Moving funds

Nick9967

Hi all ,
I have my pension pot in a group of funds in SW , was advised by HL some years ago, pay very low fee (%0.03 and £500 per year) so close to nothing (pot is circa 200k)
The particular fund group is under a specific umbrella/name and is at their risk level 8 from 10, Its been fine for 10 years and grown well etc etc , however it's been battered like every one else in the last 12 months or so.
Going through an annual review recently one thing was mentioned that made me feel a little uncomfortable, and that was that the managers within that group of funds at HL only met once per quarter to review the allocation per fund (there are about 10/11 within my group). 

During the review I was offered an alternative of a fully managed group at the same level of risk (at least in their books , at 8) where these funds and their allocation is managed on a daily basis.

The fees are higher of course but when I look at 1 year, 3 year and 5 year comparisons to my current they have been better on the positive side and "less bad" on the negative side, enough to offset the extra cost and then some.

I know previous history is no guarantee etc but it does make sense to my non financial brain that constantly managed funds will fair better than quarterly managed funds, surely they help with the constant volatility we are living with?

Any thoughts?

I'm always happy to take comment on here , for 3 years its been my go to when attempting to learn a little prior to my partial retirement in 3 or 4 years (fingers crossed!) so you can feel free to fire away! , thanks all

   

Linton

Changing fund allocations within a portfolio daily sounds mad to me.  What is the purpose?  How will changing the portfolio allocation on a daily basis lead to better returns? On what basis will changes be made? Any extra information one gains about the market over a short period such as a day will be swamped by the meaningless noise. 

Apart from the cost, one reason not to is that it has been shown that share prices can have a significant momentum factor in that shares that go up have a tendancy to go up further and shares that fall have a tendancy to fall further.  So it does make some sense not to rebalance one's allocations too often.  However given one starts off with an appropriate allocation then it also makes sense not to let it deviate too far.

The usual compromise for private investors is to rebalance and reconsider a portfolio of funds about once a year.  

Nick9967

Linton said:

Changing fund allocations within a portfolio daily sounds mad to me.  What is the purpose?  How will changing the portfolio allocation on a daily basis lead to better returns? On what basis will changes be made? Any extra information one gains about the market over a short period such as a day will be swamped by the meaningless noise. 

Apart from the cost, one reason not to is that it has been shown that share prices can have a significant momentum factor in that shares that go up have a tendancy to go up further and shares that fall have a tendancy to fall further.  So it does make some sense not to rebalance one's allocations too often.  However given one starts off with an appropriate allocation then it also makes sense not to let it deviate too far.

The usual compromise for private investors is to rebalance and reconsider a portfolio of funds about once a year.  

I understand your point, more or less, but if true then why is there such a significant difference in the 2 results ( actually 4 but in this case only 2 interested me)  over 1, 3 and 5 at , what is considered , the same or similar type of risk level?  I get your point but if I’m planning to retire in less than 5 years all of that data can’t be totally wrong , or can it?

dunstonh

I understand your point, more or less, but if true then why is there such a significant difference in the 2 results

Are the comparisons on a like for like basis?
Are they really changing funds on a daily basis or are they just rebalancing on a daily basis?
If it's just rebalancing daily is that by using deposits and withdrawals or are they forcing the changes?

Nick9967

dunstonh said:

I understand your point, more or less, but if true then why is there such a significant difference in the 2 results

Are the comparisons on a like for like basis?
Are they really changing funds on a daily basis or are they just rebalancing on a daily basis?
If it's just rebalancing daily is that by using deposits and withdrawals or are they forcing the changes?

Truth be known I have little knowledge of the technicalities but as I understand it rebalancing is more to the point than actually changing funds completely everyday which as mentioned maybe a bit mad, 

Linton

Nick9967 said:

Linton said:

Changing fund allocations within a portfolio daily sounds mad to me.  What is the purpose?  How will changing the portfolio allocation on a daily basis lead to better returns? On what basis will changes be made? Any extra information one gains about the market over a short period such as a day will be swamped by the meaningless noise. 

Apart from the cost, one reason not to is that it has been shown that share prices can have a significant momentum factor in that shares that go up have a tendancy to go up further and shares that fall have a tendancy to fall further.  So it does make some sense not to rebalance one's allocations too often.  However given one starts off with an appropriate allocation then it also makes sense not to let it deviate too far.

The usual compromise for private investors is to rebalance and reconsider a portfolio of funds about once a year.  

I understand your point, more or less, but if true then why is there such a significant difference in the 2 results ( actually 4 but in this case only 2 interested me)  over 1, 3 and 5 at , what is considered , the same or similar type of risk level?  I get your point but if I’m planning to retire in less than 5 years all of that data can’t be totally wrong , or can it?

What drives performance is not how often the funds are tweaked but primarily the underlying investments.  It could be different risk factors, recently many lower risk portfolios may have fallen further than the higher risk ones, which is very unusual.  Another factor is the type of equities the fund invests in.  For 10 years until the past year growth equities, eg tech companies, have performed a lot better than the traditional safe and steady companies.  Recently the reverse has occurred.  Unless we could see the composition of the two portfoilios it is impossible to say.

When you retire are you intending to go for drawdown or buy an annuity?  If the former you need to remember much of your pot will be invested for the long term so not a lot should change.  If you are thinking of buying an annuity because the rates are likely to be better than they have been for many years then you should seriously look into de-risking.

Marcon

Nick9967 said:

I know previous history is no guarantee etc but it does make sense to my non financial brain that constantly managed funds will fair better than quarterly managed funds, surely they help with the constant volatility we are living with?

Any thoughts?


   

'Constant management' doesn't mean that long term investments have to be micro managed on a daily basis. Far from helping with volatility, they could make it worse by (over)reacting to every tiny tremor in the market, never mind the seismic ones.

Secret2ndAccount

As Dunstonh alludes to, these funds will have customers adding new money, and customers redeeming money every day. So they are forced to trade constantly. Whether they choose simply to rebalance, or to tweak the contents of the fund likely makes no difference to the operating cost. The question is more whether the fund manager is able to pick stocks better than a monkey with a dartboard.
The latest SPIVA report has just been published:  https://www.spglobal.com/spdji/en/spiva/article/spiva-us/
A large, global, independent research firm has, for 21 years, been putting serious effort into tracking the performance of fund managers against their target indices. Turns out that the fund managers have beaten the monkey in 3 out of the 21 years.
If you choose an active fund, and stay in for 5 years (either sticking with one fund or jumping between funds) there is an 87% chance that you do worse than the monkey.  Stick it out for 10 years, and the chance is 92%

To answer the OP's question, the reason the more heavily managed HL fund appears to win is one of:
a) random chance;
b) selective choice of time periods by the marketing dept to make the more expensive product look better.

JohnWinder

‘I know previous history is no guarantee etc but it does make sense to my non financial brain that constantly managed funds will fair better than quarterly managed funds, surely they help with the constant volatility we are living with?’

It makes sense to me, but sadly the history suggests it’s unlikely to happen. We know active management of funds does not ensure better returns, so why should more tweaking of asset allocation or choice of funds do any better? Active management can outperform the market, but it usually doesn’t, and doesn’t for long periods, and we don’t know who in advance will be the winning active managers; and they, and yours will charge more. I’d forget it. If you need reminding, listen to this recent podcast:

https://bogleheads.podbean.com/e/episode-050-craig-lazzara-on-active-verse-passive-funds-host-rick-ferri/
As to recent 1, 3, 5 year outperformance. Ever heard of luck if it wasn’t skill; and how would you know which it was? I’d forget it, it’s HL’s way of making more money (for them at your expense).