What % of your portfolio are active vs passive funds?

Prism

aroominyork wrote: »

A question I've put once or twice before but not had a reply to: the reason often given for investing in index funds is that 9 out of 10 active fund managers fail to beat the market, so 9 times out of 10 you will do better with index funds. But those 9 failing funds will include many with small levels of AUM, often under £100m. So my question is how much of the money invested in actively managed funds is in funds which beat the market? That would surely give a better indication of the odds of the average active investor beating a passive strategy.

Its complex so I doubt we could ever have an answer for that. Take Fundsmith. Three and a half years ago the share price was roughly half what it is today. However the fund size is about 4 times as big. Around 10bn has been added to the fund at some point over those last few years but its impossible to say at what point that money was added.
All we can say is that a lot of people seem to be doing very well out of the Fundsmith, LT and SMT but its hard to say how many have turned up lately or how long that performance will continue.

Audaxer

aroominyork wrote: »

A question I've put once or twice before but not had a reply to: the reason often given for investing in index funds is that 9 out of 10 active fund managers fail to beat the market, so 9 times out of 10 you will do better with index funds. But those 9 failing funds will include many with small levels of AUM, often under £100m. So my question is how much of the money invested in actively managed funds is in funds which beat the market? That would surely give a better indication of the odds of the average active investor beating a passive strategy.

I'm struggling to get my head round the question, but I'm trying. Do you mean that smaller value funds are less likely to beat the market over the long term? and if so that would mean a smaller percentage of the total value of active funds will fail to beat the market?

Prism

Audaxer wrote: »

Do you mean that smaller value funds are less likely to beat the market over the long term?

Its the other way around. Typically funds that don't beat the market are smaller because either people don't invest in them or they take the money out of them. Difficult to quantify. The main point is that the stats that say 90% of active funds fail to beat the index is irrelevant if nobody uses them

bowlhead99

Audaxer wrote: »

I'm struggling to get my head round the question, but I'm trying.

I think the question being posed is: I hear the total quantity of active funds that fail to beat 'the market' is nine out of ten, but does that mean the total volume of active investors' money that fails to beat the market is also 90%, or could it be that perhaps (e.g.) half of the investors' money actually deployed into active funds does better than a tracker.

That could for example, be due to the fact that although there are few funds successfully doing that, they have billions in them, while the small funds struggling to attract capital due to poor results do not have much money in them, crappy closet trackers run by high street banks etc.

In other words if you throw a dart at a list of active fund names, 90% of the time you would be better off with a tracker, but that shouldn't imply that as much as 90% of the pounds invested into an active strategy are doing badly.

The above is not my assertion, just explaining what I think the question was.

bostonerimus

aroominyork wrote: »

A question I've put once or twice before but not had a reply to: the reason often given for investing in index funds is that 9 out of 10 active fund managers fail to beat the market, so 9 times out of 10 you will do better with index funds. But those 9 failing funds will include many with small levels of AUM, often under £100m. So my question is how much of the money invested in actively managed funds is in funds which beat the market? That would surely give a better indication of the odds of the average active investor beating a passive strategy.

Also what are the chances that any active fund you choose will continue to beat the market year after year? I'm dubious about active managers being able to consistently produce alpha and over an investing lifetime they'll probably revert to the mean or a bit less because of fees. So I just go with the average, ie an index tracker, right from the start. Also it fits in with "my feet up and a cocktail" style of money management.

Johnnyboy11

Here's an interesting article in the Telegraph, that pretty much confirms the general sentiment expressed in this forum reagrding active fund managers: Exposed: how firms hide the true scale of fund manager failures
Warning: The article contain a picture of the UK's star fund manager, come jailkeeper.

quirkydeptless

aroominyork wrote: »

A question I've put once or twice before but not had a reply to: the reason often given for investing in index funds is that 9 out of 10 active fund managers fail to beat the market, so 9 times out of 10 you will do better with index funds.

I've often heard this quoted. I've assumed that it might be "because of the fees, 9 out of 10 active fund managers fail to beat the market." If the fees were out of the equation, I'd expect it to be more like 5 out of 10 active fund managers fail to beat the market.


Is there a link somewhere to the calculations that show it 90%. That number seems conveniently round, so where are the actually numbers showing this?

bowlhead99

Johnnyboy11 wrote: »

Here' an interesting article in the Telegraph, that pretty much confirms the general sentiment expressed in this forum reagrding active fund managers: Exposed: how firms hide the true scale of fund manager failures

I'm not sure what it is in the article that confirms the 'general sentiment expressed in this forum regarding active fund managers'.

The article comments on Vanguard research from which they conclude: 'Investors are being blinded to the true extent of fund manager underperformance by misleading measures which do not account for “dead” funds which fail completely'. The article's sub-headlines are: 'What does it mean when a fund closes?', 'Where are fund managers most likely to fail?', 'How to spot you've invested in a dying fund', and 'Lessons to be learnt from the past closures'.

That doesn't sound like the 'general sentiments' expressed in this forum, as those sub headlines such as 'What does it mean when a fund closes?', 'Where are fund managers most likely to fail?', 'How to spot you've invested in a dying fund', and 'Lessons to be learnt from the past closures' rarely come up as topics here. They are simply some specific editorial observations in relation to closed funds.

Perhaps you just mean that the article generally looks unfavourably on active funds and you consider the general sentiment towards active funds on this forum to also be negative.

However, on this 100 post thread that's been running a week and has specifically asked what proportion of people's portfolios are active, about 40 different people have commented, and about two thirds of them have said they use a significant proportion of active funds (that's after putting people who only use a bit of active, such as Bostonerimus or Alexland, into the Passive group).

What this thread perhaps tells you is that 'the general sentiment' in the forum is not really that active funds need to be avoided. They can certainly have their place. Sure, a vocal minority say that active funds should generally be avoided and some people are more scathing than others about certain high profile fund managers.

Johnnyboy11

You don't need to analyse the article, just look at the bar chart which speaks for itself. Circa 90% of fund managers underperforming their benchmark over a range of fund types over 15 years. Staggering.

cloud_dog

So, are we saying that passive providers/funds should be thankful to the exceedingly large number of active managed funds because they make them look better than perhaps they are?

<<tongue ----> cheek>>