Passive investing

noclaf

I generally use passive funds to keep costs down but the smaller of my two DC pensions is invested in an active fund by choice as the performance has been significantly better than cheaper passive options and the funds regional allocation complements my other investments. So it's not always a case of passive rather than active or vice versa and cost is not the only consideration.
I also agree on the point about different degrees of Passive....my main DC pension is in a passive ESG fund...so there was an active decision to limit the fund to ESG.... but that's starting to get a bit too far into the weeds now.

[Deleted User]

Prism said:

Deleted_User said:

Cus said:

But if that's going to have a chance of working, you need to know what you are doing better than most, or choose someone who does.

Choosing active investments is a job active fund managers do; usually with the help of sophisticated software. There is no need for multiple layers of charges if you want help with stock picking. 

I don't have the ability nor time to read company reports and make good decisions about investments at that level but I do feel I have a decent chance at picking a good fund manager that does. I think there is a place for those who fall into that middle ground of some knowledge. Also sometimes I don't need a fund with a great performance - just one that does the job I need it to do.

Exactly.  And I do think it is possible for stock pickers to beat Mr Market particularly if you take on a bit of extra risk. Stock picking is no longer for me though. Got lucky in the past and did ok (overall) but no time, need or inclination now.   Fund managers on the whole are a lot better than in the past, they all have similar training and information on the funds is far more transparent and readily available than it used to be.   Charges are lower too, at least in some cases. 

Going forward technology will likely offer us basically passive index funds which one could personalize for free or very cheaply.  For example if I (for whatever reason) hate Unilever or, say, Tencent, or a particular industry, I would be able to exclude them.  Active?  Whatever. The cost is going to be zero and people do like choice. 

[Deleted User]

noclaf said:

I generally use passive funds to keep costs down but the smaller of my two DC pensions is invested in an active fund by choice as the performance has been significantly better than cheaper passive options and the funds regional allocation complements my other investments. So it's not always a case of passive rather than active or vice versa and cost is not the only consideration.
I also agree on the point about different degrees of Passive....my main DC pension is in a passive ESG fund...so there was an active decision to limit the fund to ESG.... but that's starting to get a bit too far into the weeds now.

I kinda do the same. Mostly trackers but some bent towards “small value”. And in a home market I use an active fund for small/medium companies but its still reasonably priced as its subsidized through a company pension. Its more risky and volatile but a little extra risk has worked well.

The way I manage fixed income is much more active; have taken some bets on rising inflation. 

RoadToRiches

dunstonh said:

In summary, picking either of these funds is completely reasonable, costs make sense and talking about one or another of these being “weak” = bad investment advice. 

Yet you would be one of the first to call financial advice bad for picking a fund that has returned consistent bottom half performance. Except when its a Vanguard fund as we those that pray at the church of Vanguard cannot see past their bias.

So what Church do you subscribe to then?

Thrugelmir

Deleted_User said:

Cus said:

But if that's going to have a chance of working, you need to know what you are doing better than most, or choose someone who does.

Choosing active investments is a job active fund managers do; usually with the help of sophisticated software. There is no need for multiple layers of charges if you want help with stock picking. 

You are obviously out of your depth in terms of knowledge.  

bostonerimus

Audaxer said:

Cus said:

If your ambition is to only achieve market returns then passive is the way forward.  If you want to have a chance at more, then active is required.
But if that's going to have a chance of working, you need to know what you are doing better than most, or choose someone who does.

That is true, and nothing wrong with being happy to achieve market returns by choosing passive funds or a multi asset fund containing passives. For those investors not full confident in building a portfolio with active funds, there is less chance of messing it up by choosing a low cost globally diversified multi asset fund.

My philosophy exactly and I think almost all investors should not be confident and maybe the ones that feel confident should check their hubris levels. Between 1989 and 2014 my simple 60/40, almost entirely index, portfolio returned an average of 9% per year. This was a bit more than Vanguard predicted and more than my target retirement requirement. Since I retired in 2014 I have done almost nothing except reinvest natural yield and put spare cash into US and International ex US equity indexes and my average annual return is 10% and I'm now at 80/20. So I just implement a long term strategy and don't worry about tactics.

grumiofoundation

Deleted_User said:

can only assume that this response is down to Vanguards poor performance in their peer groups. 

See above. VLS 100 has a blended benchmark because it does not track a single index. Blended benchmarks are standard for these types of funds.

When you compare VLS100 to a “world index”, there will be periods of slight under- and over- performance, exactly as expected. Because it isn’t one. 

Vanguard also has products which are designed to track various world indices. They do that job very well. 

So, saying “Vanguard does a poor job” is nonsensical in this context. 

Are blended benchmarks common? 

Vanguard don't seem to think VLS 100 has a benchmark, blended or otherwise. 

The Fund is not managed to a benchmark and there is not a benchmark against which the performance of the Fund can appropriately be assessed. However, investors may compare the performance of the Fund against other funds within the Morningstar® Global Large Cap Blend Equity category or the Investment Association™ Global category. The ACD considers that these sectors best reflect the investment strategy of the Fund as a means to assess the performance of the Fund. 

From lifestrategy prospectus page 73
https://www.vanguardinvestor.co.uk/rs/gre/gls/1.3.0/documents/2077/gb

From factsheet/prospectus of commonly mentioned multi asset funds*: (*edit - gave up after these 4).
HSBC global strategy: "The Fund is not managed with reference to a benchmark".

Fidelity Multi Asset: "The fund is actively managed without reference to a benchmark."
Legal and General Multi-Index "This Fund does not have a benchmark in view of its risk targeted approach and investment in multiple asset classes.
Blackrock MyMap "The Fund does not use a target benchmark, constraining benchmark or comparator benchmark."

Thrugelmir

grumiofoundation said:

Deleted_User said:

can only assume that this response is down to Vanguards poor performance in their peer groups. 

See above. VLS 100 has a blended benchmark because it does not track a single index. Blended benchmarks are standard for these types of funds.

When you compare VLS100 to a “world index”, there will be periods of slight under- and over- performance, exactly as expected. Because it isn’t one. 

Vanguard also has products which are designed to track various world indices. They do that job very well. 

So, saying “Vanguard does a poor job” is nonsensical in this context. 

Are blended benchmarks common? 

Vanguard don't seem to think VLS 100 has a benchmark, blended or otherwise. 

The Fund is not managed to a benchmark and there is not a benchmark against which the performance of the Fund can appropriately be assessed. However, investors may compare the performance of the Fund against other funds within the Morningstar® Global Large Cap Blend Equity category or the Investment Association™ Global category. The ACD considers that these sectors best reflect the investment strategy of the Fund as a means to assess the performance of the Fund. 

From lifestrategy prospectus page 73
https://www.vanguardinvestor.co.uk/rs/gre/gls/1.3.0/documents/2077/gb

From factsheet/prospectus of commonly mentioned multi asset funds*: (*edit - gave up after these 4).
HSBC global strategy: "The Fund is not managed with reference to a benchmark".

Fidelity Multi Asset: "The fund is actively managed without reference to a benchmark."
Legal and General Multi-Index "This Fund does not have a benchmark in view of its risk targeted approach and investment in multiple asset classes.
Blackrock MyMap "The Fund does not use a target benchmark, constraining benchmark or comparator benchmark."

Which is why investors need to understand their investments. VLS 100 has underperformed VWRP by some 3% over the past 2 years. Active management doesn't seem to have been of benefit in this instance. 

jamesd

grumiofoundation said:

Are blended benchmarks common? 

Yes. You'll find them in just about every mixed asset fund because at a minimum those are likely to combine equities and bonds and neither alone will be adequate to illustrate potential performance.

jamesd

bostonerimus said:

Yes you have to take out fees...so a passive fund will obviously be slightly below the index it tracks...for me that's 0.04% for my US tracker. This is all important, but also I think we are stating the obvious and being a little pedantic.

I don't think it's pedantic to ask for accuracy here, for getting it wrong systematically can mislead people into thinking that they really are going to get market returns from a passive fund.

In the case of your fund, writing "getting a hair under market returns" would be accurate. One or two might be be a hair over. But more generally, in the UK market there have been and probably still are passives with 1.5% or 1% in charges, and closet trackers as well, normally in products with a captive market of some sort.

You and I know the difference but beginners don't, so why not be accurate to try to give them the right impression and education?