Managed or Tracker fund, which is best?

[Deleted User]

Linton wrote: »

That isnt how things often work. When funds are no longer able to invest all their available money in those areas the manager wishes to invest they may be closed just to new unit holders or may be closed completely. This happened frequently a few years ago with SE Asia funds. Another option well suited to investing in illiquid markets is to operate as an IT.

It is true that decent fund managers close funds to new investors - for the exact reason I described. How exactly would that help a new investor trying to pick a fund based on past performance? The answer: utterly useless because he can’t invest in such funds.

bostonerimus

Deleted_User wrote: »

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.

I was being a bit flip in my response, but what you often get in an income fund is just a buffer between you and the portfolio that smoothes out the dividend and capital gains taken to produce income for you. Of course if you have a closed end fund then leverage (ie borrowing) can be used by the fund to increase income and you might have faith in the manager to use some angles in the fixed income market. But there's also the usual risk down sides with that and as I think any beta provided by one active manager is cancelled out by negative beta from another and as I don't feel qualified/capable of choosing consistent winners I stick with indexes and the standard deviation of historical markets to test total return withdrawal amounts. The I say "sod it" being frugal is a more certain way to be financially secure and I do an impersonation of Mr. Micawber.

[Deleted User]

bostonerimus wrote: »

I was being a bit flip in my response, but what you often get in an income fund is just a buffer between you and the portfolio that smoothes out the dividend and capital gains taken to produce income for you. Of course if you have a closed end fund then leverage (ie borrowing) can be used by the fund to increase income and you might have faith in the manager to use some angles in the fixed income market. But there's also the usual risk down sides with that and as I think any beta provided by one active manager is cancelled out by negative beta from another and as I don't feel qualified/capable of choosing consistent winners I stick with indexes and the standard deviation of historical markets to test total return withdrawal amounts. The I say "sod it" being frugal is a more certain way to be financially secure and I do an impersonation of Mr. Micawber.

Honestly, I want to control my own leverage. There already is plenty through the borrowing by the companies I invest in. And my fixed income is supposed to provide security during a major event; I am not happy with any leverage by any manager in that portion of my portfolio. ETFs usually do a bit of lending to subsidize MER - I am not entirely happy about that either.

Income funds I’ve seen tend to have a lot of bonds and high dividend stocks. They are more risky than a normal fund with the same fraction of bonds because high dividend criterion limits you to certain industries (eg utilities and financials) to the exclusion of others.

“Dividend” investment has been very popular but it’s just a fad, a proxy for “value” but not a good one. People like cash coming into their accounts, even if the overall performance suffers and psychologically tend to focus on it way too much.

beamyup

I have updated the question to summarise the responses so far

[QUOTE=beamyup;75691051

---

Update : Summary of responses

There have been many responses to this thread which I will try to summarise here.

Many posters did not respond to my question for data, instead they simply relayed their views. This is interesting as many of the posters in this category were the most respected posters on these forums. most of these views fell into these categories
1) You believe what you want - managed funds are obviously best
2) Asking for data is the wrong way to tackle this question. the best way is ....
3) data tells you what you want it to tell you..
4) Index funds cannot give you
- access to certain markets
- draw-down (income)
- a way to maximise your performance by buying low and selling high etc
5) the data you have in your links is not applicable because
- its US based
- it does not properly account for relative risk
I do not know what to make of these responses, however it does make me feel a bit worried that so many keen advisers are not data orientated, or data averse. I also wonder how many of these posters properly read the above PDF's

Many people believe you can pick the future best performing managed funds from doing your own research. However there was no data to show this to be generally true or false.

A few posters support the findings of the data linked above.

In post #12, cfw1994 gave a link to kroijer.com, this shows a series of videos which I found interesting, i do recommend that people take a look. There is no data or study there though.

In post #42, coastline gave some links to trustnet where you could see by looking at the current best performing funds,very few beat the whole world tracker. that broadly supports the findings in the above PDF's. But of course isn't so "scientific" and well thought out as the vanguard studies.[/QUOTE]


If I have missed or misrepresented your posts then I apologise, let me know and I will update the summary.

cloud_dog

beamyup wrote: »

If I have missed or misrepresented your posts then I apologise, let me know and I will update the summary.

Yes, you have misrepresentented or mischaracterised many responses in your summary.

Take No.1 as an example....no one has said that.

You have a scotoma as much as the next person, accept it and move on.

beamyup

cloud_dog wrote: »

Yes, you have misrepresentented or mischaracterised many responses in your summary.

Take No.1 as an example....no one has said that.

You have a scotoma as much as the next person, accept it and move on.

Thanks for the feedback.
re "1) You believe what you want - managed funds are obviously best", i kind of read this up between the lines perhaps.

If you look at post 24 (one of yours) and post #52 you might see why/how i picked up that impression.

What should I change that 1) to which properly summarises this position?

I would be pleased to review any more comments you have, and make amendments to the summary.

k6chris

This thread made me chuckle! The answer lies it whatever you as an investor are comfortable with. Some people prefer the low-cost route (not having to pay useless IFA / fund managers), some people prefer to pay for the enhanced returns from (excellent and talented) IFAs and fund managers. If you had all the data in the world about all investment options across all time frames, you would still be none the wiser. The data would show that over the last 10 years the best option would have been to put everting into 'leveraged Mega-Corp stock' and the worst would have been to put everything into 'Bad-board PLC’. Hindsight is a wonderful thing and the problem with data is it gives you a rearward looking hindsight that may or may not be relevant looking forwards. The more data you have, the more you can cherry-pick and curve-fit to get the result you want, or discover non-causal correlations which don't help anyone.



Looking at large data sets can help show where the ‘high-risk, high reward’ solutions lie (and by implication high-loss solutions). This is where the idea of balanced portfolios of stocks, bonds and other assets, funds rather than individual shares etc. The market is the market, no one can consistently beat it! You can avoid doing high-risk things, you can avoid paying too high fees that will eat into your returns and you can choose an investment methodology that helps you sleep at night and provide the financial risk management that best suit you.



Sleep > Returns.

AlanP_2

Best for WHAT?

Best for WHO?

best for WHEN?

Accumulation? Drawdown? Age 20 ? Age 90? With a "more than enough pot"? With a "small pot"? With an alternative DB / Rental income? Using an IFA or DIY? After GROWTH or INCOME? etc etc.



there is no one answer - Decide on your strategy / asset allocation and then find options that fit, then select.

[Deleted User]

As far as the data are concerned, the best book summarizing decades of research is that by Larry Swidroe.

He is a good source on other issues too, for example he designed the simple 5/25 system for rebalancing which I use.

https://www.goodreads.com/book/show/10652792-the-quest-for-alpha

This book uses data-driven approach to answer the exact question OP is effectively asking.

Prism

The average managed fund underperforms. The average managed fund is a closet tracker with higher fees. However you don't have to be an average investor in those funds. There are huge amounts of lazy money in those funds, from 30 year old forgotten about pension and life plans to 15 year old child trust funds. It seems to me that most investors do not care less about which funds they are in and simply go with the defaults from their plan. To beat the average all you really need to do is beat those people. The problem with using data to try and analyze the best investment options is that the data includes a huge bunch of money where the goal of the fund manager is not to take any additional risks and charge their fee. You filter out all of those poor funds and you are left with much better choices.

The fact that most funds don't perform is not relevant unless you pick randomly. The only important choice is the fund that you pick.