Vanguard Target retirement funds for SIPP

jamesd

JohnWinder said:

... no one has reported finding this research, ...

https://forums.moneysavingexpert.com/discussion/6296028/passive-investing/p3

That discussion you linked to contains a person in 2017 reporting finding that research:

jamesd said:
...

For UK investors in UK funds FCA research showed that active commonly beat passive and that outperformance was often persistent so the basis of your claim isn't accurate.

Go do the forum search for those past discussions if you want to read them. I've only made 26,000 posts here over seventeen years but perhaps that means it may take you a while. I may well do sometime but since it seldom comes up it looks like it's far more urgent for you than me.

Ivkoto

You need to watch this video if you think to start de-risking.

https://youtu.be/Eac2jZcelQw?si=ZW1tOsMuw0BsyY1Z

OldScientist

While I don't really want to prolong the active vs passive debate in this thread (disclosure: by value I am about 90% passive funds and 10% active - one equity, that I will be gradually phasing out to simplify my retirement portfolio, and one bond, the latter because there is no passive alternative).

FCA report at https://www.fca.org.uk/publication/market-studies/ms15-2-3.pdf

Para 1.11 "However, our evidence suggests that, on average, both actively managed and passively managed funds did not outperform their own benchmarks after fees"

Para 1.12 "However, our additional analysis suggests that there is no clear relationship between charges and the gross performance of retail active funds in the UK. There is some evidence of a negative relationship between net returns and charges."

And the article at https://www.morningstar.co.uk/uk/news/240426/active-funds-make-a-comeback.aspx suggests that "More than a third of active equity managers outperformed passive counterparts over the last one-year period. Active bond managers did even better, with 62.7% on average outperforming their passive alternative."

I note that the headline for equity is rather misleading since the 'comeback' was from 30.4% to 33.6% (my guess that this is well within the year-to-year fluctuation). It is also worth noting that “While the overall rise in short-term success rates by active managers is encouraging, the long-term picture remains solidly in favor of passive funds”, said Boyadzhiev. “On average, only 17.1% of active equity managers and 23.1% of active bond managers managed to beat their passive alternative in the 10-year period to the end of June 2023”.

And a short article on the SPIVA outcomes for October 2023 (https://www.trustnet.com/news/13392052/active-uk-equity-managers-hold-their-own-this-year ). Again active funds 'bounced' back from only 3% to 8% of funds outperforming in 2022 to 53% outperforming in the first half of 2023. And, "The long-term picture is different. Just over half (58%) of small-cap managers trailed the market over 10 years to 30 June 2023. Despite more underperforming than not, the small-cap space compared favourably with general active UK fund managers where 77% underperformed over 10 years; for UK large- and mid-caps specifically the figure rose to 83%."




 

OldScientist

To the OP. Some historical evidence whether target retirement funds were useful in retirement can be found at https://blog.iese.edu/jestrada/files/2015/08/Glidepath-2.pdf

The paper concludes, "After considering declining‐equity, rising‐equity, and static glidepaths, the comprehensive international evidence from 19 countries and the world market over 110 years considered here ultimately suggests that both an all‐equity portfolio and a 60‐40 stock‐bond allocation are simple and very effective strategies for retirees to implement."

In other words, a lifestyle style fund with fixed asset allocation or two funds (world equities and world bonds) was good enough historically.

jamesd

OldScientist said:

While I don't really want to prolong the active vs passive debate in this thread (disclosure: by value I am about 90% passive funds and 10% active - one equity, that I will be gradually phasing out to simplify my retirement portfolio, and one bond, the latter because there is no passive alternative).

FCA report at https://www.fca.org.uk/publication/market-studies/ms15-2-3.pdf

Para 1.11 "However, our evidence suggests that, on average, both actively managed and passively managed funds did not outperform their own benchmarks after fees"

Para 1.12 "However, our additional analysis suggests that there is no clear relationship between charges and the gross performance of retail active funds in the UK. There is some evidence of a negative relationship between net returns and charges."

My own largest holding for many years has also been largely passive, a global equity tracker with or without currency hedging.

Do you happen to also have the rest of that report? My recollection is that the sector analysis was done in an appendix to a report of that sort and it might be the one I was referring to.

I doubt that many here would wish to disagree with the 1.11 and 1.12 bits you've quoted. I agree with them.

1.11 seems obvious: charges are inevitable and reduce performance, though stock lending and such might in rare cases overcome that. I've encountered only one example of that so far, though.

1.12 is pretty clear too, at least for passives, since 1% charges vs 0.2% would be expected to reduce performance and even for actives that's a higher hurdle to overcome.

RSVMark

Thank you to all for their views on staff and reading materials. I have a lot to wade through. I did like the video too- seemed to make sense and therefore, considering those views, I have a need for some bond style funds to give short term certainty as in an ideal world, if the pot gets to a sufficient size, I will pull the trigger.

so if vanguard are ‘not as good as others’ which seems to be the consensus, where else should I look?

OldScientist

jamesd said:

OldScientist said:

While I don't really want to prolong the active vs passive debate in this thread (disclosure: by value I am about 90% passive funds and 10% active - one equity, that I will be gradually phasing out to simplify my retirement portfolio, and one bond, the latter because there is no passive alternative).

FCA report at https://www.fca.org.uk/publication/market-studies/ms15-2-3.pdf

Para 1.11 "However, our evidence suggests that, on average, both actively managed and passively managed funds did not outperform their own benchmarks after fees"

Para 1.12 "However, our additional analysis suggests that there is no clear relationship between charges and the gross performance of retail active funds in the UK. There is some evidence of a negative relationship between net returns and charges."

My own largest holding for many years has also been largely passive, a global equity tracker with or without currency hedging.

Do you happen to also have the rest of that report? My recollection is that the sector analysis was done in an appendix to a report of that sort and it might be the one I was referring to.

I doubt that many here would wish to disagree with the 1.11 and 1.12 bits you've quoted. I agree with them.

1.11 seems obvious: charges are inevitable and reduce performance, though stock lending and such might in rare cases overcome that. I've encouraged encountered only one example of that so far, though.

1.12 is pretty clear too, at least for passives, since 1% charges vs 0.2% would be expected to reduce performance and even for actives that's a higher hurdle to overcome.

https://www.fca.org.uk/publications/market-studies/asset-management-market-study

I'll confess to not having read all (any) of the annexes!

Albermarle

RSVMark said:

Thank you to all for their views on staff and reading materials. I have a lot to wade through. I did like the video too- seemed to make sense and therefore, considering those views, I have a need for some bond style funds to give short term certainty as in an ideal world, if the pot gets to a sufficient size, I will pull the trigger.

so if vanguard are ‘not as good as others’ which seems to be the consensus, where else should I look?

Due to the ( good) fact they were one of the leaders in reducing charges and that they advertise a lot, they are better known amongst the general public than some other providers.
In reality they have heir pros and cons, like all providers.
Pros are competitive simple to understand charging.
A good website
Offer easy to understand well explained investments. like Life Strategy range

Cons are that you can only invest in Vanguard funds on the Vanguard platforms. Some providers offer a much bigger range including Vanguard funds.
You see on here quite a lot of complaints about poor customer service.
The well known Life strategy range has underperformed similar multi asset funds, mainly due to them having a higher UK %.

JohnWinder

I'll admit to having read the annexes; suggestion: don't bother.

They report on further analysis done because the interim report elicited comments from some in the industry that ‘well, our funds are better than most others, so don’t lump us into the indifferent results for other active fund managers’, or words to that effect. Here are some extracts from this further analysis:
‘The results of this further work are set out below. 

Our overall view is that both active and passive funds have not historically outperformed benchmarks net of fees. This finding applies to retail and institutional investors (See appendix, annex 5). 

    They (other researchers) found that the vast majority of fund managers in their data set did not produce returns that could not be explained by luck. A small group of ‘star’ managers appeared to have enough skill to generate superior gross performance. However, these star managers extracted this excess performance through fees, leaving no excess returns to investors. (Nice work, boys).

    (other researchers) found that the average UK equity fund manager does not add value relative to the benchmark once fund management charges are taken into account. 

    The (yet more) authors also found evidence of performance persistence amongst ‘loser’ but not amongst ‘winner’ funds. 

Older research into units trusts and OEICs in the UK has found that on average a fund manager does not outperform the market benchmark, and that any outperformance is more likely to be due to luck rather than skill. 

(O)ther studies typically show that the average equity fund manager in the UK does not outperform the market once fund management charges are taken into account
As Table 3 shows, even within equity groupings the average returns against benchmarks have varied greatly over the period examined. Again, we see that none of the sub-groupings outperform the benchmark with the majority being not statistically different from zero.
based on the results from this sensitivity we conclude that on average both active and passive funds did not outperform benchmarks.
    Overall, there does not appear to be a clear linear relationship between fund charges and the gross performance generated by the fund manager. 

     †Looking at the relationship between charges and performance net of fees we find some evidence that more expensive active funds underperformed cheaper active funds. However, the strength of this relationship varies according to the investment category and performance metric being assessed.' 



Nice to have that tidied up after a two year wait.

LHW99

based on the results from this sensitivity we conclude that on average both active and passive funds did not outperform benchmarks.

I find that quite depressing really!