Active vs Passive Funds

AsifM068

Thank you 

AsifM068

Off to compare fund land I go!

Prism

Some active equity funds are designed to be more defensive due the nature of the companies they hold e.g Fundsmith.

Some active funds are designed to be more defensive due to the asset allocation they hold e.g Trojan O

Some active fund managers will attempt to take advantage of assets moving in different directions during a crash to sell some and buy others e.g both of those above.

billy2shots

Trustnet is a great ace to start. 


https://www2.trustnet.com/Tools/Charting.aspx

AsifM068

Great stuff👍thank you team

jamesd

AsifM068 said:

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.

It's worse than that. When its a multiasset fund it will normally rebalance frequently during market drops and do what is called catching a falling knife: buying into a falling market. That will increase your losses compared to a mixture of individual funds in say equities and bonds that don't do any automatic rebalancing between them. Unless that rebalancing is around the market low and results in rebalancing into a low that then shows profits. Which is the sort of argument used to defend the practice.

This effect isn't seen with pure equity or pure bond funds but is seen with finds like the active LifeStrategy range.

What active managers do about this depends on the funds objectives and management rules. Some managers have the flexibility not to rebalance into a falling market and use that flexibility, others don't. Many will have higher than usual cash or bond allocations at the moment.

Your plan is viable, but I don't think it's sensible to put all your assets in a place that only allows passives or its own mediocre active funds to be used.

AsifM068

Thank you jamesd, I have a lot to learn!

AsifM068

That's interesting re the rebalancing of the Lifestrategy funds; bet that's not in the small print.

jamesd

It'll be in the description somewhere, but not explained in the way I did it.

A few weeks back dunstonh mentioned that it's part of why he dislikes mixed asset in drawdown, as do I. Not unduly strict about it in my case because it makes life simpler for people who need that, but not as good as splitting so you control the rebalancing.

The Lifestrategy range is entirely legitimate and I've suggested them for people with small pots or who need simplicity most many times, just knowing their limitations.

AsifM068

The eventual plan, after transfer of funds to Vanguard is to have 40% Global All Cap and 30/30% FTSE 250 and Europe Ex UK ETFs. It's a strategy that I am comfortable with👍