What proportion of equity funds managed by your IFA are active/passive?

Hoenir

JohnWinder said:

I wonder if 'big fund movements damaging strategy' applies to index tracking funds. Not immediately obvious that it would.

Tesla's entry into the S&P 500 made some people a huge sum of money while pickpocketing thousands of others of a relatively small amount.  Which seamlessly went unnoticed. 

Cus

dunstonh said:

I guess fund managers may not appreciate advisor companies dealing in quantities of say
£100M worth of units at a moment in time. 

That is the reason. Some fund houses cap the amount they can invest in a fund, hence the need for additional funds.  Large movements in or out can damage the investment strategy of a fund.    

It does, by popular thinking, seem silly to have several funds with as little as 3% or 5% of your portfolio since any amazingly good, consistent out-performance of 1-2%/year will only improve your returns by a thirtieth of 1.5%/year which is why DIYers might not bother with all the complexity.

DIY portfolios are too small to have limits imposed on them.

I can see why an adviser might need that many, and the 24 you had a year ago. If one or two of your funds do poorly it will hardly impact your returns, protecting that someone's reputation; 'that's why we choose many funds for you'. 

Its not why they choose that many.

I would be surprised if many IFA's don't often think that if they invested all of a particular clients money into only a basic passive fund of funds, that it might be more likely that the client will question why they are being charged 0.5% for that.
It goes back to the issue with the charging model. The IFA provides loads of advice on tax, savings, planning, investments, retirement methods etc, yet all fees are linked only to the investment part.

JohnWinder

Frequent big movement would affect any fund by driving up transaction fees. A passive manager would be just as much required to sell down a chunk of portfolio if a big redemption occurred or buy more assets if a big investment occurred.

Yes, I see that, no escaping transaction costs. I had in mind exchange traded funds when funds were mentioned. Investors selling/buying on mass can only buy/sell to other investors or market makers, so little impact on the fund I would imagine.

Linton

JohnWinder said:

Frequent big movement would affect any fund by driving up transaction fees. A passive manager would be just as much required to sell down a chunk of portfolio if a big redemption occurred or buy more assets if a big investment occurred.

Yes, I see that, no escaping transaction costs. I had in mind exchange traded funds when funds were mentioned. Investors selling/buying on mass can only buy/sell to other investors or market makers, so little impact on the fund I would imagine.

The issue is not transaction fees but rather the price of individual shares.  A very large transaction can only take place if there are sufficient other investors around willing to sell/buy in a short time period at a reasonable price. Market makers’ holdings are limited.  Any fund manager must impose limits on the maximum size of transaction they are willing to accept. This is the basic issue of “liquidity”.

A very large transaction must be negotiated between fund manager and their customer which brings in commercial considerations.  Rees Mogg’s fund management company collapsed because its largest customer, SJP, decided to take their business elsewhere.