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Thrugelmir

Deleted_User wrote: »

Weighting in passive funds reflects that “dog stocks” are underperforming.

Northern Rock became worthless in 2008. That's an irretrievable capital loss event for holders of FTSE 100 trackers at the time.

[Deleted User]

Thrugelmir wrote: »

Northern Rock became worthless in 2008. That's an irretrievable capital loss event for holders of FTSE 100 trackers at the time.

Sure. Never said passive funds can’t experience losses. Active managers who were overweight in N Rock at the time of it’s demise did even worse. And people who had known in advance beat the market. The problem is that active managers generally don’t.

https://www.cnbc.com/2018/07/27/bad-times-for-active-fund-managers-again-vast-majority-are-underperfo.html
https://www.ft.com/content/c6183f2f-f58a-3569-a6ac-9d2b44adfe28

[Deleted User]

jamesd wrote: »

What they beat was the passive funds, not necessarily the market.

Even combined the active and passive funds weren't the whole market because the work was only looking at funds normally available to UK investors. That's a tiny percentage of the US market cap and not a big cut of most of the rest.

If you look at the bit of the FCA data I highlighted in the post I linked to, passive for the US (at least large cap, not sure it'll apply to small and micro) and global with circa 55% US weighting. Active for the rest. For equities. For fixed interest the picture is different.

1. All US indices and traded companies are available to UK investors, eg VTI = total market ETF. Certainly not “a tiny percentage”. Are you talking about private companies which are not traded?

2. I can’t find table 4 in the FCA report you referenced. What page? The report says that both active and passive funds underperformed benchmarks. In fact, good passive trackers always do by a very small margin equal to costs.

bostonerimus

Deleted_User wrote: »

1. All US indices and traded companies are available to UK investors, eg VTI = total market ETF. Certainly not “a tiny percentage”. Are you talking about private companies which are not traded?

2. I can’t find table 4 in the FCA report you referenced. What page? The report says that both active and passive funds underperformed benchmarks. In fact, good passive trackers always do by a very small margin equal to costs.

I'm enjoying this back and forth.

BritishInvestor

jamesd wrote: »

Advisers aren't free of risk and can have different styles and investment briefs from the client.

I can't see why this would be optimal. A client should work with an adviser to determine their objectives, plan the best way to get there and select the optimal portfolio to fulfil this. If half of the money is outside of the plan it's going to cause inefficiences.

BritishInvestor

jamesd wrote: »

What they beat was the passive funds, not necessarily the market.

Even combined the active and passive funds weren't the whole market because the work was only looking at funds normally available to UK investors. That's a tiny percentage of the US market cap and not a big cut of most of the rest.

If you look at the bit of the FCA data I highlighted in the post I linked to, passive for the US (at least large cap, not sure it'll apply to small and micro) and global with circa 55% US weighting. Active for the rest. For equities. For fixed interest the picture is different.

If you look at the data it's not clear which areas (sectors, geography etc) show outperformance for active funds

https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/

BritishInvestor

jamesd wrote: »

What they beat was the passive funds, not necessarily the market.

Even combined the active and passive funds weren't the whole market because the work was only looking at funds normally available to UK investors. That's a tiny percentage of the US market cap and not a big cut of most of the rest.

If you look at the bit of the FCA data I highlighted in the post I linked to, passive for the US (at least large cap, not sure it'll apply to small and micro) and global with circa 55% US weighting. Active for the rest. For equities. For fixed interest the picture is different.

Just to add

Majority of passive funds don't trail their benchmark by much these days
Same issue with bonds as equity - managers taking credit and term tilts and claiming alpha.

BritishInvestor

Thrugelmir wrote: »

Never forget that markets consist of living breathing companies that rise and wane, sometimes turning to dust. Active fund managers can dump dog stocks earlier. Passive fund managers have little option other than to maintain a weighting. If that's what fund mandate dictates.

Active managers "could" do this, much like they could sell before recessions. There's not strong evidence to suggest they do.

BritishInvestor

Clive_Woody wrote: »

That's a matter of opinion.

For me, that would be a very important part, I would not be comfortable with my money being invested in something I did not understand....no matter how convincing the sales pitch and how grand the claims

That's good to hear, and that exactly the point - the portfolio should be simple and not an attempt to distract from the lack of genuine value add.

BritishInvestor

Thrugelmir wrote: »

Northern Rock became worthless in 2008. That's an irretrievable capital loss event for holders of FTSE 100 trackers at the time.

But with a globally diversified portfolio a tiny, tiny loss.