What are we paying for?

capital0ne

Lyxor Asset Management released a study last week which analysed the performance of 6,000 active funds in Europe.
44% of these funds beat their benchmark last year, in other words 56% of funds underperformed.
In the case of fixed-income investments just 39% managed to beat their benchmarks.
The fund management industry still takes their fat fees, regardless.
This is the reason people are flocking to passive investment strategies.
It's that simple folks - don't sweat over what funds to buy, its the diversification that's important, pick a mix you're confident in (WB says 90% Equities/10% bonds)
My mix is 60% equities 20% bonds/fixed income 20% property - simple and works just fine.

firestone

But did they say how many passive funds beat their benchmark in the same year?:)

sixpence.

How do you invest passively in property?

Marcon

It's pretty irrelevant whether a managed fund meets its benchmark if the overall return is better than a passive.

bostonerimus

firestone wrote: »

But did they say how many passive funds beat their benchmark in the same year?:)

None because of fees.....

bostonerimus

Marcon wrote: »

It's pretty irrelevant whether a managed fund meets its benchmark if the overall return is better than a passive.

That's true. If I could choose the best active fund every year I would have a far bigger annual return that the 8.5% I've averaged over 30 years using index tracker funds.

bowlhead99

capital0ne wrote: »

44% of these funds beat their benchmark last year, in other words 56% of funds underperformed.
In the case of fixed-income investments just 39% managed to beat their benchmarks.

What proportion of the funds that underperformed had 'beat this benchmark in 2017' as their goal. I'd suggest very few.

WB says 90% Equities/10% bonds

I am a bit like Buffett in that we both have a 'follow what I say, not what I do' outlook.

He has mentioned that when he speaks to 'normal' people about how they should invest for retirement, they mostly listen to his advice that they should put their money in simple cheap trackers. But that when he speaks to mega rich people or institutional investment funds or foundations, they don't ever take him up on it. He thinks this surprising enough that he has mentioned it on more than one occasion.

But he himself doesn't invest on a passive basis in indexes. If he decided to invest all of Berkshire Hathaway's financial assets outside the insurance business in cheap index funds rather than in carefully selected public and private companies, his investors would crucify him and sell off BH stock in droves. Hundreds of billions of dollars is supporting his share price because investors from smallfry up to massive institutional pension funds and governments believe his team's investment selection will be better than the index at riding the economic storms and delivering long-term performance.

Also, a recent article noted that while he tells friends to invest in cheap indexes, employees selecting their defined contribution pension fund holdings within a number of Berkshire Hathaway subsidiaties do not find any cheap index funds available, instead only finding very expensive index funds offered, or barely any at all.

My mix is 60% equities 20% bonds/fixed income 20% property - simple and works just fine.

Commercial properties are not listed on a stockmarket for you to buy into a big index of all properties.

Unless you are going to go around the world buying up land and managing it yourself, the only way to deploy your 20% in commercial property in a diversified way is to find active investment funds or actively managed investment holding companies such as REITs, and buy into them, exposing yourself to all the management fees and running costs of selecting, acquiring, financing, developing and exiting the individual assets over time.

firestone

bostonerimus wrote: »

None because of fees.....

that was my point the results of a survey & timeline and what is and is not said can be presented in the best way it suits (but true of both camps)

A_T

bowlhead99 wrote: »

What proportion of the funds that underperformed had 'beat this benchmark in 2017' as their goal. I'd suggest very few.

I am a bit like Buffett in that we both have a 'follow what I say, not what I do' outlook.

He has mentioned that when he speaks to 'normal' people about how they should invest for retirement, they mostly listen to his advice that they should put their money in simple cheap trackers. But that when he speaks to mega rich people or institutional investment funds or foundations, they don't ever take him up on it. He thinks this surprising enough that he has mentioned it on more than one occasion.

But he himself doesn't invest on a passive basis in indexes. If he decided to invest all of Berkshire Hathaway's financial assets outside the insurance business in cheap index funds rather than in carefully selected public and private companies, his investors would crucify him and sell off BH stock in droves. Hundreds of billions of dollars is supporting his share price because investors from smallfry up to massive institutional pension funds and governments believe his team's investment selection will be better than the index at riding the economic storms and delivering long-term performance.

The funny thing is that BRK performance in the last 10 years has almost tracked the S&P500 and if anything slightly underperformed the index. There is a cult of personality around WB which he doesn't even believe in himself!

grey_gym_sock

to be fair to buffett, he hasn't said that passive management is best for all investors. just nearly all. he claims theres's an exception for the "superinvestors of graham-and-doddsville" ( https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville ) - i.e. investors who learnt from benjamin graham and david dodds.

a key argument is that he says he identified these successful active investors in advance. which is very different from identifying successful active investors from who had high past returns in the past (over whatever period of time you prefer). the latter are much more likely to just be lucky.

his own recent record does appear a bit so-so, at least on the simple comparison to the S&P500 (though there are probably better ways of analyzing it). he has said that managing a large amount of money puts him at a disadvantage - buying small, or even medium, companies, is now pointless for him.

but putting BH's money in the S&P500 is not really practical, anyway, at this stage. given the large wholly-owned businesses - it is more of a conglomerate now. and given the large unrealized capital gains on some of the listed shares BH owns, which it would pay tax on if it sold. perhaps its future returns will be no better than the S&P500, but that is not so bad.