IFA or DIY - any thoughts appreciated

Linton

BritishInvestor said:

garmeg said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Depends on the funds chosen.

Terry Smith has significantly outperformed for years.

As did Neil Woodford, until he didn't.

1. You sure Fundsmith has outperformed if benchmarked appropriately?
Ditto Woodford
https://finalytiq.co.uk/woodford-vs-ftse-uk-equity-income-lets-set-the-record-straight/
You have to remember the (active) investment management industry makes money from selling the dream of outperformance.

2. If anyone has the ability to pick these future "outperforming" funds/sectors I'm all ears.

This has just been released and is a good read
https://www.amazon.co.uk/Incredible-Shrinking-Alpha-2nd-successful-ebook/dp/B08BX5HRLJ/ref=sr_1_1?

1)  What is your passive alternative to Fundsmith?  Can you actually invest in your "appropriate benchmark"?
2) Woodford's glory days were in the 1990s and early 2000s which are not covered in your link.  His tortoise vs hare strategy was based on solid highly profitable income generating companies and was extraordinarily successful before large scale tech driven growth took over as a primary driver of the markets.  He was one of the few managers with the authority to stick to his approach during the .com boom/crash. 

Linton

zagfles said:

Linton said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Out-performing the Vanguard LS range is easy - the FTSE World index has outperformed VLS100 every year for the past 5 years.

Well it would do wouldn't it? Index trackers will always underperform the index they're tracking since they have charges.

Fidelity Index World class A has outperformed VLS100 every year for the past 5 years.  
Fidelity Index World Class A charges: 0.3%, 5 year performance: 89%
VLS100 charges: 0.22%, 5 year performance: 69%

BritishInvestor

Linton said:

BritishInvestor said:

dunstonh said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

That is easier than you seem to think.

Given that the vast, vast majority of people that I see attempt it (on a professional and individual level), I'd be keen to understand how. Edges are extraordinarily hard to come by in the market.

I suggest:
Primarily: Go for higher risk/return. Optimise diversification and avoid over-reliance on any particular fund, factor, geography, sector or company. Consider momentum effects where appropriate at the sector level.
At a second level choose niche funds with a good record but avoid compromising the primary strategies.

Risk/return: Outperform means on a risk-adjusted basis. (As an aside, realistically not many people would be happy with >100% equities (e.g. more than LS100))
Choosing niche funds goes back to my point about the difficulty of picking future winners. For niche funds you'd want to make sure you weren't accepting liquidity risk along with all the other risks. I see professionals (DFMs etc) attempt to pick niche funds and market events such as Covid emphasize what can go wrong.

Linton

BritishInvestor said:

AnotherJoe said:

TBC15 said:

BritishInvestor said:

dunstonh said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

That is easier than you seem to think.

Given that the vast, vast majority of people that I see attempt it (on a professional and individual level), I'd be keen to understand how. Edges are extraordinarily hard to come by in the market.

So if we accept active investors can’t beat the market and passive investments give superior returns why do these people continually accept the loses, some sort of masochism? Year in year out.

Those statements are too absolute. 

Some active investors can beat the market. For multiple definitions of what "the market" is. 

Not all passive investments give superior results.  For a start it would depend what the underlying investments were. I'd take an active renewables fund (or IT ETF etc) against passive oil and gas index fund (or ETF etc) any day. 

Or an active smaller companies fund against a passive global smaller companies.

Would I take a passive renewables vs an active ? Probably but I'd expect there will be some better actives as well.

Now in the long term it is true that a passive whole of market(or wide ranging global anyway, eg thousands of companies) will beat most general active funds. But the key word is "most" 

As to why do investors accept  inferior results? I think it most cases it's because they don't know they are inferior. Look at all those well off investors in SJP for example.  Happy with mediocre results because they don't know better. 

If you look at SPIVA results active managers underperform (on average) in the small cap space as well. 
"But the key word is "most" 
Realistically it's not going to be possible to find the ones that are going to outperform ahead of time.

Have you looked at the SPIVA reports?

1) If you check the performance of trackers vs active funds using the facilities available on Trustnet you can get quite different results to SPIVA. Sadly SPIVA dont supply any of the data they use.
2) I find it odd that S&P whose business is based on market capitalisation based indexes give their reports in terms of numbers of managers.
3) "Small companies" can cover a very wide range from around £5Bn to sub £100M.  I would guess that because of the market capitalisation basis, SC index funds are more based towards larger companies than active funds. Separating out the effects of asset allocation aginst investment approach is very difficult and not something SPIVA attempt to do.

BritishInvestor

Linton said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Out-performing the Vanguard LS range is easy - the FTSE World index has outperformed VLS100 every year for the past 5 years.

Five years in investing terms is not a long time. I deliberately mentioned "significantly" as the LS UK bias has been a drag in recent times (BTW my preference is global as well, although worth bearing in mind that FTSE World might exclude small cap (not sure which index you are referring to)).
For those that are interested (probably very few , the FTSE indices are shown in graphical format here
https://www.ftserussell.com/index/spotlight/global-equity-indexes

BritishInvestor

zagfles said:

Linton said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Out-performing the Vanguard LS range is easy - the FTSE World index has outperformed VLS100 every year for the past 5 years.

Well it would do wouldn't it? Index trackers will always underperform the index they're tracking since they have charges.

Due to stock lending etc it's sometimes close than you might think.
https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/price-performance

zagfles

Linton said:

zagfles said:

Linton said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Out-performing the Vanguard LS range is easy - the FTSE World index has outperformed VLS100 every year for the past 5 years.

Well it would do wouldn't it? Index trackers will always underperform the index they're tracking since they have charges.

Fidelity Index World class A has outperformed VLS100 every year for the past 5 years.  
Fidelity Index World Class A charges: 0.3%, 5 year performance: 89%
VLS100 charges: 0.22%, 5 year performance: 69%

So they're tracking different "indexes". Quick glance shows the Fidelity one thinks the "world" is 61% USA, whereas VLS only thinks 44% of the world is USA. USA seems to have done better than the rest of the world.

ETA also VLS is 22% UK, whereas Fidelity is only 4% UK.

So basically, USA stocks (and currency) did better than UK over the last 5 years.

BritishInvestor

Linton said:

zagfles said:

Linton said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Out-performing the Vanguard LS range is easy - the FTSE World index has outperformed VLS100 every year for the past 5 years.

Well it would do wouldn't it? Index trackers will always underperform the index they're tracking since they have charges.

Fidelity Index World class A has outperformed VLS100 every year for the past 5 years.  
Fidelity Index World Class A charges: 0.3%, 5 year performance: 89%
VLS100 charges: 0.22%, 5 year performance: 69%

MSCI World is DM only.

Linton

BritishInvestor said:

Linton said:

BritishInvestor said:

dunstonh said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

That is easier than you seem to think.

Given that the vast, vast majority of people that I see attempt it (on a professional and individual level), I'd be keen to understand how. Edges are extraordinarily hard to come by in the market.

I suggest:
Primarily: Go for higher risk/return. Optimise diversification and avoid over-reliance on any particular fund, factor, geography, sector or company. Consider momentum effects where appropriate at the sector level.
At a second level choose niche funds with a good record but avoid compromising the primary strategies.

Risk/return: Outperform means on a risk-adjusted basis. (As an aside, realistically not many people would be happy with >100% equities (e.g. more than LS100))
Choosing niche funds goes back to my point about the difficulty of picking future winners. For niche funds you'd want to make sure you weren't accepting liquidity risk along with all the other risks. I see professionals (DFMs etc) attempt to pick niche funds and market events such as Covid emphasize what can go wrong.

1) "Outperformance" should be based on equivalent risk.  Active funds give you far more ability to manipulate this.  Unless you go for seriously niche ETFs the passive funds available are very limited. Interestingly SPICAV doesnt make any allowances here.
2) How can you invest in more than 100% equity, which in practice needs an esoteric ETF?  No, you just go for a larger % of the higher risk sectors.  Small companies and tech have performed much better than the broad indexes over the past 10 years and have generally recovered better from the Covid falls.  The effect has clearly not been just random variation, but represents underlying trends.
3)  Yes you need to be aware of the risk/return short term effects.  That is part of the objectives basis for your overall asset allocation, which is why I put fund choice as a secondary activity in my high level strategy.

BritishInvestor

Linton said:

BritishInvestor said:

garmeg said:

BritishInvestor said:

enthusiasticsaver said:

Just looking at the charges is a bit like comparing apples and pears and having invested with VLS60 for about 6 years I moved to an IFA last year and was under no illusion that the charges would be higher.  The performance of the VLS60 though over the last 12 months is 4.4% whereas the portfolio under my IFA has returned  almost 10% with a similar asset allocation of 60% equities and 40% fixed term.  A few of the funds he chose have performed very well over the last few months though so that has skewed the results.  The charges are higher but the return is too so overall it has performed better than in a passive multi asset fund.  I am only speaking from a personal point of view though and of course you could get investors with other IFAs producing completely different results. You cannot really only look at charges in isolation. 

An IFA (or anyone else for that matter) is unlikely to significantly outperform something like the LS range (or similar multi-asset low cost offerings) over the long term. 

Depends on the funds chosen.

Terry Smith has significantly outperformed for years.

As did Neil Woodford, until he didn't.

1. You sure Fundsmith has outperformed if benchmarked appropriately?
Ditto Woodford
https://finalytiq.co.uk/woodford-vs-ftse-uk-equity-income-lets-set-the-record-straight/
You have to remember the (active) investment management industry makes money from selling the dream of outperformance.

2. If anyone has the ability to pick these future "outperforming" funds/sectors I'm all ears.

This has just been released and is a good read
https://www.amazon.co.uk/Incredible-Shrinking-Alpha-2nd-successful-ebook/dp/B08BX5HRLJ/ref=sr_1_1?

1)  What is your passive alternative to Fundsmith?  Can you actually invest in your "appropriate benchmark"?
2) Woodford's glory days were in the 1990s and early 2000s which are not covered in your link.  His tortoise vs hare strategy was based on solid highly profitable income generating companies and was extraordinarily successful before large scale tech driven growth took over as a primary driver of the markets.  He was one of the few managers with the authority to stick to his approach during the .com boom/crash. 

1. Most investors taking a factor-based investing approach (which I'd categorise as different from passive, and one that you'd need to use to attempt to emulate Fundsmith) tend to invest in a diametrically opposite fashion - small-cap value (see Dimensional etc). I'm sure there are reasonable approximations but it's just not a common investing "style" that I come across very often.
2. This link goes back to the late 90s. 
https://finalytiq.co.uk/woodford-vs-ftse-uk-equity-income-lets-set-the-record-straight/