SIPP Flexi access drawdown based on Vanguard Lifestrategy x% equities

Audaxer

Linton said:

Deleted_User said:

Thrugelmir said:

Not just the fees to be considered. Also the funds performance. 

But of these two variables only the fees are known. Performance could go either way. Portfolios based on Vanguard’s plain vanilla indices regularly outperform complex portfolios with active funds which use the same asset allocation. 

Possibly, however duplicating a passive fund's asset allocation with a carefully chosen set of active funds seems a somewhat bizarre strategy.  There is more to asset allocation than the equity/bond ratio.

I take your point that you could probably get a more diversified asset allocation with active funds, but I think a lot of investors trying to get a balanced portfolio with active funds, would still look to an asset/bond ratio to match their risk tolerance. I think by trying to get a more diversified asset allocation with active funds, there is more scope for getting the balance wrong.

Although I do have some active funds, I am more wary about putting a large percentage of my portfolio as a core holding into an active fund rather a passive fund or a multi asset fund.

Albermarle

BPL said:

Is that performance after all costs? I wonder why Scottish mortgage has done so well over covid period? 

Scottish Mortgage is a high risk fund who has made some good bets on US tech sector , especially Tesla. There is no guarantee the very good results will continue .
The 40% equity multi asset funds and wealth preservation ITs are completely different and can not be compared.
You should remember that many investors are happy with some stability/modest growth and do not want too much excitement.

Albermarle

Linton said:

Albermarle said:

Audaxer said:

shinytop said:

BPL said:

Has anyone considered or done this? I loved the low cost of 0.22pc plus platform fee 0.2pc and the fact these funds are rebalanced without having to pay an ifa or diy effort. I'm thinking accumulation and sell units for income rather than natural yield from distribution. 

I do something similar; my main holdings are VLS60 and HSBC Balanced.  No real reason for splitting other than hedging/curiosity.  I'm thinking about replacing one of them (probably VLS) with a managed wealth preservation fund but I'm not convinced.  I also have a few years of cash and a small amount (10%) in more specialist managed equity funds.   

I think splitting between VLS60 and HSBC Global Strategy is a good choice. I have just compared the performance of them to two popular Wealth Preservation ITs - Capital Gearing Trust and Personal Assets Trust. They are perfectly good ITs but their returns over the last 5 years are lower than both multi asset funds. I have also considered these ITs, but to be part of a portfolio of active funds rather than to replace VLS60 or HSBC Global Strategy which I also hold.

I think it is better to compare the WP IT's with the lower risk multi asset funds , as the IT's hold around 40% equity and the 60% equity funds are more aiming for growth. I did this a few weeks ago with PNL , VLS 40 , HSBC GS Conservative, Fidelity allocator strategic. They are all very close on 3 year ( +/- 0.5%) Over one year PNL is better followed by HSBC. Over three months VLS 40 is lagging a bit over the other three.

CGT is about 25% equity.  PNL always was a bit adventurous. In any case choosing one's wealth preservation assets on the basis of performance in the good times does not seem very appropriate to me.

It was really  a comparison of similar conservative multi asset funds for my own info . I also included a couple available only as pension funds . Then just added PNL as an afterthought.

BPL

I'm happy with low risk, volatility, costs not having to rebalance, not having to continually monitor. 

Prism

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Not just the fees to be considered. Also the funds performance. 

But of these two variables only the fees are known. Performance could go either way. Portfolios based on Vanguard’s plain vanilla indices regularly outperform complex portfolios with active funds which use the same asset allocation. 

Possibly, however duplicating a passive fund's asset allocation with a carefully chosen set of active funds seems a somewhat bizarre strategy.  There is more to asset allocation than the equity/bond ratio.

Does not matter how complex you go, future performance isn’t known and most active funds underperformed in the past. Eg https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12

Agreed but the unknown factor is how good people are at selecting the performing funds ahead of time. SPIVA scorecards give some detail on this but only covers 10 years which is likely not enough.

A positive example for a UK investor over the last 10 years would be that the European index annualized at 8.44%, an average of all active funds was 9.13% and a money weighted average was 10.6%. This suggests that using active funds targeting the European sector has been a benefit at least in recent times and that UK investors have been quite good at selecting the good ones. The same is true for UK sector funds (large, mid and small).

However a negative example, and probably more important as most people invest globally, is that the world index has not been as good for active funds. The index is 12.54%, the average global fund 10.4% and the money weighted return 11.72%. So people are decent at picking the better funds but not enough to recover the average 2% underperformance. Much of that is likely caused by the 60%+ allocation to the US market where active funds are a bit of a no go area.

All of that is of course a separate issue to Linton's point of using active funds to invest differently rather than just in terms of pure performance.

BPL

Are those figures net of all charges and fees? I'm not sure what money weighted means. I suspect a lot of the active funds are closet trackers. 

Linton

BPL said:

Are those figures net of all charges and fees? I'm not sure what money weighted means. I suspect a lot of the active funds are closet trackers. 

All fund performance figures are net of fund manager fees.  Fees are taken directly from the fund assets when needed, they aren't something added on later.  Money weighted means that if fund A is 10 times the size of fund B then its performance contributes 10 times as much to an overall average than fund B's performance.  So it more closely represents what an average investor would see than a simple arithmetic average of all funds.

And yes if you are looking at active funds beware of closet trackers and the funds that are there simply because the fund manager needs to cover all the major investment sectors.  You need a positive reason for choosing a particular fund rather than some other one.

[Deleted User]

Prism said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Not just the fees to be considered. Also the funds performance. 

But of these two variables only the fees are known. Performance could go either way. Portfolios based on Vanguard’s plain vanilla indices regularly outperform complex portfolios with active funds which use the same asset allocation. 

Possibly, however duplicating a passive fund's asset allocation with a carefully chosen set of active funds seems a somewhat bizarre strategy.  There is more to asset allocation than the equity/bond ratio.

Does not matter how complex you go, future performance isn’t known and most active funds underperformed in the past. Eg https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12

A positive example for a UK investor over the last 10 years would be that the European index annualized at 8.44%, an average of all active funds was 9.13% and a money weighted average was 10.6%. This suggests that using active funds targeting the European sector has been a benefit at least in recent times and that UK investors have been quite good at selecting the good ones. The same is true for UK sector funds (large, mid and small).

That’s a very large margin over 10 years. Add to that 1% (or whatever it is) that the active funds charged for services and trading costs.  Massive outperformance.  Who was on the losing side if every year an average investor in active European fund outperformed the index by 3%? Source of info? 

Linton

Deleted_User said:

Prism said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Not just the fees to be considered. Also the funds performance. 

But of these two variables only the fees are known. Performance could go either way. Portfolios based on Vanguard’s plain vanilla indices regularly outperform complex portfolios with active funds which use the same asset allocation. 

Possibly, however duplicating a passive fund's asset allocation with a carefully chosen set of active funds seems a somewhat bizarre strategy.  There is more to asset allocation than the equity/bond ratio.

Does not matter how complex you go, future performance isn’t known and most active funds underperformed in the past. Eg https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12

A positive example for a UK investor over the last 10 years would be that the European index annualized at 8.44%, an average of all active funds was 9.13% and a money weighted average was 10.6%. This suggests that using active funds targeting the European sector has been a benefit at least in recent times and that UK investors have been quite good at selecting the good ones. The same is true for UK sector funds (large, mid and small).

That’s a very large margin over 10 years. Add to that 1% (or whatever it is) that the active funds charged for services and trading costs.  Massive outperformance.  Who was on the losing side if every year an average investor in active European fund outperformed the index by 3%? Source of info? 

People on the losing side are those buying shares for reasons other than total long term performance. For example
1) Trackers which buy a share because it's there.
2) Investors wanting dividends more than capital growth
3) Cautious funds looking for stability ahead of growth
4) People holding shares in their employer
5) Lazy investors
6) Sector based funds
7) Funds and investors looking for balance ahead of performance.
8) People holding shares for long term strategic reasons
9) Traders chasing very short term gains not concerned about long term performance
etc etc
and of course there are the investors who simply make bad choices

Prism

Deleted_User said:

Prism said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Not just the fees to be considered. Also the funds performance. 

But of these two variables only the fees are known. Performance could go either way. Portfolios based on Vanguard’s plain vanilla indices regularly outperform complex portfolios with active funds which use the same asset allocation. 

Possibly, however duplicating a passive fund's asset allocation with a carefully chosen set of active funds seems a somewhat bizarre strategy.  There is more to asset allocation than the equity/bond ratio.

Does not matter how complex you go, future performance isn’t known and most active funds underperformed in the past. Eg https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12

A positive example for a UK investor over the last 10 years would be that the European index annualized at 8.44%, an average of all active funds was 9.13% and a money weighted average was 10.6%. This suggests that using active funds targeting the European sector has been a benefit at least in recent times and that UK investors have been quite good at selecting the good ones. The same is true for UK sector funds (large, mid and small).

That’s a very large margin over 10 years. Add to that 1% (or whatever it is) that the active funds charged for services and trading costs.  Massive outperformance.  Who was on the losing side if every year an average investor in active European fund outperformed the index by 3%? Source of info? 

That would have to be all the other investors who are not invested in UK held active European equity funds - the rest of the world's investors, all of the global funds including the many people not using funds as all.

https://www.spglobal.com/spdji/en/documents/spiva/spiva-europe-mid-year-2020.pdf