Discretionary fund management

bostonerimus

dunstonh wrote: »

If the IFA knows what you want and isnt delivering that, then change. Although make sure they know what you want first because it could be they think you want something different. Its all about communication in both directions.

I definitely agree with this. I don't understand why people are so deferential to IFAs. They are providing a service and if you don't like it tell them why, tell them to change and if they don't then get another IFA. Of course inertia is the big problem. You have things set up in a particular way, you might have funds and structures that are "IFA specials", still it's your money and you need to take responsibility for it and if you are not comfortable with your IFA then sack them.

bostonerimus

Linton wrote: »

AS Bowlhead says + neither Lindsell Train nor Fundsmith have any idea of your financial objectives, timescales and attitude to risks. How likely is it that their funds are, on their own, optimal for you? What process led you to believe that they were?

The idea of an optimal fund selection is erroneous. Lindsell Train, Fundsmith or any combination of those and the thousands of other funds available might be adequate. There is some basic big picture things to get right, ie if you are you and looking fro growth the Gilts would be bad, but get that right and most of the other stuff like overweighting small cap, Asia, micro-green energy schemes etc is just noise.

Linton

bostonerimus wrote: »

The idea of an optimal fund selection is erroneous. Lindsell Train, Fundsmith or any combination of those and the thousands of other funds available might be adequate. There is some basic big picture things to get right, ie if you are you and looking fro growth the Gilts would be bad, but get that right and most of the other stuff like overweighting small cap, Asia, micro-green energy schemes etc is just noise.

I would say the idea of an optimal fund selection is far from erroneous, but impossible to implement. However with attention to underlying allocations, one can do much better than picking funds at random.


Unless you are after growth with little concern about risk there is far more to asset diversification than equities vs gilts.



My overweighted small cap portfolio has averaged 13.4%/year over the past 5 years compared with VLS100's 11.7%. Just noise? And you get excited about a 0.1% saving in charges!

greatkingrat

But then you are comparing apples with oranges.

By my calculation Vanguard Global Small Cap is up an average of 14.1% pa over the past 5 years.

bostonerimus

Linton wrote: »

I would say the idea of an optimal fund selection is far from erroneous, but impossible to implement. However with attention to underlying allocations, one can do much better than picking funds at random.

I'm with you on this. I'd modify my previous post and say that in hindsight an optimal portfolio is possible, but for practical purposes all we can do is use our best judgement to come up with something we hope/think will meet our needs as we can't know the future.

Unless you are after growth with little concern about risk there is far more to asset diversification than equities vs gilts.

This is true, but I kept it as simple as possible to keep my point clear

My overweighted small cap portfolio has averaged 13.4%/year over the past 5 years compared with VLS100's 11.7%. Just noise? And you get excited about a 0.1% saving in charges!

Well yes just noise when you look at all the other potential portfolios. Buying just the US stock market ie Vanguard Equity Index would have returned an average compounded return of 17% over the last 5 years (ie a 122% increase). Fundsmith would have been even better. So who's to say which portfolio is better, a random choice of Fundsmith or a 15 fund portfolio that over weights small cap if we look at the results. We will all defend our choices with reference to a future we cannot know and indulge in the schadenfreude of hoping the the unconsidered choice of just buying Fundsmith ends up being another Woodford, but we can move the goal posts as much as we want, in the end the only real measure of success is if our money allows us to do the thing we want and enjoy. So if a 5% or 10% annual compounded return gets you to where you want to be it's better than the 20% annual return for someone who "needs" that for their plans and to think of themselves as successful.......read my book "The Zen of Investing".:)

Audaxer

dunstonh wrote: »

That would only be possible if the risk profile was changed. It is a bit of a myth that managed will do better than passive during negative periods. If you are in a higher risk managed fund then you would expect it to go down more during a negative period. If you were in a higher risk index tracker, you would expect it to go down more during a negative period. It is where it is invested that matters. Not the style.

Thanks dunstonh, when you say where it is invested that matters, I take it you mean if it is well diversified across all the main sectors and regions? That is where I would hope an IFA could add value - choosing the best funds for my portfolio suitable for my risk tolerance, to produce better returns after costs than an equivalent multi asset fund. However I think HappyHarry indicated the IFA's role was more about planning rather than picking funds.

dunstonh

I take it you mean if it is well diversified across all the main sectors and regions?

That is part of it.

However I think HappyHarry indicated the IFA's role was more about planning rather than picking funds.

An IFA is a financial planner. Not an investment manager. However, selection of investments is part of the role. Some will decide to outsource a portion or even all of it. Others will not outsource any of it. I pick the funds but often, the research filters already applied by the company I buy data from and the addition of our own filters means only 1 or 2 funds are left per sector for me to pick from. So, whilst its fund picking, it's still heavily outsourced and picking from a tiny number. Plus, the amounts you put in each area are not chosen by me. That data is also bought in. It is more about having the tools to complete the job and using the skills of others as well as your own. Not many IFA firms will have much of that in-house nowadays. The due diligence requirements just don't allow it.