Full Details of Fund holding and charges

Mutton_Geoff

The old adage "past performance .." is more relevant than ever if you have any number of Baillie Gifford funds in your portfolio. Even 10 years can provide skewed information in tracker funds (remember BRICS?).

Pat38493

Well @JohnWinder thinking about it I don't think that what the book says is inconsistent with what you are saying - the comments about needing to look at long term in the 20 years plus zone, were in the context of his data driven approach where he tries to show that
- Very few active fund managers beat the market (net of charges) consistently over periods 20 years + (although a few do).
- As an individual customer / investor - your chances of identifying one of these small % of fund managers that consistently beat the market in advance is slim 

His argument therefore seems to be that using active fund managers is higher risk and even cannot really be justified rationally.

I take your point that if it's an index fund, theoretically it should perform with the market - however I've seen posts on other threads implying that some index funds are better than others (maybe only over short term?).

I'm also still a bit puzzled about active or managed funds - this seems to cover a lot of different scenarios which are very far apart - for example to me it seems that a fund that has a cast iron rule - every 6 months, if {insert fancy calculation here} falls above/below xyz values, then increase / decrease equity % by x amount, is very different from a fund where people are having a meeting every day and saying buy/sell Apple/Tesla/Unilever or whatever.  However it seems that both are somehow active if I understood, but maybe I'm wrong there.

dunstonh

There are 4000 funds in UK

Last time I looked, it was about 55,000.

Linton

Pat38493 said:

Well @JohnWinder thinking about it I don't think that what the book says is inconsistent with what you are saying - the comments about needing to look at long term in the 20 years plus zone, were in the context of his data driven approach where he tries to show that
- Very few active fund managers beat the market (net of charges) consistently over periods 20 years + (although a few do).
- As an individual customer / investor - your chances of identifying one of these small % of fund managers that consistently beat the market in advance is slim 

His argument therefore seems to be that using active fund managers is higher risk and even cannot really be justified rationally.

I take your point that if it's an index fund, theoretically it should perform with the market - however I've seen posts on other threads implying that some index funds are better than others (maybe only over short term?).

I'm also still a bit puzzled about active or managed funds - this seems to cover a lot of different scenarios which are very far apart - for example to me it seems that a fund that has a cast iron rule - every 6 months, if {insert fancy calculation here} falls above/below xyz values, then increase / decrease equity % by x amount, is very different from a fund where people are having a meeting every day and saying buy/sell Apple/Tesla/Unilever or whatever.  However it seems that both are somehow active if I understood, but maybe I'm wrong there.

Neither of the strategies outlined in bold seem sensible for most funds.  The only funds I believe that should be adjusting bond/equity allocations are those that have a remit of reducing risk.  The main ones meeting that criterion are the Wealth Preservation funds and the risk managed mult-asset funds, neither of which have any aim to beat the market.  But they would not have a cast iron rule - all cast iron rules meet situations where they are wrong.

Trading on a day to day basis is believed by most people on this forum (including me) not to be worth the effort and frequently counter-productive, which rules out the second strategy.

The most useful active funds are the niche ones that arent trying to beat "The Market" but rather focus on one relatively small area. If you want a simple global fund use a global index tracker.  When looking for a fund to cover a hole in my portfolio it is by definition a niche fund and I find in practice there are very few serious contenders. Whether a fund is active or passive is irrelevent but for many niches there is no appropriate index fund.

The second point is that maximum return over 20+ years is not necessarily one's over-riding main objective. In fact I believe it is a rather poor one in that it can never be fully met and gives you little idea in advance what the result will be.  Better to have a lower specific objective and minimise risk in order to make success more likely.  With a specific objective beating the market is irrelevent and possibly undesirable as it implies higher risk..  What is important is the structure of your portfolio as a whole.

JohnWinder

I take your point that if it's an index fund, theoretically it should perform with the market - however I've seen posts on other threads implying that some index funds are better than others (maybe only over short term?).

Quite right, there are good and less good trackers, and Hale will address some features to compare one with another, tracking error being one. 

‘In the 12 months to April 2020, 85.3% of AUM UK-domiciled passive funds  tracked their benchmarks to within 50 basis points, up from 73.9% in the 12 months to April 2015, a significant improvement in tracking performance. This was helped by a fall in the number of poor quality tracker funds (100 basis points or more deviation from benchmarks) from 5.7% of AUM in 2017, to 0.8% in 2020 (data sourced from Morningstar).’  https://www.fca.org.uk/data/investment-management-data-annual-report-2019-20

JohnWinder

‘The most useful active funds are the niche ones that arent trying to beat "The Market" but rather focus on one relatively small area.’

But how useful are they useful, especially held in small proportions? 

There seems room for interpretation here, because I think some might interpret ‘The Market’ as the total equity market we can invest in, eg all global stocks, while others interpret it as the market from which those niche funds are drawn, eg UK green energy stocks.  My guess is it’s the former.

Those niche fund managers, operating within the confines of their objectives, prospectus,  regulations etc, are either: trying to get the highest returns they can; or they’re trying to get a particular return, eg 5%/year and then take steps to stop that increasing; or they’re indifferent to what returns they get. Are there other related options? Does it make sense to say a manager isn’t  trying to beat whatever market you have in mind?   As a stated or unstated objective, they must be trying to get the highest return within the constraints of their fund, surely, and thus beat any market they can? 

Is it not more the case that investing in that niche fund is one’s choice because it satisfies one’s preferred ‘balance’ of which sectors or regions to invest in, rather than because one doesn’t want the highest returns for that risk level? A balance which a single global fund doesn’t provide.

Which perhaps is just another version of a recent discussion on what optimal diversification means. For some it’s simply a single global tracker (or near enough), for others it’s to have not quite that much of US stocks or quite that much of tech stocks etc, or perhaps to follow a hunch that UK green energy is where the best prospects are, hence the niche funds. https://forums.moneysavingexpert.com/discussion/comment/79798691#Comment_79798691 

JohnWinder

‘The second point is that maximum return over 20+ years is not necessarily one's over-riding main objective. In fact I believe it is a rather poor one in that it can never be fully met and gives you little idea in advance what the result will be.  Better to have a lower specific objective and minimise risk in order to make success more likely.  With a specific objective beating the market is irrelevent and possibly undesirable as it implies higher risk..  What is important is the structure of your portfolio as a whole.’

Very few chase maximum returns over 20+ years, otherwise they’d be borrowing to invest so as to enhance whatever returns they could otherwise achieve without borrowing. So let’s put that aside since it seems irrelevant for anyone here. 

For everyone, whether they explicitly acknowledge or recognise it or not, it’s all about getting the best returns for the risk they take. Who would accept lower returns, compared with higher, if the risk was the same for both?

Surely it’s trite to say ‘maximum return’ can never be obtained, as maximum is an infinite return.

Yes, we’re more likely to meet a lower specific return objective by taking less risk, and that’s one measure of success - meeting an objective. But I can increase that success to 100% by having a savings account. Unfortunately, the returns is not enough for me, so by that measure it’s not a success.

Getting particular returns vs the structure of a portfolio? The asset allocation is a major determinant of the returns you’ll get; they are very tightly linked.

Linton

JohnWinder said:

‘The second point is that maximum return over 20+ years is not necessarily one's over-riding main objective. In fact I believe it is a rather poor one in that it can never be fully met and gives you little idea in advance what the result will be.  Better to have a lower specific objective and minimise risk in order to make success more likely.  With a specific objective beating the market is irrelevent and possibly undesirable as it implies higher risk..  What is important is the structure of your portfolio as a whole.’

Very few chase maximum returns over 20+ years, otherwise they’d be borrowing to invest so as to enhance whatever returns they could otherwise achieve without borrowing. So let’s put that aside since it seems irrelevant for anyone here. 

For everyone, whether they explicitly acknowledge or recognise it or not, it’s all about getting the best returns for the risk they take. Who would accept lower returns, compared with higher, if the risk was the same for both?

Surely it’s trite to say ‘maximum return’ can never be obtained, as maximum is an infinite return.

Yes, we’re more likely to meet a lower specific return objective by taking less risk, and that’s one measure of success - meeting an objective. But I can increase that success to 100% by having a savings account. Unfortunately, the returns is not enough for me, so by that measure it’s not a success.

Getting particular returns vs the structure of a portfolio? The asset allocation is a major determinant of the returns you’ll get; they are very tightly linked.

I have tried to make my postings clear but perhaps I have not succeeded..

If investment is to be anything more than a hobby you need to be investing for some reason that is important for your wider life. Rather than just buy a global tracker and see what happens a better approach in my view is to estimate how much money you will need at what point in the future to pay for this.  That becomes your investment objective.

The next step is to devise a strategy that has a good chance of meeting that objective at a an appropriately low risk. The higher the return you need the lower the chance of succeeding, ie actually having the money available when you need it.  So for maximum benefit you may need to iterate, re-assessing your reasons for investing against the slack available for risk reduction.

So yes, if your sole aim is a comfortable retirement and putting your money into savings accounts would ensure this then why bother with investments? Why take extra risks that could jeopardise your comfortable retirement? You could decide to take up investing as a hobby, but that is a different ball game.

A key benefit of this approach is that you can monitor your progress as circumstances change.  This enables you to modify your life aims, investment objectives or investment strategy as necessary in a rational way. You don’t need to panic as you have a plan. Making financial decisions on such matters as balancing expenditure now against saving for the future becomes much easier since you can see the implications.

JohnWinder

Yes, it can be hard to write clearly, succinctly, and so say all of us.

‘Rather than just buy a global tracker and see what happens a better approach in my view is to estimate how much money you will need at what point in the future to pay for this.’

I know that’s not a suggestion that folk buying global trackers are buying global trackers and just seeing what happens, rather than estimating future spending needs, monitoring progress towards that, saving more if necessary or planning to work longer if needed or planning an economy class future instead of the business class one. So we can leave that alone I think.

Pat38493

JohnWinder said:

Yes, it can be hard to write clearly, succinctly, and so say all of us.

‘Rather than just buy a global tracker and see what happens a better approach in my view is to estimate how much money you will need at what point in the future to pay for this.’

I know that’s not a suggestion that folk buying global trackers are buying global trackers and just seeing what happens, rather than estimating future spending needs, monitoring progress towards that, saving more if necessary or planning to work longer if needed or planning an economy class future instead of the business class one. So we can leave that alone I think.

This seems to be partly the gist of what I read so far in the Tim Hale book - what I am now wondering is, why wouldn't I just put all my money in a single global highly diversified tracker with the mix of equities and bonds that matches my investment strategy?  He seems to be suggesting that this has just as good a chance, if not better, to deliver my objectives than spending weeks and months trying to identify a bunch of different funds to invest in.

Of course it almost goes without saying that I should invest enough into the fund to meet my long term (in this case retirement) objectives, and check this against some reasonable best and worst case assumptiuons.