Is the era of passive index trackers over?

Eyeful

I have heard it many times before.

First ,they laughed at passive funds. Then they said how dangerous they were to markets.  Some introduced funds with the word passive in their name but with higher charges.

Some active fund managers may beat passive funds for a time.
Is that by skill or luck? The evidence suggests the the latter. 
How do you pick a manager who will out perform a major index, ahead of time?

It is hard for active fund managers to consistently beat a major index when you take into account the fees and the cost of high churn over of shares within some funds. 

The ordinary person IMO will still do well over the long term, with a low cost passive global multi asset fund set at a risk tolerance they are happy with, rather than a higher charging active fund.  This is irrespective of who the "Star Manager" is. 

Bravepants

ChilliBob said:

Bravepants said:

A friend of mine told me, just before he retired at normal retirement age, that he was lucky he got out of Woodford when he did. Fund managers watch the stocks, but whowatches the fund managers?

That's actually an interesting one which Ramin from Pension Craft often mentions - etfs like Ark don't have to justify themselves but the likes of SMT have a board which they need to be accountable to. It may not make too much difference but its an interesting distinction between the two structures.

In response to the question though.. I think it depends, overall I think passive in the long term. In the short term, yes there will be active funds which beat passives. Eg RL Global Eq Select is active, and I have a decent sized holding in it.. It is holding up better than a global tracker for now but who knows for how long? If its over taken I get the sense it won't crash and burn like say EWI or SMT

I agree that Investment Trusts are a different kettle of fish. I'm a fan of a couple of ITs and they would need active management to generate their "stable" dividend returns, for the income part of someone's portfolio. But for me, for long term growth, or when starting out, then index funds all the way. 

Bobziz

A counter view, at least in the short term: 

Active funds failing to protect as well as passives in 2022 sell-off (trustnet.com)

bostonerimus

The guru is Bob Farrell, once of Merrill Lynch and the caveat in the podcast about his opinion that the time of index trackers is over is "of course he would say that being an active manager". Index trackers won't give you the best return and they won't give you the worst. The next thing is how you manage you funds through bull and bear markets, do you sell everything and "sit on the bench", do you do some rebalancing, or just do nothing?

Albermarle

In some smaller sectors there are no passive funds available ( or they are very small and trying to follow some artificial index) so active funds are more suited to these areas.

bostonerimus

Albermarle said:

In some smaller sectors there are no passive funds available ( or they are very small and trying to follow some artificial index) so active funds are more suited to these areas.

If a sector is not big enough to have an index tracker then I'd avoid it. Stick to trackers or multi-asset funds made up of trackers. 

Novice_investor101

The most popular Baillie Gifford funds of the past couple of years are having a torrid time right now. I put a very small portion of my LISA into Positive Change right at it’s peak. Only £1000, luckily. I think it’s currently down 38%. 

adindas

Novice_investor101 said:

The most popular Baillie Gifford funds of the past couple of years are having a torrid time right now. I put a very small portion of my LISA into Positive Change right at it’s peak. Only £1000, luckily. I think it’s currently down 38%. 

I am not quite sure which fund are you talking about. If you are talking about SMT (Scottish Mortgage Trust), it is already downs more than 50%+ from its peak in early November 2021.
But keep in mind the holding in this trust this high risk high reward. Some of the stocks are yet to be profitable. In the bear, the stocks like these will get punished, and it is worsened if they miss the earning expectation. 
But in the bull market they will also outperform the market.

GazzaBloom

In this video Ben Felix explains the reasons why you should avoid index funds…

…in short there are no goods reason why you should!

https://youtu.be/fvGLnthJDsg

Audaxer

adindas said:

Novice_investor101 said:

The most popular Baillie Gifford funds of the past couple of years are having a torrid time right now. I put a very small portion of my LISA into Positive Change right at it’s peak. Only £1000, luckily. I think it’s currently down 38%. 

I am not quite sure which fund are you talking about. If you are talking about SMT (Scottish Mortgage Trust), it is already downs more than 50%+ from its peak in early November 2021.

That means SMT needs to gain over 100% to get back to that peak. It might take a while.