use Active Management or a Tracker Fund

System

dunstonh wrote: »

He won but he also got lucky in timing. He picked S&P500 during a period when S&P500 outperformed everything. Had the same selection taken place a decade earlier, when it signficantly underperformed he would likely have lost.

Which does go towards the argument that the most important thing of all is asset allocation

The active managers could have chosen the best-performing shares from the S&P500, which is what active managers are supposed to do, and then they would have won!

jsinc

Opinions differ but, unless you happen to be in a significantly market outperforming fund and/or feel able to pick future winners, I think 2% is way too high.

e.g. 4% real annual growth rate, 2% fees = ~50% loss of growth to fees. More with compounding effect over time.

Broad asset allocation may trump fees, but fees trump specific fund or index selection imo.

Prism

Economic wrote: »

The active managers could have chosen the best-performing shares from the S&P500, which is what active managers are supposed to do, and then they would have won!

Not always = sometimes the goal is lower volatility, or better performance during downturns, or a better yield. In this case though, the five hedge fund managers failed pretty badly, especially when you consider that the average performance of them over this 10 year period was just 2.2%. I Imagine there was too much focus on financials just before the crash.

dunstonh

Broad asset allocation may trump fees, but fees trump specific fund or index selection imo.

So you think that getting 6% after paying fees of say 2% is not as good as getting 5% after fees of say 1%?

Or putting it another way, would you rather £100,000 after paying fees of 2% or £80,000 after paying fees of 1%?

Prism

My active funds vary between 0.5% and about 1.25%. Add the 0.25% platform fee and I guess I am ok with up to 1.5% max and about 1% average for active management.

westv

I think my active funds charges around 0.90% with a 0.30% platform fee.

dunstonh

westv wrote: »

I think my active funds charges around 0.90% with a 0.30% platform fee.

That's about right. Our active portfolio comes out at 0.74%. Significantly outperforming the passive only version.

Not every fund in the portfolio is Q1/2. Usually, you find 1 or 2 drop into into Q3/4 but overall, it does better. Managed funds are more work. You cant just sit back and let them invest. You need to adjust. So, a lazy investor is likely to be better in a multi-asset fund in underlying passives (not individual trackers as they would need rebalancing and not a single sector tracker as that would just be bad quality investing).

jsinc

dunstonh wrote: »

So you think that getting 6% after paying fees of say 2% is not as good as getting 5% after fees of say 1%?

Or putting it another way, would you rather £100,000 after paying fees of 2% or £80,000 after paying fees of 1%?

I don't think estimating expected returns from historical returns is the best approach beyond broad allocation choices.

I don't fancy my long-term odds of being particularly skillful or lucky in specific fund/asset selection within a universe of funds/assets. Nor those of any one manager in a universe of managers, although I have no particular passive/active bias beyond charges.

dunstonh

I don't think estimating expected returns from historical returns is the best approach beyond broad allocation choices.

That is not what I asked.

You said "Broad asset allocation may trump fees, but fees trump specific fund or index selection imo."

That is putting the selection of the investments based on cost first and where to invest second. That is not the correct way to do it. Cost should always be secondary to where you invest.

I certainly understand your reasons for not selecting managed if you feel you are not up to it. That is logical and common sense. Managed does take more work and understanding. But even then, cost should be secondary. Some of the lowest cost trackers perform worse than slightly higher cost ones.

Prism

jsinc wrote: »

I don't fancy my long-term odds of being particularly skillful or lucky in specific fund/asset selection within a universe of funds/assets. Nor those of any one manager in a universe of managers, although I have no particular passive/active bias beyond charges.

I am kind of the opposite. I do fancy my chances on selecting a decent fund manager (partly based on past performance) and I only look at charges afterwards. I am not especially keen on entry fees but even those don't completely put me off