Managed or Tracker fund, which is best?

cfw1994

AnotherJoe wrote: »

I agree with .
However there is a loophole
It is possible to make some educated guesses about what might do better in future to enhance your odds of getting it right. For example you might think healthcare will do well in future and so increase your investments in that sector.
Next, as far as I know the evidence about trackers outperforming managed refers to general market funds, not specialist. Eg a specialist healthcare or technology managed fund might well do better than a tracker.

I'd agree with this.
Working in Tech, I feel that the next 20+ years will bring even more change, faster than we have seen to date. Growth of investment in AI/ML/DL (go google them - think automation, self-driving cars, genomic & medical research, etc!) suggests to me that good companies in those sectors will continue to grow.
20% of my main pension pot is in US companies, & has done phenomenally well over the past few years. If I wasn't cautious about the possibility of a cliff-fall, I'd perhaps have more than 20% there, but my defence pleads a case for eggs & baskets!

barnstar2077 wrote: »

I spent a lot of time trying to replicate the global market through tracker funds and found I just couldn't cover all of my bases at a reasonable cost to "be the market" which is what I had read I should do. I ended up giving up and just picked a VLS fund with the right risk level for me. I will let you know in ten years if it works out.

Lets face it, any sort of analysis like this is only definitive if you look back at historical data, no one knows what the future will bring.

I also agree with this!

Ultimately, none of us know what the future brings.

I'm a believe in keeping costs low (& I appreciate others feel differently), & I am a little bit of a believer in the Lars Kroijer perspective - worth taking half an hour or so to listen to him at http://www.kroijer.com, I would suggest.
I like the low-cost Vanguard approach too, with their 'relatively simple to understand' LifeStyle trackers.....

So for me, broadly I would suggest passive trackers.....but equally, there is a case for some specific decent managed funds

[Deleted User]

1. Figures 6, 7 and 8 of Vanguard’s white paper show that active funds outside the US also underperform. There is plenty of other research showing the exact same thing. UK isn’t a special case. What is it... Perhaps 6% of the world cap?

2. Going overweight in “Technology” because it will perform better over the next 10 years is an active decision. There is likely more than one person with access to the same info and thinking like you. Hence the price today already accounts for this potential future growth and does not give you any advantages. The opposite is more likely because human emotion is bad for investing..

3. The main threat to Passive outperformance are Passive investors. Eventually too many will buy into the concept and then arbitration opportunities will start appearing.

4. Another interesting concept is “roboadvisors”. They have advantage over human ones because emotions are not involved in decision making. This is fairly new and I am not aware of any data. Still, their charges are higher than passive trackers. Charges are the one and only aspect of performance we can control.

OldMusicGuy

beamyup wrote: »

Thanks, of course in the end it is a question all investors face, I am hoping that this thread is to help people decide by presenting data and analysis of that data.

You are pursuing a pointless mission. You want "data" to answer a very complex question. There is no definitive data that will answer an overly simplistic question like "which balance of managed/passive is best". You need to understand that by posing such a question, you don't (yet?) fully understand the complexities of what you are dealing with. Hopefully some of the answers on this thread have made this a bit clearer for you.

The most comprehensive analysis of past stock market data (that also includes non-US data) that I have found is contained in this book: "Living Off Your Money: The Modern Mechanics of Investing During Retirement" by Michael McLung. It doesn't answer your question, but what it does do is to give examples of different investment portfolios and different strategies to make investments last during retirement. It has a very comprehensive statistical analysis of a lot of past data. But there is no "silver bullet" because investors all have to make choices based on their risk profiles.

My own view is that passive is always best. I worked in the tech sector for many years and I advised some of the world's biggest investment companies on what was happening in the tech sector. I have seen close up how even the most successful tech companies can have their results and stock price skewed dramatically up or down by factors that none of the investment specialists would see coming, because they simply didn't have the deep insight that I did. I also missed some big things that happened in my sector due to "black swan" type events.

My conclusion after being closely involved in one sector for over thirty years was that any stockpicker that beat the market consistently was just lucky (and there weren't any that I saw over that period). Thus I am not going to pay what I see as excessive fees in the hope that someone gets lucky. But that's not data, that's just my own personal experience and opinion. Others may, and do, see things differently.

AnotherJoe

beamyup wrote: »

AnotherJoe and dunstonh thanks for your view on this, I do understand that you have views (as do i).

Most of what you have commented is not backed by any data that you have yet quoted. Please please quote some data or research to back your views. with links.

especially dunstonh " The UK bucks the trend somewhat. We have a greater number of viable managed funds. So, you have to keep an open mind.". I would love to see data behind that statement.

LOL. I dont need to back my views with any data because they are formed from articles I have read and thats the level of discourse I'm making here, not a post graduate thesis or a paper produced by an analyst firm ! Do your own research if you want to take investigate my theory I have no axe to grind nor do i care which way you go, I was just throwing out some ideas !

cloud_dog

beamyup wrote: »

If you read those pdf's linked at the top and believe the data to tell us something extra/other than my summary or If you have a link to other good data then please post that!

There you go, good data. Unbiased. Not aiming to prove a point one way or another, simply reflecting the reality.

beamyup

AnotherJoe wrote: »

LOL. I dont need to back my views with any data because they are formed from articles I have read and thats the level of discourse I'm making here, not a post graduate thesis or a paper produced by an analyst firm ! Do your own research if you want to take investigate my theory I have no axe to grind nor do i care which way you go, I was just throwing out some ideas !

Actually I am not asking for your view, I am asking for any data that you have seen & your views on that data.

I do find your view interesting of course. but that is not what I asked & not the point of this thread (i hope!)

beamyup

In Linton's post above he says
"However it is impossible and not very meaningful to say whether trackers outperform managed funds. Excluding closet trackers, a managed fund and a tracker must invest in different things. These different things may perform differently at different times. Also, there may be a variation in risk between two funds. Risk is broadly correlated with return."

If you look at the pdf's linked you will see an analysis comparing the risk/return of managed vs index trackers using the Sharp Ratio
to quote
" Each scenario was calculated using nominal performance data and risk-adjusted performance data. We calculated the Sharpe ratio for each actively managed fund portfolio and compared it to the Sharpe
ratio of an all index fund portfolio. The results using risk adjusted performance were not meaningfully different than using nominal performance. "

i.e. even risk adjusted, the managed funds performed equally badly.

[Deleted User]

cloud_dog wrote: »

There you go, good data. Unbiased. Not aiming to prove a point one way or another, simply reflecting the reality.

For this to be meaningful you have to provide the context, a meaningful period for the analysis and statistically significant datasets.

beamyup

cloud_dog wrote: »

There you go, good data. Unbiased. Not aiming to prove a point one way or another, simply reflecting the reality.

Fantastic - thanks for this!
what criteria/methodology was used to choose the funds here?

cloud_dog

Deleted_User wrote: »

For this to be meaningful you have to provide the context, a meaningful period for the analysis and statistically significant datasets.

Well go for it.

My 'impression' from your posts is that you have a defined position and are simply trying to reinforce it by demanding data.

My process in reviewing / identifying managed funds is always to ignore those funds that consistently do not perform above the median. By undertaking that simple and basic process I remove the probability that I will under perform the average / index. Additionally, I run an virtual index portfolio which allows me to monitor and evaluate performance should I need to.

I also do use trackers where I feel it is appropriate. As an example I would not use a tracker for emerging markets but would for the US.