Vanguard Target retirement funds for SIPP

Notepad_Phil

LHW99 said:

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!

Well I wouldn't  purchase a passive fund expecting it to beat the benchmark that it's set up to track, so after fees I'd expect it to return less than its benchmark. Just make sure that the fund has a decent history in tracking the benchmark and has low fees so that you get as close to the benchmark as possible.

As to active funds, well that's not unexpected either. I guess it's a bit like the percentage of drivers who think they're better than average. 

RSVMark

There are a couple of further videos by him that we relevant and useful to a newb like me (So if anyone in the future is asking basics) but because I am a noob, the forum won’t let me post these up.

He notes the Lifestrategy funds are rebalanced daily. And you don’t have to invest on their platform. My sipp is with iWeb/AJ Bell and I can get them.

Off to look at bond funds next.

jamesd

OldScientist said:

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!

Thanks. I'll take a look, on a quite relaxed timescale, and maybe that'll resolve a bit of disagreement

The document I recall did a sector analysis and the most notable exception for me was that US bit, though the degree of over or under relative performance was different for each sector. Their response to the consultation was also interesting, with them writing that they hadn't expected persistence of performance but fund managers had provided data proving otherwise.

While it doesn't come up often, if I find it again I'll save a copy and keep notes. Maybe a post in the drawdown thread, which already needs some updating with the bond ladder calculator and some other interesting things you've mentioned recently.

jamesd

RSVMark said:

There are a couple of further videos by him that we relevant and useful to a newb like me (So if anyone in the future is asking basics) but because I am a noob, the forum won’t let me post these up.

He notes the Lifestrategy funds are rebalanced daily. And you don’t have to invest on their platform. My sipp is with iWeb/AJ Bell and I can get them.

Off to look at bond funds next.

Thanks for confirming my memory of how they do that. If you look at the rebalancing research you'll find that's so frequent as to be useless for delivering the potential benefits of rebalancing.

jamesd

Notepad_Phil said:

LHW99 said:

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!

Well I wouldn't  purchase a passive fund expecting it to beat the benchmark that it's set up to track, so after fees I'd expect it to return less than its benchmark. Just make sure that the fund has a decent history in tracking the benchmark and has low fees so that you get as close to the benchmark as possible.

As to active funds, well that's not unexpected either. I guess it's a bit like the percentage of drivers who think they're better than average. 

Indeed. But do note that relative performance tends to persist, provided the human manager doesn't change.

For passives that's very easy: you reject the dogs which are quite likely to be so because of high charges and that's unlikely to change.

For actives you throw out at least the persistent dogs and closet trackers and you now not so magically can expect to do better than the average, just as you achieved it for the passives.

JohnWinder

Indeed. But do note that relative performance tends to persist, provided the human manager doesn't change.'

That needs some qualifying, since we also read in the FCA annexure:

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

And we can read:

'Reading Standard & Poor’s March 2019 report Does Past Performance Matter? The Persistence Scorecard provides familiar evidence: Persistence of performance tends to be less than would be randomly expected.'  https://www.evidenceinvestor.com/persistent-outperformance-remains-very-elusive/.

As well as the maths to help distinguish skill from luck:

‘So, herein lies the paradox of skill. Many investors are searching for the Holy Grail of fund management. Their goal is to identify a skillful manager with certainty and participate in future returns. But confirming skill takes an investment lifetime, and you can never be fully confident that the alpha is not random.’ https://www.ifa.com/articles/paradox-of-skill

MK62

The Manager vs Machine reports from AJBell have some interesting info on this from a UK perspective.......here's a precis of the 2021 report.....https://www.sharesmagazine.co.uk/article/managers-vs-machines-are-active-funds-worth-the-extra-cost
The 2022 and 2023 reports are available with a Google search.

As an aside, some of the historic performance figures will contain data from active funds which had far higher charges in years gone by than they do today (ironically the reduction has, to a large degree, been forced by cheaper alternatives becoming available, notably passive index trackers), so that should be borne in mind when making comparisons stretching back many years. Another interesting fact was the large performance differences sometimes apparent between different,  but ostensibly similar, passive index trackers ......I guess the familiar lesson there is to be sure about exactly what it is you are buying.

Mick70

Pat38493 said:

I was watching a youtube from one of those channels who is also an IFA - it was one of those "top 5 things you can do to help your retirement plan" or whatever.

One of them was "switch off lifestyling on your pension and take control of it yourself".

Vanguard TRFs are basically lifestyling funds...

i had a TRF for my wife and have been slowly moving it out and into a 60:40 fund as the TRF fund is currently allocated at 62:38 but i am aware it will keep de-risking , i have been moving it out gradually rather than risk doing it all at once (just incase was a sudden market movement). Will seek advice when time comes, but she will probably now retire in 2 years time but we are likely to leave it in the 60:40 fund.
I was under impression the TRF funds can de-risk too much eventually 

Mick70

My Royal London DC pension is also a lifestyle type fund , with a target retirement age, and unsure if I should seek to move this to one of their other funds instead

JohnWinder

As an aside, some of the historic performance figures will contain data from active funds which had far higher charges in years gone by than they do today

Thanks. I read those reports.

I suppose Bell don’t want to alienate half their potential customers by simply saying index funds continue to do better than active funds, but that’s the only data those reports provide along with excuses for why active has struggled:

1. High fees in the past detracted from returns, but now they’re lower so relax.
2. ‘the fortunes of active managers are not simply dictated by skill… Market conditions play their part too.’ So we can blame it on market conditions, as though having skill doesn’t extend to be able to deal with market conditions. Seriously? Why bother if you can't handle the market?
   
3. ‘Passive allocates money to markets simply based on company size…This helps support the share prices of the big at the expense of the little’. Not for all-cap funds which apportion passive inflows to all sized shares (other than those too small to trade in sensible volumes). But certainly, money going into a SP500 fund isn’t going to push up the price of small companies. So why aren’t the small cap active managers exploiting this to their benefit? Why aren’t the large-cap active managers, well aware of this, shorting the over-priced big companies? This flow to passive investing has been ramping up for very many years, so how can it be catching the active managers off guard? The excuses don’t wash with me.

What does he suggest?:

1. Have some active funds, based on no supportive data,
2. you should ‘sort the wheat from the chaff’. ‘A long and successful track record suggests outperformance has been achieved by skill and not just luck, but it’s still no guarantee for the future’. Yes, but how long and how successful? He ignores a possible estimate of those. If a good record had been achieved by skill would it not persist, or can those skills and foresight decay with time rather than improve with experience?
3. use active funds in areas where you see the best chance of greatest rewards (no advice on how);
4. be pragmatic in fund selection (meaning what?);
5. use several active funds to reduce their risk (the more you own the closer you move to market returns - available cheaper with a tracker).

The difficulty in distinguishing luck from skill with successful fund management is that it can take a long period of average outperformance. If the active manager outperformed the index by an amazing average of 5%/year and each year the outperformance hardly varied from 4.7% to 5.5%/year, you’d have every confidence in saying that after only a few years this wasn’t luck. But when the outperformance is 0.5%/year (still worth having), but the outperformance varies from 17% underperformance to 24% outperformance, then you’d need a a lot of years results to convince you it wasn’t a chance 0.5%/year average.