Active Vs passive Global index trackers

csgohan4

Just wanted your thoughts on passive vs active index trackers. Obviously previous performance will not dictate the future but I'm seeing that active certainly have a role to play, whether to replace the passive tracker is a question I am curiously looking at.

VG Ftse Developed ex UK compared to BG International Fund which is the equiv index tracker, performance seems to be a little bit better butx4 the OCF however

however as most Global index trackers contain USA > 40%, other option is to go for  USA fund and separate EM/Asia/ex USA fund 

Articles often site passive funds do better than actives in the long run, I wonder how true this is in the real world. 
SMT while not an index tracker in it's entirety, however contains funds which would fit in index trackers except tesla. Also it contains Asia as well as Europe, in a way  comparable to global tracker and is low cost too. 

ColdIron

Is there such a thing as an active index tracker?

Perhaps you are trying to compare funds that track an index (passive) with actively managed funds where the fund managers make investment decisions rather than simply track an index, although they may hope to achieve better performance than a nominated benchmark index

Sailtheworld

The main question is whether you think an active fund manager has an investment edge that makes them worth their fees. If the answer's yes then you can leave it to them and not worry too much about the differences in underlying investments - why have a dog and bark yourself.

In the real world passive funds do better because active managers just don't deliver and can't consistently outperform - they don't have an edge.

It's pretty well documented - https://www.spindices.com/spiva/#/about. It's not some esoteric concept - fund managers and brokers just don't wish to highlight to the people they make money off that they add a negative value.

Alexland

csgohan4 said:

Articles often site passive funds do better than actives in the long run, I wonder how true this is in the real world.

Passive funds do better than the vast majority of active funds over a long enough measurement period. Over a few years it's almost 50/50 but as you start looking over 5, 10, 15 years then the number that have both survived and outperformed gets smaller and smaller.

That's not to say there won't be active funds that have done well over long periods as they are easy to find from filtering on past performance. But the problem is you didn't know that at the start (they were just another average fund you might have picked) and you don't know if their investment style will suit market conditions going forwards or if they will be one of the many that fall behind.

As such when getting the superior returns of an active fund that does well in the future you have taken a higher level of risk that you might have picked one that will have done poorly.

I take it from a slightly different angle of "what problem am I trying to fix?" in that although high asset valuations are likely to cause market returns to be reduced in the medium term they should still be adequate for my needs so why take the risk of weighting the situation in such a way that I am more likely to get a poor outcome for the possibility of a better outcome? Passive is somewhere around the sweet spot for getting an efficient return for the risk you take and some of the best ways to get an improved outcome are to keep costs low and contribute more.

Alex

csgohan4

Probably why offsetting the  lower outcome passive funds by investing in smaller amounts in satellites, be it geography/ sector based which maybe higher risk. 

Stargunner

Alexland said:

That's not to say there won't be active funds that have done well over long periods as they are easy to find from filtering on past performance. But the problem is you didn't know that at the start (they were just another average fund you might have picked) and you don't know if their investment style will suit market conditions going forwards or if they will be one of the many that fall behind.

I have some passive funds but also some active funds which I picked based on past performance. 

The active ones are performing far better than the passive ones and they are performing so well that I have increased my holdings in them by reducing by holdings in the passive ones.
As I monitor them regularly I can revert back if things should. change.

Alexland

Stargunner said:

I have some passive funds but also some active funds which I picked based on past performance. 

The active ones are performing far better than the passive ones and they are performing so well that I have increased my holdings in them by reducing by holdings in the passive ones.
As I monitor them regularly I can revert back if things should. change.

As above the performance over the months or years you have probably held them it's almost 50/50 which would do better so no surprise that you have actives doing better than passives. If you are fortunate enough to pick an active manager with the right investments at the right time in the market cycle they can certainly beat a passive index tracker. There may also be an initial element of 'running a winner a bit longer' at play. The problem is that performance is unlikely to sustain over a long investment timeline when the vast majority of actives tend to get quietly closed/merged or fall behind passives. Knowing when to swap one active manager for another (as would certainly be required) is a matter of judgement with associated risk.

Alex

Thrugelmir

csgohan4 said:

Articles often site passive funds do better than actives in the long run, 

The problem for active fund managers is that good ideas become diluted over time. Or the fund becomes too large. Investment fads ebb and flow over extended periods of time.
. 

Stargunner

Thrugelmir said:

csgohan4 said:

Articles often site passive funds do better than actives in the long run, 

The problem for active fund managers is that good ideas become diluted over time. Or the fund becomes too large. Investment fads ebb and flow over extended periods of time.
. 

SMT has got very large, but that doesn’t seem to be a problem and there doesn’t appear to be any dilution either.

Thrugelmir

Stargunner said:

Thrugelmir said:

csgohan4 said:

Articles often site passive funds do better than actives in the long run, 

The problem for active fund managers is that good ideas become diluted over time. Or the fund becomes too large. Investment fads ebb and flow over extended periods of time.
. 

SMT has got very large, but that doesn’t seem to be a problem and there doesn’t appear to be any dilution either.

SMT has been around a very long time. Not always been flavour of the month. Nor will be in the future. There'll be another bandwagon to jump on. 

Stargunner

Thrugelmir as SMT has been around for a very long time why have their good ideas not become diluted?