Aviva Pensions - Choice of Available Funds

cfw1994

mither_2 said:

MaxiRobriguez said:

Past performance is not an indicator of future results.

Apple, Alphabet, FB, Microsoft et all have done well but are now all expensive by most traditional valuation metrics. There's every chance these stocks could be some of the worst laggards over the next ten years. If anything buying a fund which has underperformed may give you better results as their performance returns to the mean over time. It's not like there isn't plenty of evidence in the past of sectors which have rallied really well coming down to the earth thereafter.

In terms of how you choose your selections, then it's either:

1) Keep it simple, get a global equity tracker that is as cheap as possible and forget about performance of the fund, just that it'll rise with GDP growth.
2) Create your own portfolio of funds and overweight/underweight in categories/sectors/countries you find appealing, for whatever reason that is: value/growth, large cap/small cap, EM/developed etc, but past performance should be near the bottom of reasons why you pick it, because you have no idea why that outperformance occurred (because no fund gives you the full information on the totality of their holdings) in most cases so have no means to tell if it was skill or luck.

Based on a judging a book by it's cover, I think you'd be more suited to option 1.

Agreed regarding the Apple, Alphabet, FB etc which is why I was less keen on the AXA Framlington American Growth as five big US tech firms account for 20% of the shareholdings which may explain why they have done so well over the last 10 years and may also mean that there is limited scope for further growth in future years. 

I think I'll steer away from that one. 

Well, opinions are indeed like a**holes - everyone has one!

Mine is that you'd be mad to bet against the might of the FAANG stocks. 

If you think there is "limited scope for further growth in future years"....well, there are plenty who might disagree. 

FWIW, I am one of them: having worked in tech, I know the behemoths in the industry have fingers in MANY pies, but this is just my opinion: I refer you to line one 🤣👍 

dunstonh

Well, opinions are indeed like a**holes - everyone has one!
Mine is that you'd be mad to bet against the might of the FAANG stocks. 

Possibly.  However, people were saying the same about the mighty tech companies just over 20 years ago before they went on to fall 90%.   Many of those mighty tech companies of the day are minnows or no longer exist now.

Tech companies can be destructive which is great for them when it pays off but they are also at high risk of a competitor doing it to them.    They are also at risk of fashion changes.     

mither_2

Albermarle said:

There will be a charge from Aviva for managing the pension . The 0% for Blackrock 50:50 means there is no extra charge for this fund , whilst the actively managed fund has an extra charge .

Is this because there is much less involved in a tracker fund? i.e. they don't need to hire large teams of researchers 

Yes and they do not need a well known and expensive fund manager to run the fund .

Some actively managed funds will be successful and beat the market but usually not long term, and many will do worse than the market.

Yes, this is the 0.26% that I'm charged and so any of these fund fees will apply over and above this. 
Clearly there is a big difference between 0%0.2% for a tracker fund vs 0.8% for some of the active funds. 

When you say they they won't usually beat the market "long term" how many years do you consider long term? Do you mean that they'll beat the market 4 years out of 5 of they might beat the market for 5 years straight and then do consistently do less well? Is there some kind of a shelf life to an active fund where they can't outperform the index consistently over a period of years?  

Just curious. 

I am tempted to more of my money with an index tracker and then put a smaller amount with a active fund. As mentioned above I can leave the cash there for many years but would be curious to see how they perform over a 10 year period. May not be the most effective approach but quite like the idea of having an interest in both approaches.  

mither_2

dunstonh said:

Well, opinions are indeed like a**holes - everyone has one!
Mine is that you'd be mad to bet against the might of the FAANG stocks. 

Possibly.  However, people were saying the same about the mighty tech companies just over 20 years ago before they went on to fall 90%.   Many of those mighty tech companies of the day are minnows or no longer exist now.

Tech companies can be destructive which is great for them when it pays off but they are also at high risk of a competitor doing it to them.    They are also at risk of fashion changes.     

I can see that with Facebook where younger people may ignore FB in favour of some younger and trendier social media platform that their parents don't use. But given the size of FB and the lack of regulatory barriers (I could be wrong about these) would FB not just buy up this new challenger? 

MaxiRobriguez

cfw1994 said:

mither_2 said:

MaxiRobriguez said:

Past performance is not an indicator of future results.

Apple, Alphabet, FB, Microsoft et all have done well but are now all expensive by most traditional valuation metrics. There's every chance these stocks could be some of the worst laggards over the next ten years. If anything buying a fund which has underperformed may give you better results as their performance returns to the mean over time. It's not like there isn't plenty of evidence in the past of sectors which have rallied really well coming down to the earth thereafter.

In terms of how you choose your selections, then it's either:

1) Keep it simple, get a global equity tracker that is as cheap as possible and forget about performance of the fund, just that it'll rise with GDP growth.
2) Create your own portfolio of funds and overweight/underweight in categories/sectors/countries you find appealing, for whatever reason that is: value/growth, large cap/small cap, EM/developed etc, but past performance should be near the bottom of reasons why you pick it, because you have no idea why that outperformance occurred (because no fund gives you the full information on the totality of their holdings) in most cases so have no means to tell if it was skill or luck.

Based on a judging a book by it's cover, I think you'd be more suited to option 1.

Agreed regarding the Apple, Alphabet, FB etc which is why I was less keen on the AXA Framlington American Growth as five big US tech firms account for 20% of the shareholdings which may explain why they have done so well over the last 10 years and may also mean that there is limited scope for further growth in future years. 

I think I'll steer away from that one. 

Well, opinions are indeed like a**holes - everyone has one!

Mine is that you'd be mad to bet against the might of the FAANG stocks. 

If you think there is "limited scope for further growth in future years"....well, there are plenty who might disagree. 

FWIW, I am one of them: having worked in tech, I know the behemoths in the industry have fingers in MANY pies, but this is just my opinion: I refer you to line one 🤣👍 

I doubt many people think the likes of Amazon, Google, Tesla etc are going to struggle to find growth in new markets like automation, digital transformation in currently non-digital markets. Of course they will.

The question is whether the current price of their stocks overestimate that growth.

They are all magnificent companies (from a revenue generation POV rather than an ESG one), but we as investors shouldn't be buying magnificent companies, we should be buying discounted future free cash flow. If the stock is so expensive that there is limited chance for any discounted future free cash flow then it's not an investment, it's a shiny toy.

At current valuations Tesla would need to grow it's revenue by 20x for me to become interested in buying it - which is a big ask. As is Amazon 5x and Microsoft and Apple 2x - again tall ask for industry monopolies. I own all through a US passive tracker but I am deliberately underweighting that and combining with a US value fund to try and balance out the US tech dominance in market cap funds. 

I might be wrong, but we've seen this scenario of crazy prices before, and it has never ended well for the stocks that got bid up quickly.

JohnWinder

mither_2 said:

When you say they they won't usually beat the market "long term" how many years do you consider long term? ..
Just curious.

At the risk of putting words into her mouth, I think he means 3-5 years and certainly 10-20 years. Unfortunately we just don't know which years they'll be, in advance. Here's where you can get the frequently updated information: https://www.spglobal.com/spdji/en/research-insights/spiva/

AlanP_2

Using passive / trackers or using active funds is a well discussed topic on here.

The evidence is that over time a tracker will beat the AVERAGE of the active funds that invest in comparable sectors AFTER COSTS. What the evidence doesn't show is that a tracker will beat ALL the active funds.

The difficulty, as stated on here regularly, is identifying the active funds that will be more successful (identifying, with hindsight, those that were / weren't over the last 1/3/5/10 years is easy).

The way I look at it is a tracker will give me market returns whilst an active fund will give me market returns +/- X. If you think taking that "chance" of extra is worthwhile then use active.If you don't think it is worthwhile use passive trackers.

If you want to underweight US Tech stocks, as an example, then you are not totally convinced by the passive business case. If you were then getting the market returns, including those from FAANGs, would be fine, whether FB withers on the vine or not.

A hybrid approach is also an option and some may say it is the best.

This lets you use say a global tracker to capture everything and actives for niche areas (e.g. EM, smaller companies, health / green themes etc.).

Personally I use both but am increasing the active elements as I do think that potential higher return is worthwhile.

Albermarle

Here is an article about Passive Investing that could be of interest .
Passive investing Archives - Monevator

Regarding active funds , just be aware there are thousands of them so difficult to make a generalised comment.

mither_2

JohnWinder said:

mither_2 said:

When you say they they won't usually beat the market "long term" how many years do you consider long term? ..
Just curious.

At the risk of putting words into her mouth, I think he means 3-5 years and certainly 10-20 years. Unfortunately we just don't know which years they'll be, in advance. Here's where you can get the frequently updated information: https://www.spglobal.com/spdji/en/research-insights/spiva/

I meant 5 years + but the info shows clearly that its difficult to to outperform the market in the short term and gets progressively more difficult.  

mither_2

AlanP_2 said:

Using passive / trackers or using active funds is a well discussed topic on here.

The evidence is that over time a tracker will beat the AVERAGE of the active funds that invest in comparable sectors AFTER COSTS. What the evidence doesn't show is that a tracker will beat ALL the active funds.

The difficulty, as stated on here regularly, is identifying the active funds that will be more successful (identifying, with hindsight, those that were / weren't over the last 1/3/5/10 years is easy).

The way I look at it is a tracker will give me market returns whilst an active fund will give me market returns +/- X. If you think taking that "chance" of extra is worthwhile then use active.If you don't think it is worthwhile use passive trackers.

If you want to underweight US Tech stocks, as an example, then you are not totally convinced by the passive business case. If you were then getting the market returns, including those from FAANGs, would be fine, whether FB withers on the vine or not.

A hybrid approach is also an option and some may say it is the best.

This lets you use say a global tracker to capture everything and actives for niche areas (e.g. EM, smaller companies, health / green themes etc.).

Personally I use both but am increasing the active elements as I do think that potential higher return is worthwhile.

Thank you for your thoughts on this. I am leanings towards having a split where 60% are in tracker funds (one example being the Blackrock European Equity Index Tracker)  with very low fees (0.2% seems to be the norm) and the remaining 40% in active funds. As there are no charges for moving money in and out of the different funds then there is no penalty if I decide at a later date to change this ratio and move more into tracker funds or vice versa? In order to give the give the different funds chance to perform I would need to leave the cash in the funds for 2-3 years + I would assume. 

As stated previously I'm a long way from retirement and am interested to see how active funds in different sectors perform. I accept that this may be a little more risky (and costly) but I can accept this for the potential for higher returns.