Active funds outperform trackers

Andy7856

Active v Passive always prompts a good debate, but as touched on above - I think the best strategy is to have core passive funds as the bed rock to the portfolio, then turbo charge them with a few active funds here and there. Everyone loves to say they have picked the best performing over the last 10 years and smashed the index, but few admit to investing in a fund that was beaten by a tracker at 75% of the cost.

Pays you money takes your choice.

Audaxer

bostonerimus wrote: »

Yes people have been conditioned to be scared of money and finances and the ones that remain intimidated will seek out help. The financial industry has a vested interest in keeping people scared and ignorant, but it doesn't need to be that way and by following a few very simple rules they can successfully DIY and become financially independent. Teaching children more personal finance in school would help a lot.

Some people are scared and intimidated, but I think the vast majority of the general population, apart from the majority of us on this forum, are not interested in DIY investing, and probably have not even considered it, so they will most likely be quite happy to pay for the service.

Thrugelmir

Bottom line is that passive trackers are weighted towards the large cap stocks. Whereas active are more inclined towards the small and mid caps. Last year on the LSE small and mid outperformed large caps. As a result active UK managers came out on top. Simple as that.

As such why some of us believe in no particular investment style. As they go in and out of fashion. Ultimately it's company fundamentals that count. Not the particular index itself.

bostonerimus

Thrugelmir wrote: »

Bottom line is that passive trackers are weighted towards the large cap stocks. Whereas active are more inclined towards the small and mid caps. Last year on the LSE small and mid outperformed large caps. As a result active UK managers came out on top. Simple as that.

As such why some of us believe in no particular investment style. As they go in and out of fashion. Ultimately it's company fundamentals that count. Not the particular index itself.

Agreed. As someone said in a previous comment relative investment success is more to do with asset allocation than active vs passive. In the US there are many easily available trackers for US and international mid-cap and small cap Indexes and so it’s possible to slice and dice inexpensively if that’s your style.

Thrugelmir

bostonerimus wrote: »

In the US there are many easily available trackers for US and international mid-cap and small cap Indexes and so it’s possible to slice and dice inexpensively if that’s your style.

There's insufficient stock/liquidity for passives to operate at the lower end of the cap market in the UK. Hence why Vanguard, Blackrock also offer active management as an option. Solely holding passive portfolios aren't the holy grail that some people believe them to be.

Ciprico

...the problem with trackers is you end up investing in companies you probably would not normally touch with a barge pole.

So you end up end owning part of them simply because they are big. In the UK Sainsburys and Marks and Spencers spring to mind, but there must be many around the World....

..and "blind" trackers must also support the share price of weak companies, as they buy them because they exist and are big - not because they do or are expected to do anything special...

Thrugelmir

123mat123 wrote: »

...the problem with trackers is you end up investing in companies you probably would not normally touch with a barge pole.

So you end up end owning part of them simply because they are big. In the UK Sainsburys and Marks and Spencers spring to mind, but there must be many around the World....

..and "blind" trackers must also support the share price of weak companies, as they buy them because they exist and are big - not because they do or are expected to do anything special...

Marks and Spencer dropped out of the FTSE in 2019. Dropping out will have accelerated the decline in the share price. As trackers dumped the stock.

[Deleted User]

Thrugelmir wrote: »

Marks and Spencer dropped out of the FTSE in 2019. Dropping out will have accelerated the decline in the share price. As trackers dumped the stock.

Hargreaves Lansdown deserve to drop out of the FTSE100 too, this year or next.

Fingers crossed
They deserve it.

Thrugelmir

ZingPowZing wrote: »

Hargreaves Lansdown deserve to drop out of the FTSE100 too, this year or next.

Fingers crossed
They deserve it.

Been a profitable investment over the years. Funny how no one ever complains about Apple's profit margins......

ivormonee

I am guessing that Harg. Lans. is probably the biggest platform and that they may well have the largest customer base and "AUM". I think I saw somewhere that it was over £100bn. I believe I may also have read that they make profits of around £400m in a year and that their profit margins are around 65%. If all this is true then I find it astonishing. It would indicate clearly that they are not there to "provide a service" but rather to make as much money as possible for themselves and, to some degree, their shareholders.


If the figures above are more or less on track, then, as a rough back of the envelope calculation, they could halve all their charges and they would still achieve profits of around £200m and a 33% profit margin; or would that not be good enough?



So headline charges of around 0.2% rather than 0.45% on funds, around £5.95 for exchange related dealing rather than £11.95 and a removal of the capped £45 platform charge on shares in a wrapper.



Much more reasonable charges and still a £200m profit with still a wide profit margin. There is a downside though, I suppose - the top execs. might need to knock off a few million off their salaries, bonuses and company pensions or downsize their yaghts, Bentleys and mansions...


... which they might not wish to do. Existing charges to remain, then. *sigh*