bbb

jamesd

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?

The Terms of Reference describe what was covered: the £6.6 trillion covered by UK asset managers. Funds not in the UK, even if they can be bought via offshore trading, were out of scope: the study was looking only at UK products because those are what are marketed to UK retail and institutional investors and are within the FCA's remit.

VTI is a US fund, not a UK one, and won't have been included, while UK based funds investing in the same things were in scope.

Deleted_User wrote: »

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.

Home page of the study is https://www.fca.org.uk/publications/market-studies/asset-management-market-study . I'll look for the right document later.

jamesd

BritishInvestor wrote: »

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.

It's optimal if:

1. an IFA steals your money, which still occasionally happens
2. you happen to have picked an IFA who doesn't do well on investment performance
3. the client wants to use different briefs, say income for one, allowing drawdown to nil eventually, and capital preservation and inheritance for the other. Or perhaps if the partners have somewhat different objectives, so each adviser only has one individual to satisfy instead of trying to find a compromise of the two desires: stereotypically the woman might have a greater inheritance tilt and the man higher income and risk tolerance one.

One IFA can handle everything but the client might prefer a split. Or not, up to the client to decide if they want to do it and why.

[Deleted User]

jamesd wrote: »

The Terms of Reference describe what was covered: the £6.6 trillion covered by UK asset managers. Funds not in the UK, even if they can be bought via offshore trading, were out of scope: the study was looking only at UK products because those are what are marketed to UK retail and institutional investors and are within the FCA's remit.

VTI is a US fund, not a UK one, and won't have been included, while UK based funds investing in the same things were in scope.

Ok, thanks. So the study wasn’t trying to answer the question “what investment vehicles give UK investors the best returns?” Therefore it’s not a good reference for claiming that active funds outperformed.

Besides, there are funds marketed by UK advisors which cover 85% of US market cap. Here is one example but I am sure there are others: Xtrackers MSCI USA Index UCITS ETF

jamesd

BritishInvestor wrote: »

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.

I agree. Though tilt can lead to outperforming the competition even if it's not alpha. For actives, effective use of tilt and perhaps leverage are just part of the toolbox.

For others, alpha means risk-adjusted return. Tilt would be something like investing more of the money in smaller companies. That's likely to produce higher returns but at the cost of higher volatility (up and down movement, risk). Leverage means borrowing to invest, very common for investment trusts to do this. Good if you do it well but it increases risk. Achieving higher alpha is often a key part of how investment managers are ranked.

Active managers don't always have a higher returns brief, with some investment trusts particularly well known for their capital preservation brief.

jamesd

Deleted_User wrote: »

Ok, thanks. So the study wasn’t trying to answer the question “what investment vehicles give UK investors the best returns?” Therefore it’s not a good reference for claiming that active funds outperformed.

It is, though, for what I claimed: UK funds for UK investors. That is, what UK people including the ones here are going to be using because that's what they will be offered.

If we were in the US and considering the market for US investors the answer could well be different. And globally I wouldn't be surprised if assets under management weighted passives beat actives, at least after tax. Tax got in there because some places have higher taxes for short term holdings, which is likely to affect actives more.

Deleted_User wrote: »

Besides, there are funds marketed by UK advisors which cover 85% of US market cap. Here is one example but I am sure there are others: Xtrackers MSCI USA Index UCITS ETF

Assuming that's the UK version I expect it to have been included. I don't know whether passported funds were and I tend to think of Xtrackers as likely to be passported.

For others, passported means regulated in another EU country and marketed with authorisation in the UK. Common for say Ireland domiciled funds.

I've used Xtrackers myself and currently hold an Ireland domiciled non-ETF fund.

michaels

I am going to launch two funds, one called red and one called black. I am certain that at least one of the funds will far outperform the tracker funds which are equally weighted in red and black and I will claim that is alpha and see loads of investment funds flowing into the outperforming fund.

No one will even care about the other fund that will have underperformed and languish at the bottom of the league tables and fail to attract any further investment.

BritishInvestor

jamesd wrote: »

It's optimal if:

1. an IFA steals your money, which still occasionally happens
2. you happen to have picked an IFA who doesn't do well on investment performance
3. the client wants to use different briefs, say income for one, allowing drawdown to nil eventually, and capital preservation and inheritance for the other. Or perhaps if the partners have somewhat different objectives, so each adviser only has one individual to satisfy instead of trying to find a compromise of the two desires: stereotypically the woman might have a greater inheritance tilt and the man higher income and risk tolerance one.

One IFA can handle everything but the client might prefer a split. Or not, up to the client to decide if they want to do it and why.

1. I guess there's always a small chance of that.
2. The majority of financial planners I know are evidence based investors, they buy low cost globally diversified portfolios so it's unlikely you'd find much difference in their performance - this is a good thing! They differentiate themselves on the things that matter.
The alternative - someone picking "outperforming" funds usually ends up with a worse outcome.
3. Your suggestions would likely lead to a suboptimal outcome - the (single) plan should cover all objectives to then best optimise the implementation - I'm not aware of anyone in the financial planning community that would disagree.

[Deleted User]

jamesd wrote: »

It is, though, for what I claimed: UK funds for UK investors. That is, what UK people including the ones here are going to be using because that's what they will be offered.

If we were in the US and considering the market for US investors the answer could well be different. And globally I wouldn't be surprised if assets under management weighted passives beat actives, at least after tax. Tax got in there because some places have higher taxes for short term holdings, which is likely to affect actives more.

Active funds are more impacted by taxes because they keep buying and selling and every sale is a taxable event, regardless of how long you held the stock (although tax may be different depending on duration).

I don’t accept that VTI or APL are only “for US investors”. I am not, I have hundreds of thousands in VTI and have no complaints.

If I understand you correctly, your point is that most of the world market cap isn’t available to UK index investors if they use products recommended by IFAs. If true, it’s a really good reason to avoid IFAs and read a couple of good books instead.

BritishInvestor

jamesd wrote: »

I agree. Though tilt can lead to outperforming the competition even if it's not alpha. For actives, effective use of tilt and perhaps leverage are just part of the toolbox.

For others, alpha means risk-adjusted return. Tilt would be something like saving more of the money in smaller companies. That's likely to produce higher returns but at the cost of higher volatility (up and down movement, risk). Leverage means borrowing to invest, very common for investment trusts to do this. Good if you do it well but it increases risk. Achieving higher alpha is often a key part of how investment managers are ranked.

Active managers don't always have a higher returns brief, with some investment trusts particularly well known for their capital preservation brief.

Tilts can be purchased for a few bps using a factor fund - why pay more and have the addtional downsides such as manager style drift?
Using leverage will lead to greater drawdowns - why not take more (unleveraged) equity exposure (and less bond) if this is the goal?
Some people (I see this quite often with DFMs) claim alpha as they have a greater risk adjusted return than the "market". When Q4 2018 happened their growth & small cap tilts, HY bond and Emerging leanings burnt them - the large drawdowns implied risk adjusted return is a poor measure, IMO.

When you say higher alpha, you imply there is such a thing (in modern, more efficient markets (my opinion)), but analysis proves genuine alpha is very, very rare. This is to be expected as there are lots of equally bright people attempting to find an edge - how many people genuinely have one?

Thrugelmir

BritishInvestor wrote: »

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

I suspect that many current investors weren't invested in the global markets at the time of the collapse of the Nikkei. As an investor being complacent is extremely dangerous. Markets have the ability to bite your hand off when you are least expecting it.