Active vs Passive Funds

AsifM068

Hello forum,

I recently mentioned that I intended to transfer about 160K (the bulk of my life savings accumulated over 30 or so years with Royal London (RL) , previously CIS / Co-Op ) from my actively (OCF 1.2%) managed RL ISA comprised of three unit trusts; (world, UK and European) into my Vanguard passively (OCF 0.28%) managed index funds where I have around 11K invested in the FTSE Global All Cap.

In the event of a significant market correction Vanguard confirmed what I thought and that is an index fund will just track the dip of the underlying index  however severe without any defensive measures taken by Vanguard in terms of stock allocation / re-weighting of the fund's stocks, by region, market cap, sector etc.

With respect to a broad time horizon of 10 years, is such a transfer viable.

Many thanks

El_Torro

I don't see a big problem with transferring all your money to a global tracker. If you are going to need all that money in 10 years time it is probably a good idea to move to a less volatile fund over time. Say for example VLS80 now and VLS60 in a few years time. 

There's no guarantee that a managed fund will perform better than a tracker in a stock market crash. Some will perform better, some won't.

Thrugelmir

AsifM068 said:

With respect to a broad time horizon of 10 years, is such a transfer viable.

Only time will tell. Banking on the performance of just one asset class and one index. Will guarantee a volatile roller coaster ride though. 

tebbins

AsifM068 said:

Hello forum,

I recently mentioned that I intended to transfer about 160K (the bulk of my life savings accumulated over 30 or so years with Royal London (RL) , previously CIS / Co-Op ) from my actively (OCF 1.2%) managed RL ISA comprised of three unit trusts; (world, UK and European) into my Vanguard passively (OCF 0.28%) managed index funds where I have around 11K invested in the FTSE Global All Cap.

In the event of a significant market correction Vanguard confirmed what I thought and that is an index fund will just track the dip of the underlying index  however severe without any defensive measures taken by Vanguard in terms of stock allocation / re-weighting of the fund's stocks, by region, market cap, sector etc.

That is what that fund is for, by definition. It does not advertise, state, purport or try to be anything else. The average fund manager is not very good at knowing when a correction is happening until it has happened, knowing what kind of correction it is or what to do while it is happening, or knowing when to return to a "normal" allocation after it has happened. Corrections don't declare themselves like wars do, there is no weather forecast for the stock market. Corrections are events that occur through the aggregate behaviour of millions of individuals participating in the market.
Vanguard FTSE GAC is arguably the most "diverse" fund on the market if you go with a definition of diversity as holding the most stocks, diversification is a form of defensive asset allocation. However some might say that buying a fund less-US-dominated would make your portfolio more diversified.

This fund owns a peice of almost the entire global stock market, which has returned just over 5% in real terms (i.e. after taking inflation away) since 1900.

With respect to a broad time horizon of 10 years, is such a transfer viable.

Yes.. you just request the transfer, there is no reason why it would not be viable.

Many thanks

The questions you need to ask are "what am i currently holding? Do i want to hold this or change my allocation?" Look at what your current funds actually hold vs V FTSE GAC, your current portfolios equity/bonds, geographic and sector allocation, have your fund managers managed to generate any outperformance vs comparable indices, what is their strategy, how do they differ from V FTSE GAC, would you rather not take your chances on their fund management abilities anymore or stick with them?

AsifM068

In the event of a significant correction, what measures, if any, are taken by managers of active funds or are we saying there is not enough time for those managers to react through the volatility of markets?

El_Torro

AsifM068 said:

In the event of a significant correction, what measures, if any, are taken by managers of active funds or are we saying there is not enough time for those managers to react through the volatility of markets?

Depends on the fund. Some funds claim to be relatively crash proof, or at least more resistant than trackers. Whether they actually do what they say on the tin remains to be seen though.

Generally speaking most fund managers won't react well to crashes, simply because they won't know we're in a crash until it's too late. If investors could react well to crashes there probably wouldn't be a crash in the first place.

tebbins

AsifM068 said:

In the event of a significant correction, what measures, if any, are taken by managers of active funds or are we saying there is not enough time for those managers to react through the volatility of markets?

I think you're still thinking that fund managers are special, they aren't really. They have access to more information, more and more talented analysts than you. But they do not have a magic ability to be bearish when a crash is coming or bullish at the bottom.
The market (whether the FTSE all share, S&P 500, or the whole world) IS the aggregate of the behaviour of millions of individuals buying and selling, fund managers make up a significant portion of the market and struggle to outperform the average over the long term.
There are 'defensive' funds, or at least funds marketed as or considered defensive, such as total return funds, wealth preservation trusts, but there is nothing inherently different about them, they are still just funds run by people to generate a return for their investors, they are not crash-proof "just because" and sometimes they do better than average through a fall and sometimes they don't.

AsifM068

Thank you all for your insights.

billy2shots

Have you got access to your current funds performance during the covid crash. I would love to see how it performed against the All Cap fund you're thinking if switching to. 

That could show you how your 0.9% in extra fees has helped (or not).

AsifM068

Is there a free fund comparison tool available?

MX5huggy

AsifM068 said:

Is there a free fund comparison tool available?

Lots, HL.co.uk Trustnet, Morningstar.