Active vs Passive Funds

Bobziz

Which companies dominate the FTSE and how do they make their money ? How was this impacted by COVID and how does it compare with the S&P for example ? Therein lies your answer.

MK62

AsifM068 said:

Why did the UK fare so poorly relative to the global market at the time?

You can't necessarily infer that from your chart.......what the chart shows you is that, collectively, over that short period, the 50odd UK companies which RL UK Growth Trust invest in, fared worse, in GBP terms, than the 7000odd companies from all over the world that Vanguard FTSE Global All Cap invests in.

That said, it's a highly selective comparison (ie nowhere near long enough)........you could equally say why has Vanguard FTSE Global All Cap done so poorly over the the last 12 months vs RL UK Growth Trust?

AsifM068

MK62 said:

AsifM068 said:

Why did the UK fare so poorly relative to the global market at the time?

You can't necessarily infer that from your chart.......what the chart shows you is that, collectively, over that short period, the 50odd UK companies which RL UK Growth Trust invest in, fared worse, in GBP terms, than the 7000odd companies from all over the world that Vanguard FTSE Global All Cap invests in.

That said, it's a highly selective comparison (ie nowhere near long enough)........you could equally say why has Vanguard FTSE Global All Cap done so poorly over the the last 12 months vs RL UK Growth Trust?

Forgive my ignorance but why did the global index fare so poorly compared to the RL UK Growth Trust in the past 12 months; is it because of sector allocation?

tebbins

Look, no-one knows, or can explain why the market behaves the way it does over such short periods. The UK has more cyclicals which are more dependent on economic conditions than non-cyclicals (people aren't going to stop smoking or drinking or watching Netflix because of a recession). That may explain some of why the UK market dipped more during the crash last March and may explain some of why it has recovered more since. However, again, stock markets are not an external force that investors watch, the market moves because of how the people in it behave - their decisions to buy and sell because of what they think are what make it move. It is not an absolute, scientific, mechanical phenomenon you can fully explain like the movement of a pendulum anymore than you can explain why one football team has less season ticket holders this year compared with last year or why no-one sat in seat 27A in the last match. A lot of what happens in the investing world is random noise.

MX5huggy

AsifM068 said:

MK62 said:

AsifM068 said:

Why did the UK fare so poorly relative to the global market at the time?

You can't necessarily infer that from your chart.......what the chart shows you is that, collectively, over that short period, the 50odd UK companies which RL UK Growth Trust invest in, fared worse, in GBP terms, than the 7000odd companies from all over the world that Vanguard FTSE Global All Cap invests in.

That said, it's a highly selective comparison (ie nowhere near long enough)........you could equally say why has Vanguard FTSE Global All Cap done so poorly over the the last 12 months vs RL UK Growth Trust?

Forgive my ignorance but why did the global index fare so poorly compared to the RL UK Growth Trust in the past 12 months; is it because of sector allocation?

The performance of any fund is just a function of the performance of the assets it holds. 

MK62

Could be numerous reasons......might just be a case of those companies whose share price get hit hardest in a downturn, often bounce back the strongest when the upturn arrives. Then there's exchange rate........being predominantly overseas, the global index fund might be hit a little harder if the pound moves up against other currencies (and the opposite is also true, when GBP weakens, as it did quite sharply after the Brexit referendum). Then there's whatever the RL fund manager was up to during that time....buying/selling/rebalancing etc.......and numerous other factors.......

One thing you'll find with equity investing though, is that 12 months is really too short a period to base any meaningful assessment on.....and comparing apples to oranges, as in this case, is a fruitless exercise.

Linton

MK62 said:

jamesd said:

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.

Without really disagreeing with the broader point re: Vanguard, ironically, Trustnet have just highlighted that of all Vanguard's global equity funds, Vanguard Global Equity has been their best performer in that sector ......their actively managed offering.......

Fair enough, it was only launched a little over 5 years ago, so the history is a bit limited, but nevertheless......£100k invested in that 5years ago, would be worth £198k today, while the same invested their top global index fund, Vanguard FTSE Developed World ex-UK Equity Index, lags a little bit with £191.5k......VLS100 lags further, with £169k......

Of course, and as usual, the caveat is that this is no real guide to future returns though.......

Just a sideline to the main thread.

See https://www.trustnet.com/news/13275230/what-vanguard-saw-in-the-underperforming-baillie-gifford-of-2003.  Vangiard Global Equity is actually partly managed by Baillie Gifford.

Interestingly the Vanguard spokesman says wrt their relationship with Baillie Gifford:
“We think that it has got a great chance of beating the market because the process and the philosophy that is married to it – driven by the firm’s culture and the people that employ the philosophy – give it a great chance of doing what is very, very difficult to do: generating alpha against the market.”

Linton

AsifM068 said:

Why did the UK fare so poorly relative to the global market at the time?

The UK did not.  The problem is with the companies that make up the FTSE100.  It is unable to hold onto major growth companies.  Any like ARM which are or have a potential to be world leaders get taken over by foreign companies well before they form a significant part of the FTSE100.

Thrugelmir

Linton said:

AsifM068 said:

Why did the UK fare so poorly relative to the global market at the time?

The UK did not.  The problem is with the companies that make up the FTSE100.  It is unable to hold onto major growth companies.  Any like ARM which are or have a potential to be world leaders get taken over by foreign companies well before they form a significant part of the FTSE100.

Utilities, ports, airports, insurance companies you name it. The companies have been bought up by overseas investors. Investors are far too often short termist in their outlook. My best performing share I've held for a decade. Has made me a sizable six figure sum profit. 

[Deleted User]

Linton said:

MK62 said:

jamesd said:

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.

Without really disagreeing with the broader point re: Vanguard, ironically, Trustnet have just highlighted that of all Vanguard's global equity funds, Vanguard Global Equity has been their best performer in that sector ......their actively managed offering.......

Fair enough, it was only launched a little over 5 years ago, so the history is a bit limited, but nevertheless......£100k invested in that 5years ago, would be worth £198k today, while the same invested their top global index fund, Vanguard FTSE Developed World ex-UK Equity Index, lags a little bit with £191.5k......VLS100 lags further, with £169k......

Of course, and as usual, the caveat is that this is no real guide to future returns though.......

Just a sideline to the main thread.

See https://www.trustnet.com/news/13275230/what-vanguard-saw-in-the-underperforming-baillie-gifford-of-2003.  Vangiard Global Equity is actually partly managed by Baillie Gifford.

Interestingly the Vanguard spokesman says wrt their relationship with Baillie Gifford:
“We think that it has got a great chance of beating the market because the process and the philosophy that is married to it – driven by the firm’s culture and the people that employ the philosophy – give it a great chance of doing what is very, very difficult to do: generating alpha against the market.”

Also worth saying that although the fees are higher for this fund than the classic passive Vanguard funds, they're still lower than most active funds. Calling funds like this "mediocre" makes little sense at the best of times. You judge a fund on its performance not how fancy or exciting it looks.

It would be fair to say the choice of active funds at Vanguard is mediocre (i.e. they don't have many compared to other platforms) but that's a different thing entirely.