Comparing wealth management performance

Cus

I know that there are many statistics that can show that a specific fund manager (who has a documented investment strategy that guides/defines their investment remit) is more likely to not beat their relative benchmark across a 10/20 year horizon. And I know those statistics are very dependent on the markets they invest in, e.g. US large cap equity funds are generally less successful over the long term versus benchmarks (maybe due to mag7 concentration risks and other things noted, whereas fund investments in other regions/assets can show much better success). 
But how do you value the performance of the wealth manager making the calls to invest across all those asset class/regions over the long term, those who have full remit to invest in passive/active funds across equity , commodity, bonds, alternatives and individual shares. (I am referring to ones that are not the handful of huge multi asset active funds you can find on trustnet, I mean the smaller ones who don't publish a fund price or allow direct investment in their multi asset fund)

Is it a bit of a black box?

InvesterJones

I don't know the regs, but surely there's a standard factsheet that even smaller funds have to publish?

Linton

In my view there are only two things that really matter in choosing investments:
 - diversification, the more the better
 - what returns you are seeking over what time period

and if you have a choice of otherwise identifcal ones choose the cheaper.

How any funds you don't hold perform is largely irrelevent.

Naively you may think you should go for the best returns.  However the problem is that the higher the returns you seek the greater the chance that you dont make them.  The reason is diversification.  Particularly well performing  funds are of necessity less diversified  - by luck or judgement the fund manager just happens to choose future winners.   However circumstances can change quickly and their performance may slump. Lack of diversification means you are not holding the investments that take over.

I am surprised by your suggestion that Trustnet only provides data on a "handful of huge multi asset active funds".  You should find that trustnet and (more usefully in my view) morningstar hold data on all generally available mainstream funds.   Any fund you may reasonably want will be included.  

Morningstar is particularly recommended because it provides detailed data on where and how every fund is invested. Vital information if you are concerned about diversification.  Trustnet does hold some such data but only on funds that pay them and even then the data is patchy and inconsistently categorised.  

Generally I suggest that unless you really know what you are doing, and why you want to hold specific ones in particular, you avoid individual bonds, commodities, alternatives and individual shares.  Their downside is lack of diversification unless you hold them in such small quantities that they dont make much difference anyway.

artyboy

"Diversification" is also a word that has to be taken with a lot of context... given the industry and geo concentration in global tracker funds right now.

Nothing inherently wrong with this as they are intentionally reflecting the make up of the global market, but there's a risk that less experienced investors might misinterpret a global tracker as being very evenly spread across sectors and regions...

Linton

artyboy said:

"Diversification" is also a word that has to be taken with a lot of context... given the industry and geo concentration in global tracker funds right now.

Nothing inherently wrong with this as they are intentionally reflecting the make up of the global market, but there's a risk that less experienced investors might misinterpret a global tracker as being very evenly spread across sectors and regions...

Yes it would seem that diversification could be measured in different ways.  The metric I use is what % of the whole is taken by the largest subset.  With more than 2 subsets anything over 50% would be a red light with some concern about a largest subset of 20%-30% with a higher number of subsets.

It is sometimes claimed that a global index fund represents the most diverse allocation but I would question the usefulness of any definition that leads to the allocation of 60-70% to the largest subset being labelled diverse.

Cus

I do appreciate the effort to reply, however all the above is not really an answer to my question in any way.  In reference to the point about Morningstar/trustnet can show pre built multi asset fund of funds performance that mainstream providers offer, as well as of course the individual funds and shares/alternatives. My specific question is how to compare long term performance of boutique wealth managers that invest in and out of multiple asset types/products on a personalised portfolio.

Imagine Warren Buffet publishing his holdings of his own personal portfolio year on year, and being able to compare that to the unknown Warren Buffetts who are doing the same.

Perhaps this is not the forum type for that question 

GeoffTF

According to Google AI:

"The main private client benchmarks in the UK are the ARC Private Client Indices and the PIMFA Private Investor Index Series. Both are based on real performance data from a large number of UK wealth managers and provide independent benchmarks to assess investment performance against a peer group across various risk profiles."

Nonetheless, that performance will be a matter of luck rather than skill. Investment managers that did well in the past are not more likely to do well in the future than those who did badly.

Cus

Thanks, I will look, but they are averages, I wonder if the underlying data is available.

The assessment that it is 100% luck and no element of skill I disagree with. There is always room for an element of intelligence and research, to think that hours and hours of research and analysis is 100% pointless is not something I agree with, but I understand the default argument of today that it is pointless based on imo distorted stats.

Edit to add: the fact that although each may do the same analysis/research effort, and some do better than the average, and some do worse, does not, to me, indicate a pure luck based system, but instead may point to some being better at it than others.

Edit to add: whether that potential long term edge is less than the fees you will pay for that privilege is another discussion 😁

GeoffTF

Cus said:

The assessment that it is 100% luck and no element of skill I disagree with. There is always room for an element of intelligence and research, to think that hours and hours of research and analysis is 100% pointless is not something I agree with, but I understand the default argument of today that it is pointless based on imo distorted stats.

I would rather trust Nobel Prize winning economists for the statistics:

https://www.youtube.com/watch?v=SwkjqGd8NC4

Trying to beat the market is not pointless. It provides price discovery, which is service to others. What is pointless is trying to identify managers who will beat the market after costs.

masonic

It's impossible to say whether or not intelligence and research can be leveraged consistently by a manager. You can judge them at the point they retire from the game, but while a long track record can appear convincing, it is not conclusive, and at that point you are too late to benefit. At any point prior to that, it could subsequently be determined to be luck by it running out. Each manager will have their philosophies and biases, and their track record will be dictated by how well aligned their views are to the market conditions that ensue. Some will be better than others because their unique knowledge and experience better prepared them for the specific situations thrown at them. For some, this knowledge and experience will have broader applicability than for others.

Running an investment fund that needs to attract and retain investor capital means that they have to have an eye on short term results and that will be a handicap for them. Moreso if their customers do not have an element of intelligence about them. Perhaps this is part of the reason so many of them fail.

This all makes it extremely difficult as a private investor to pick a consistently outperforming manager. Taking it meta, do those investors who choose their managers well do so out of skill or luck?

The alternative is to use the "wisdom of the crowd", where the collective opinion of a diverse and independent group can yield the best judgement. When talking just equities, then that gives you a potential benchmark of the total market, and there are real investment choices you could have made mirroring this that you can measure against.

If you are interested in funds that access all sorts of exotic assets, and have the freedom to shift allocation with very loose bounds, then you will probably need to consider multiple benchmarks and/or hybrid benchmarks representing some average proportions in which asset classes would be held in a typical portfolio. But at the end of the day, how a fund measures up to some made up benchmark is rather academic. The fund would have been worth holding if it had superior characteristics (not necessarily better returns) than the next best option you could have chosen, over your chosen holding period. But if it is an investment that isn't available to the likes of you or me, then even if you could know in advance, all you could do with that information is be envious of those who could invest in it.

Cus

GeoffTF said:

Cus said:

The assessment that it is 100% luck and no element of skill I disagree with. There is always room for an element of intelligence and research, to think that hours and hours of research and analysis is 100% pointless is not something I agree with, but I understand the default argument of today that it is pointless based on imo distorted stats.

Trying to beat the market is not pointless. It provides price discovery, which is service to others. What is pointless is trying to identify managers who will beat the market after costs.

Yes I agree for fund managers, but for private wealth managers who can invest what and where they like, a long term record could be a relevant indication.  As an extreme, if Warren Buffett published his personal portfolio investments daily, I suspect a large percentage of people would believe that he is more likely than some unknown wealth manager to produce the better results in the future.

I guess all I can do is benchmark my wealth manager based on what I would have done DIY using an off the shelf multi asset product (I know I'm not going to beat the market DIY), and also benchmark against these private client stats, although that's difficult as the risk/equity portion etc is probably all over the place so what does the average tell you..)