My passive investment experiment

Johnnyboy11

pip895 wrote: »

Behind a pay wall unfortunately.

Here's the gist of the article:
"New analysis by fund shop Vanguard for Telegraph Money has revealed that while around 40pc of fund managers investing in the British stock market over the past 15 years failed to beat their benchmark, the number almost doubles to 70pc when including funds that have closed or been merged into other funds."

Linton

Johnnyboy11 wrote: »

Here's the gist of the article:
"New analysis by fund shop Vanguard for Telegraph Money has revealed that while around 40pc of fund managers investing in the British stock market over the past 15 years failed to beat their benchmark, the number almost doubles to 70pc when including funds that have closed or been merged into other funds."

Having just checked as many FTSE100 OEIC/UT trackers as I could find every single one would be included in the list of 40%/70% of failing fund managers. Over the past 10 years the Halifax FTSE100 tracker returned 89.1% against the index's113.6%, with dividends re-invested in both cases.

bostonerimus

Linton wrote: »

Having just checked as many FTSE100 OEIC/UT trackers as I could find every single one would be included in the list of 40%/70% of failing fund managers. Over the past 10 years the Halifax FTSE100 tracker returned 89.1% against the index's113.6%, with dividends re-invested in both cases.

No index will beat it's benchmark because of fees and the goal is not to beat the benchmark, it's to track it. If an active fund manager doesn't do better than the benchmark then why are they being paid?

Working backwards from the compounded gains, the average annual gain for the Halifax FTSE tracker is 6.6% and the benchmark is 7.8% so I imagine the Halifax tracker is one of the expensive ones with high fees of around 1% and I agree that this is a failing fund. It would be interesting to see a list of such bad index funds, but I bet it would come down to fees so it is easy to spot a bad index fund. If only it was as easy to spot the bad active funds.

People should only use low cost trackers eg my US domestic index, VTSAX, has a 10 year cumulative return of 292% and the benchmark is up by 295%. This small difference is because the fund does a good job of tracking the benchmark and the fees are 0.04%

DrSyn

Linton wrote: »

Having just checked as many FTSE100 OEIC/UT trackers as I could find every single one would be included in the list of 40%/70% of failing fund managers. Over the past 10 years the Halifax FTSE100 tracker returned 89.1% against the index's113.6%, with dividends re-invested in both cases.

As the Halifax FTSE100 tracker has an ONC of 1%, what do you expect, it is not low cost. Of course it will be badly behind the FTSE 100.

If you picked the Vanguard FTSE 100 index fund with an ONC of 0.06% it's values would be close to the FTSE 100.

Which just go to prove fund charges need to be taken into consideration when deciding which Index fund you pick.

DrSyn

Johnnyboy11 wrote: »

This article from the DT might add to the discussion, the chart says it all really...

Exposed: how firms hide the true scale of fund manager failures

Nothing new under the Sun. Here is a report from 2011, only it is about how they hide the true risk in Bond Funds.

https://www.cbsnews.com/news/how-bond-managers-hide-their-funds-true-risk/

Alexland

bostonerimus wrote: »

No index will beat it's benchmark because of fees and the goal is not to beat the benchmark, it's to track it.

With low enough costs, optimal sampling and securities lending it might be possible for a tracker to consistently beat it's index and I doubt the investors would be disappointed that the fund had failed to meet it's objectives.

Alex

EdSwippet

Alexland wrote: »

With low enough costs, optimal sampling and securities lending it might be possible for a tracker to consistently beat it's index and I doubt the investors would be disappointed that the fund had failed to meet it's objectives.

Such as FZROX perhaps?

This is a US domiciled mutual fund, so for now no UK access or UK equivalent. But we might see similar things appearing in the UK in future, particularly if successful.

pip895

So as I see it 30% of actives beat the benchmark but no trackers do.;) On the face of it the odds of picking winners doesn't look too good, however I reckon you can probably cut out 50% of the poorly performing funds - predominantly market trackers in all but cost but also including funds that have other remits - for instance lower volatility. These are pretty easy to spot - you would be very unlikely to pick one as it just wouldn't stand out from the crowd. This should give you a significantly better than even chance of beating the index.

You will still get cases where a once winning approach goes out of favour but if you are pretty hard nosed about it and have no problem selling at a loss, if you know the money would be better invested elsewhere, then you wont be in those funds for too long. I sold out of Woodford a couple of years ago (at a 30% profit incidentally) when the fund started lagging behind others in the group.

Doing a bit of analysis I have beaten the tracker (VLS 60 - which is about my risk tolerance) for 8 of the 10 years I have been investing. Having said all that - I'm not saying I'm about to rush in and ditch my HMWO for Fundsmith and LT but I'm not going to let concerns about costs of ~0.25% get in the way of choosing the funds I want.:D

DrSyn

EdSwippet wrote: »

Such as FZROX perhaps?

This is a US domiciled mutual fund, so for now no UK access or UK equivalent. But we might see similar things appearing in the UK in future, particularly if successful.

Fidelity is a fund supermarket and this is their loss leader. It just goes to show how much profit they must be making on the active funds if they can afford to do this.

bostonerimus

DrSyn wrote: »

Fidelity is a fund supermarket and this is their loss leader. It just goes to show how much profit they must be making on the active funds if they can afford to do this.

Makes my 0.04% on VTSAX look positively expensive.