Where to Start?

Thrugelmir

sendu wrote: »

Of course there always have to be active investors and an equilibrium will form between them and the passives.

Include ETF's and the future looks dim. With passive fund managers set to dominate the major US corporations share registers.

Thrugelmir

Alexland wrote: »

Try setting the graph back to start earlier and City seems to have underperformed in the late 90s, did ok in the 2000s and has done well recently (or maybe the index has done badly...) which is probably why we are talking about it now.

Alex

Compared to the US at 12%. 63% of active managers outperform the market. Remember to include reinvested income. As this where much of FTSE's long long gain has been achieved.

Late 90's BT traded at over £20. Different world back then.

Since 2000 around a third of the companies then listed have disappeared from the London market for differing reasons. There's a smaller pool of quoted shares to choose from.

Alexland

Thrugelmir wrote: »

Compared to the US at 12%. 63% of active managers outperform the market.

The SPIVA Europe YE 2018 data suggests that over the previous 10 year period, of the just over 40% surviving funds, over 73% of active UK Equity funds were outperformed by their benchmarks compared to over 97% of US funds. Where is the 63% number from?

sendu

Thrugelmir wrote: »

63% of active managers outperform the market. [...]
Since 2000 around a third of the companies then listed have disappeared from the London market for differing reasons. There's a smaller pool of quoted shares to choose from.

Where did you get 63% from? And have you considered that active fund performance only looks good due to survivorship bias? That is, the vast majority of funds of 2000 don't even exist anymore.

When a manager's fund starts to under-perform, they just quietly vanish it and hope to get lucky with the next one.

I see 64% of active funds doing worse than their benchmark (an index), which rises to over 90% by 15 years.

Your friend Warren Buffet correctly points out:

[an index fund] will do better on balance than what they will get if they go to professionals, because the professionals, after fees, don’t know how to get a better result.

You can also see in that article that picking funds based on the fact that it beat the market for 3 years leaves you only a ~5% chance of it still beating the market another 3 years later. Chances are, if you buy in at the 3 year mark when it's top of the charts, you're going to sell at a loss (at least relative to the market) when you switch to your next active fund that has done well recently.

These articles are US based, but Alexland points out the story is similar over here. UK fund managers don't have any more skill than their counterparts in the US.

Audaxer

Alexland wrote: »

Try setting the graph back to start earlier and City seems to have underperformed in the late 90s, did ok in the 2000s and has done well recently (or maybe the index has done badly...) which is probably why we are talking about it now.

Comparing CTY and HSBC FTSE 100 Index only goes back as far as Feb 1995 on Trustnet, presumably as that is when the HSBC index started. It shows that since then CTY has a total return of over 600% and the HSBC FTSE 100 Index total return was under 400%.

Without the income reinvested CTY still increased by 200% over that 24 year period. So say for example a retiree invested £100k in CTY in 1995. To have collected increasing dividends every year for 25 years and still have capital increasing by 200% seems a pretty good long term result for an active investment.

Alexland

But for the first 60% of that 25 years City was treading water. How would you have known to have made that investment a decade ago, given the choice of lots of other similar mediocre total return investments, and why would you expect the recent performance to continue and not go back to the 90s under performance?

sendu

Audaxer wrote: »

Without the income reinvested CTY still increased by 200% over that 24 year period. So say for example a retiree invested £100k in CTY in 1995. To have collected increasing dividends every year for 25 years and still have capital increasing by 200% seems a pretty good long term result for an active investment.

Someone using an investment strategy of picking high performance funds or ITs would not have picked CTY in 1995.

They'd have picked it around it's peak, or according to you, they might be foolish enough to pick it today based on outpeformance a decade ago.

If you compare it to the HSBC tracker (Acc version) over just the recent past (3 years), the tracker is doing better: 20.7% vs 13.7%. Which is to say, CTY is reverting back to underperformance as expected.

You should not pick funds or ITs today based on what a theoretical person with magical foresight would have gotten decades ago. You won't see those same returns yourself.

Prism

sendu wrote: »

Someone using an investment strategy of picking high performance funds or ITs would not have picked CTY in 1995.

That is a key point. Although past performance is obviously of interest, I pick active funds based on their other characteristics too. Their likely ability to withstand a crash or correction (defensive) Their active share (diversification from the index), number of holdings, managers approach etc.

If I want a large cap global or regional fund during a bull market I might well go with a passive and active. If I want a fund that might protect me more during a downturn, or invest in smaller companies it would likely be active. I change the weightings of these over time and do try and buy funds I like after a period of under performance (if they have them)

I might well track the performance of a fund for a year or more before investing heavily in it.

sendu

Prism wrote: »

I pick active funds based on their other characteristics too. [...] I change the weightings of these over time and do try and buy funds I like after a period of under performance (if they have them)

How successful have you been over the entire period you have been implementing this strategy? What date did you start, what were your total cash inputs (including fees), and what has been your total return so far?

Do you compare yourself against a benchmark?

Prism

sendu wrote: »

How successful have you been over the entire period you have been implementing this strategy? What date did you start, what were your total cash inputs (including fees), and what has been your total return so far?

Do you compare yourself against a benchmark?

Thats way more detail than I have to hand. As I said out performance isn't my primary goal as I am starting to think about partial retirement in 10 years or so. I am positioning for some lower volatility options and have quite a bit of cash.

I don't worry about a benchmark for myself since I am not in control of if I hit it. What happens, happens. We haven't had a crash recently enough to see if my funds work - I could be totally wrong.

For what its worth, equities alone, my SIPP over the last 5 years is running at 15.5% and my ISA over just under 4 years is 22% - using XIRR to calculate.