Managed or Tracker fund, which is best?

beamyup

Prism wrote: »

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.

Thanks prism, i would really like to ask you about this
https://docs.google.com/spreadsheets/d/12cKYIJ2mE7D7jbsCmKZksz4pYLoFrtLdVqsUHA95rjU/edit#gid=0&range=F2:F21

is this yours?
what funds?
when/how did you pick? using the above methodology?

[Deleted User]

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.

This describes “data mining”, which is a popular approach used by people devising factors and fund managers. They pick a particular period of time or dataset that suits their need. Famously (and jokingly) someone linked basketball games outcomes to stock market performance.

It’s not a fair summary of research behind Vanguards paper though.

Nor do I personally agree that one can’t consistently beat the market over long periods of time. Warren Buffett did. A few others have done it too. If someone has A LOT of money, is prepared to dedicate similar amount of time for each company he is buying (including interviews with the management, etc) AND has unique personality, which removes human emotion from investment then market can be beaten. Just not by the vast majority of managed funds or high cost advisors. And picking one in a million fund that can do it in advance is next to impossible

cloud_dog

beamyup wrote: »

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.

Perhaps you need to stop reading 'between the lines'. Perhaps data is your thing.

In my post (#24), your implication is neither what I said or even implied. In fact I confirmed that for some people, some circumstances trackers are absolutely the correct option. Again, in a previous post I confirmed that I actually hold a tracker. Horses for courses.

Trackers are all about being average, or slightly above (which is not a bad or disparaging comment). And comparing the average fund against the index provides the data for supporting tracker/index investing. I agree. Get it. Understand it. My methodology is that I try to eliminate that significant percentile that under perform, thereby significantly increasing my chances of being in the upper percentile. Only time will tell.

But, this is the important thing, it is something which I am comfortable with and am easily capable of managing. If over time I find I am consistently missing the benchmark/index then I will happily switch. I have a preference but, I do not have a scotoma when it comes to my investing.

beamyup

cloud_dog wrote: »

Perhaps you need to stop reading 'between the lines'. Perhaps data is your thing.

In my post (#24), your implication is neither what I said or even implied. In fact I confirmed that for some people, some circumstances trackers are absolutely the correct option. Again, in a previous post I confirmed that I actually hold a tracker. Horses for courses.

Trackers are all about being average, or slightly above (which is not a bad or disparaging comment). And comparing the average fund against the index provides the data for supporting tracker/index investing. I agree. Get it. Understand it. My methodology is that I try to eliminate that significant percentile that under perform, thereby significantly increasing my chances of being in the upper percentile. Only time will tell.

But, this is the important thing, it is something which I am comfortable with and am easily capable of managing. If over time I find I am consistently missing the benchmark/index then I will happily switch. I have a preference but, I do not have a scotoma when it comes to my investing.

maybe
"1) You believe what you want - managed funds are obviously best"
was incorrect
and should read
"1) I believe that my selection of managed funds will beat the index trackers, but not all managed funds will, in fact most will underperform."

does that better summarise the position?

cloud_dog

beamyup wrote: »

maybe
"1) You believe what you want - managed funds are obviously best"
was incorrect
and should read
"1) I believe that my selection of managed funds will beat the index trackers, but not all managed funds will, in fact most will underperform."

does that better summarise the position?

Sorry, I'm not playing these juvenile games. Good luck to you.

Prism

beamyup wrote: »

Thanks prism, i would really like to ask you about this
https://docs.google.com/spreadsheets/d/12cKYIJ2mE7D7jbsCmKZksz4pYLoFrtLdVqsUHA95rjU/edit#gid=0&range=F2:F21

is this yours?
what funds?
when/how did you pick? using the above methodology?

Yes that chart includes mine. Some important points though. This data is only short term at the moment - about 18 months worth. The portfolios are very different. Mine is 100% equites, others are a combination of equities and bonds. One is pure gold. I have other porfolios containing just cash and debt, and another for EM exposure.

The portfolios also change - especially the active ones. I started off with 40% trackers (health and tech) which account for a large amount of the early gains. Those have since been sold for various reasons.

I picked the funds that make up that portfolio using a combination of data (past performance, and sharpe ratio mainly) I tend to pick concentrated funds where I can do some research into the holdings. Mostly however I try and understand the methods of the fund manager. For example, Fundsmith is one of the major allocations to this portfolio. Fundsmith itself is very data driven and they are very open about what data is important to them for stock selection. They basically only try to buy statistically good companies. I liked this simplicity. It may not work at all times but I have not encountered a way of investing that I prefer.

The various portfolios are here
https://forums.moneysavingexpert.com/discussion/comment/73192270#Comment_73192270

[Deleted User]

What is the spreadsheet reporting? Are these annualised money-weighted returns?

My passive portfolio returned 8.3% annualised since 31 Dec 2002 (IRR; I don’t have enough data on fund flows to do the calculations prior to 2002). I am tracking in CAD. Since 2002 CAD appreciated from 2.5 to 1.7 vs GBP, so if counted in pounds the return would be higher. The portfolio has a 20% allocation to bonds; the rest is world stockmarket.

Linton

Deleted_User wrote: »

What is the spreadsheet reporting? Are these annualised money-weighted returns?

My passive portfolio returned 8.3% annualised since 31 Dec 2002 (IRR; I don’t have enough data on fund flows to do the calculations prior to 2002). I am tracking in CAD. Since 2002 CAD appreciated from 2.5 to 1.7 vs GBP, so if counted in pounds the return would be higher. The portfolio has a 20% allocation to bonds; the rest is world stockmarket.

The return figure is helped by Dec 2002 being very close to the bottom of the .com boom/bust. One comparison : the FTSE World index has averaged about 10%/year since the end of 2002 (in £s). So that would tie in.


Over the past 5 years the IRR of my 100% equity managed fund Growth portfolio is within 0.1% of the FTSE World Index at about 13.2% compared with VLS100 at 11.6%. So no evidence of "most managed funds underperform the index". Prior to 2014 my investments were structured differently.

bostonerimus

Linton wrote: »

The return figure is helped by Dec 2002 being very close to the bottom of the .com boom/bust. One comparison : the FTSE World index has averaged about 10%/year since the end of 2002 (in £s). So that would tie in.


Over the past 5 years the IRR of my 100% equity managed fund Growth portfolio is within 0.1% of the FTSE World Index at about 13.2% compared with VLS100 at 11.6%. So no evidence of "most managed funds underperform the index". Prior to 2014 my investments were structured differently.

I think rather than average return the most critical number is the standard deviation of the results of various types of portfolios.....that might be active vs passive, bond vs equity etc. Just looking at the results form the "Great British Invest Off" that's been going for 18 months on here the spread of returns from the active portfolios is far higher than from the passive index portfolios...

Some active funds must always beat their comparison index so obviously you can get better returns with an active rather than an index fund. The trick is to be able to keep owning today's and tomorrow's "Fundsmith" rather than "Woodford Equity Income".

Linton

bostonerimus wrote: »

I think rather than average return the most critical number is the standard deviation of the results of various types of portfolios.....that might be active vs passive, bond vs equity etc. Just looking at the results form the "Great British Invest Off" that's been going for 18 months on here the spread of returns from the active portfolios is far higher than from the passive index portfolios...

I think the main reason for the wider variation in the active portfolios is that they have a wider range of objectives and investment styles. At the extreme Linton WP is intended to make a small gain at least matching inflation but be fairly immune to major falls. I added it to the list in the hope that we would see a major fall, but sadly we havent.


Looking at passive portfolios, all the major world indexes are highly correlated so you would expect to see a rather small variation in results. High correlation seems to me to be something to avoid in choosing ones investments.

Some active funds must always beat their comparison index so obviously you can get better returns with an active rather than an index fund. The trick is to be able to keep owning today's and tomorrow's "Fundsmith" rather than "Woodford Equity Income".

Yes but the theory is that most active funds underperform passive. The GBIO results have yet to show this in practice, arguably the reverse. However the small number of portfolios and the short time frame makes it impossible to draw any definitive conclusions