the following criteria are suggested for selecting managed funds:

1. Their managers are the biggest shareholders.
2. Charges are cheap.
3. They dare to be different (in terms of stock selection)
4. They closed to new investors (this refers to funds having a number of possible investors and I'm not sure if it applies to the UK... also how would you buy a fund if it was closed to new investors anyway...).
5. They don't advertise.
6. The manager has a good reputation/track record.

If anyone has any criticism/addition for this then go for it I'll be doing some active fund selecting research (for the 15% of my portfolio that will be active funds) once I'm done reading my first few books.

firestone

sixpence. wrote: »

So helpful to read through this. Thank you everyone.

Linton's comment was particularly helpful. I suppose it comes to whether or not you trust a particular market/sector as a whole to preform better than a fund manager. Something to think about. A US index is obvious but a Japanese one maybe not so much.

In Benjamin Graham's The Intelligent Investor (revised edition, 2003) the following criteria are suggested for selecting managed funds:

1. Their managers are the biggest shareholders.
2. Charges are cheap.
3. They dare to be different (in terms of stock selection)
4. They closed to new investors (this refers to funds having a number of possible investors and I'm not sure if it applies to the UK... also how would you buy a fund if it was closed to new investors anyway...).
5. They don't advertise.
6. The manager has a good reputation/track record.

If anyone has any criticism/addition for this then go for it I'll be doing some active fund selecting research (for the 15% of my portfolio that will be active funds) once I'm done reading my first few books.

Good luck with your reading but note that the UK is not the same as America for all info.I have
some managed funds mainly IT's and would say to your bullet points for selecting
1.not 100% sure what that means without the book 2.not very many 3.probably yes but some will follow the index pretty much 4.you have Open ended funds(OEIC) and say an IT that has issued a set amount of shares but you can still buy into both. 5. the bigger funds do. 6.Hopefully- but as others will say that's in the past but could be a guide

Thrugelmir

sixpence. wrote: »

4. They closed to new investors (this refers to funds having a number of possible investors and I'm not sure if it applies to the UK... also how would you buy a fund if it was closed to new investors anyway...).

Investment Trusts are closed funds. The shares of the IT trade independently to the funds managed. Fund managers are therefore not constrained by what the activity of it's investors is.

sixpence.

Thanks will look into ITs

Also looking for books about selecting managed funds which are UK based. Found this even though its a few years old:

https://www.amazon.co.uk/gp/product/0273732854/ref=as_li_tl?ie=UTF8&!!!!!taabalab-21&camp=1634&creative=6738&linkCode=as2&creativeASIN=0273732854&linkId=36938b11acac9d371e8e775f20e3c68d

There is also a separate one for ITs:

https://www.amazon.co.uk/gp/product/B00NBDFUBC/ref=as_li_tl?ie=UTF8&!!!!!taabalab-21&camp=1634&creative=6738&linkCode=as2&creativeASIN=B00NBDFUBC&linkId=b9650fcb6ddd6cb21584e93234cdc8c8

There's also plenty on YouTube. Talking to people on here really helps, so thanks again, and I hope other beginners might read through this thread and find it helpful as I have with others.

bostonerimus

sixpence. wrote: »

Thanks will look into ITs

Also looking for books about selecting managed funds which are UK based. Found this even though its a few years old:

https://www.amazon.co.uk/gp/product/0273732854/ref=as_li_tl?ie=UTF8&!!!!!taabalab-21&camp=1634&creative=6738&linkCode=as2&creativeASIN=0273732854&linkId=36938b11acac9d371e8e775f20e3c68d

There is also a separate one for ITs:

https://www.amazon.co.uk/gp/product/B00NBDFUBC/ref=as_li_tl?ie=UTF8&!!!!!taabalab-21&camp=1634&creative=6738&linkCode=as2&creativeASIN=B00NBDFUBC&linkId=b9650fcb6ddd6cb21584e93234cdc8c8

There's also plenty on YouTube. Talking to people on here really helps, so thanks again, and I hope other beginners might read through this thread and find it helpful as I have with others.

You will probably be better off with out active funds and ITs.....investing is one area where a simple solution usually works perfectly well for most people. You can become paralyzed by choice when using active funds and ITs and it can be difficult to maintain a disciplined approach, for example look at all the Woodford folks jumping ship. I bet many are going to Fundsmith and with 28 shares it might be from the pan to the fire in 2018....who knows.

talexuser

If Terry Smith had 28 funds it would be a much bigger firm. Actually it's shares and his approach to companies is quite similar to Buffet. And since Woodford Income is still 8.25 billion in size you're beginning to sound like a broken record trying to run him down at every opportunity, particularly since we are still in the short term from inception to know.

TBC15

I’ll put the tanned cockney in the classic suite front and centre above all those who wish to be average. I like what he says and I like the way he says it.

chrisgg

Boston, do you work for Vanguard or iShares?

As for the active vs passive, I'm afraid there's no definite answer. It is difficult for US funds to outperform the S&P500, but it's not difficult to find a UK fund that out performs the FTSE 100.

A sensible long term equity 'lazy' portfolio (for a a UK investor) would be comprised of something like a global equity tracker, an active UK All Companies fund and an Asia/EM active fund. But that's just my opinion, and as they say, opinions are like... everyone has one.