Managed or Tracker fund, which is best?

TBC15

beamyup wrote: »

I appreciate the constructive criticism. Please elaborate further to explain your point.

Those who are making good money out of active funds are doing it already.

Those who are not making good money out of active funds are fooling themselves and should go passive.

Those who form most of the statistics probably voted Trump, and therefore can’t be helped.

Linton

beamyup wrote: »

Ah OK, thanks. that is interesting I will take a look.
So the managed funds are not actually available as a fund - they are related to portfolios by MSE posters here!

Managed funds other than multi-assets only make sense in the context of the portfolio as a whole. The key question is whether a portfolio that solely uses index funds is inherently better (higher performing?) than one that doesnt.

Thrugelmir

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.

Are the global equity markets efficient? Different animal to the US where Bogle build the reputation of Vanguards trackers. Within 10 years the fad will be back to value investing again. Once people see the returns that they are missing out on.

Prism

Here are some examples of why getting good data on this topic is really difficult.

Imagine you analyzed 10 active funds over 5 years and only 2 beat a passive tracker in the same sector. One conclusion is that most of those active funds are worse than a passive one.

However what if one of the funds that beat the passive fund was a huge multi billion affair and the weak funds were all a few million in size. In pure money terms more is made from the actives than the passive. Unless of course much of that money arrived with the herd after the early great performance of said active fund. Getting that data is difficult.

What about if more people were invested in the 2 well performiing active funds than all of the poorly performing ones? Is that a count of success?

So you have an unknown number of people, with an almost impossible to calculate breakdown of money (since it changes daily), in a bunch of mixed funds. Maths is tricky

beamyup

Prism wrote: »

Here are some examples of why getting good data on this topic is really difficult.

Imagine you analyzed 10 active funds over 5 years and only 2 beat a passive tracker in the same sector. One conclusion is that most of those active funds are worse than a passive one.

However what if one of the funds that beat the passive fund was a huge multi billion affair and the weak funds were all a few million in size. In pure money terms more is made from the actives than the passive. Unless of course much of that money arrived with the herd after the early great performance of said active fund. Getting that data is difficult.

What about if more people were invested in the 2 well performiing active funds than all of the poorly performing ones? Is that a count of success?

So you have an unknown number of people, with an almost impossible to calculate breakdown of money (since it changes daily), in a bunch of mixed funds. Maths is tricky

very good point, the small funds should be weighted somehow by size to make a fair comparison. otherwise there could be thousands of under performing managed funds with 2 and 1/2 p in them which would skew things.

bostonerimus

Linton wrote: »

Either way the point remains - if you want income you need a managed fund.

Damn, I'll have to ditch my plan to take the 2% to 3% dividends distributed by my equity and bond index funds along with some capital gains when appropriate.

beamyup

bostonerimus wrote: »

Damn, I'll have to ditch my plan to take the 2% to 3% dividends distributed by my equity and bond index funds along with some capital gains when appropriate.

good point well made!

There is so much misinformation flying around in this thread!

Does anyone (else?) have any good serious pieces of data analysis work that they have links for - as per OP question?

[Deleted User]

beamyup wrote: »

very good point, the small funds should be weighted somehow by size to make a fair comparison. otherwise there could be thousands of under performing managed funds with 2 and 1/2 p in them which would skew things.

As luck would have it, this has been done for us. Two steps:

Step I: Add together weighted returns from 1) all actively managed funds of all sectors and styles 2) all individual investors who think they are more clever than the rest of us and are easy meat 3) all investors who have inside information which we don’t (too many of these) 4) computer geeks and professionals with complex automatic algorithms, who can beat people driven by emotions

Step II. Add all the fees paid by people in category I (weighted by investment size). Active funds pay high fees, taking away a huge share of expected returns.

You will get the index, aka average market return.

[Deleted User]

bostonerimus wrote: »

Damn, I'll have to ditch my plan to take the 2% to 3% dividends distributed by my equity and bond index funds along with some capital gains when appropriate.

Right. Also, what the heck is wrong with selling some stock every now and then to generate “income”??? People do have an aversion to it but it’s just weird.

[Deleted User]

Linton wrote: »

What is the difference between a real passive from a false one? Such funds are based on an index, a lousy one maybe, but an index nevertheless. They dont have fund managers making decisions.

Vanguard has a similar (in principle though not implementattion) income index fund based on theFTSE Equity Income Index. Are Vanguard lying when they call it an index fund?

Either way the point remains - if you want income you need a managed fund.

“Index” and “passive” are not synonymous. “Passive” = tracking market-weighted index.

There are other indices, which try to slice the market in different ways. Picking a section of the market, e g to go overweight in high dividend stocks, is an active decision.

Vanguard has a whole range of active products. In fact, these days most active funds use algorithms to minimize human decision making because it hurts investment performance. Does not mean such funds are “passive”.