Comparing wealth management performance

Cus

masonic said:

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.

Thanks. Wrt available products for DIY versus my wealth manager, there a couple of specific alternative hedge funds that use an array of derivatives that he has invested in to provide a hedge against equity, that historically used to be able to be done using more standard bond funds. However his explanation (3 pages of thoughts lol) was that the correlation between equity and bonds has changed over recent years and that method to hedge is now not so valid so he looks for alternatives. Those funds are not available anywhere for my personal sipp DIY so perhaps thats an advantage but I won't know if it was worth it for years..

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.

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.

@GeoffTF can you point me to the relevant bits as per the above, as the video is over 80 minutes, and after watching the first 5, it's only provided some brief comments about how fund managers didn't manage to outperform but without any details of what or stats, then it went into a bit of city bashing that seemed a little layman. Thanks

Bostonerimus1

Hedge fund, derivatives...oooh I must own them. Active funds...wow they sound good. I'll take the 1% to 2% I save with DIY investing in a few low cost funds and enjoy the financial independence I've gained from 35 years of an average annual return of almost 10%. It didn't take much effort at all and I just don't understand what all the fuss is about...I will admit to living through a time of advancing stock markets which might have helped ;-)

GeoffTF

Cus said:

@GeoffTF can you point me to the relevant bits as per the above, as the video is over 80 minutes, and after watching the first 5, it's only provided some brief comments about how fund managers didn't manage to outperform but without any details of what or stats, then it went into a bit of city bashing that seemed a little layman. Thanks

You will not learn anything much in 5 minutes. That 80 minutes is just an introduction. French (IIRC) says "persistence, there is not any" or words to that effect. I have already said that. Look at the SPIVA Scorecard for further evidence. A financial textbook would also help. Alternatively, just take it on trust and buy a global tracker or low cost packaged fund. If your Wealth Manager does not guarantee to compensate you if he fails to beat the index, he is just an expensive wind bag.

Cus

Bostonerimus1 said:

Hedge fund, derivatives...oooh I must own them. Active funds...wow they sound good. I'll take the 1% to 2% I save with DIY investing in a few low cost funds and enjoy the financial independence I've gained from 35 years of an average annual return of almost 10%. It didn't take much effort at all and I just don't understand what all the fuss is about...I will admit to living through a time of advancing stock markets which might have helped ;-)

The hedge using alternative assets such as derivatives rather than bonds to counter equity risk now that the equity/bond inverse relationship seems less stable than historically sounds like a worthy area to assess.  If one is happy with the market average then great, I'm not telling you what to do, the thread was about comparing wealth manager performance.

Cus

GeoffTF said:

Cus said:

@GeoffTF can you point me to the relevant bits as per the above, as the video is over 80 minutes, and after watching the first 5, it's only provided some brief comments about how fund managers didn't manage to outperform but without any details of what or stats, then it went into a bit of city bashing that seemed a little layman. Thanks

You will not learn anything much in 5 minutes. That 80 minutes is just an introduction. French (IIRC) says "persistence, there is not any" or words to that effect. I have already said that. Look at the SPIVA Scorecard for further evidence. A financial textbook would also help. Alternatively, just take it on trust and buy a global tracker or low cost packaged fund. If your Wealth Manager does not guarantee to compensate you if he fails to beat the index, he is just an expensive wind bag.

Sorry, I interpreted the suggestion to view the video was because there was a section from the noble prize winning economists detailing how it's all luck and no skill with details. I have reviewed SPIVA a number of times, don't know about you but a company that makes income by selling index based products seems biased, and why I said that some stats I see are distorted.

Anyway, I think this thread has run it's course

Cus

TheTelltaleChart said:

Cus said:

The hedge using alternative assets such as derivatives rather than bonds to counter equity risk now that the equity/bond inverse relationship seems less stable than historically sounds like a worthy area to assess.  If one is happy with the market average then great, I'm not telling you what to do, the thread was about comparing wealth manager performance.

Can we think of any reason why wealth managers would want to promote the use of a portfolio diversifier which, unlike bonds,

(a) you can only buy through them; and

(b) you can't easily find past performance data for?

It's a mystery.

Meanwhile, the correlation between equities and bonds has always been variable, including being positive and negative in different periods. Is there evidence that there's been a "regime change" in their relationship? We know that they had a striking postive correlation in 2022 (both going down), but that's the rearview mirror. There is data for past performance of equities and bonds, so this is something statisticians could have a look at.

Even in periods when equities and bonds are positively correlated, bonds may still succeed in dampening portfolio volatility. So positive or negative correlation is not the whole story.

I looked up one of the funds my wealth manager has decided to invest in, and it is the AQR Managed Futures fund and I can actually personally invest in it if I want, and it does have detailed past performance.  Its aim is to have a low correlation to traditional markets.
As for the equity bond correlation, just a quick type into Google comes up with a lot of info on how the correlation recently has changed.
My wealth manager also has invested in certain bond funds. There is also a reasonable percentage in passive trackers of global equity.

Edit to add: this was a thread about how to assess private small wealth managers long term performance.  It seems to have changed into something else.  I am not advertising the use of wealth managers over other routes.  

If anyone has any further suggestions on my original request, then happy to hear.

dunstonh

Edit to add: this was a thread about how to assess private small wealth managers long term performance.  It seems to have changed into something else.  I am not advertising the use of wealth managers over other routes. 

FE has just added discretionary MPS to its analytics software.    Morningstar has a discretionary MPS feed as well.    So, if you give me the name of the MPS, I can look it up for you.

Advisory MPS though will not appear on any comparison software unless its manually input.

Bostonerimus1

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.

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.

"The City of London, centre of the financial world". Not a very accurate starting statement anymore. but in general there's some sensible content about the nature of the financial industry.

Cus

dunstonh said:

Edit to add: this was a thread about how to assess private small wealth managers long term performance.  It seems to have changed into something else.  I am not advertising the use of wealth managers over other routes. 

FE has just added discretionary MPS to its analytics software.    Morningstar has a discretionary MPS feed as well.    So, if you give me the name of the MPS, I can look it up for you.

Advisory MPS though will not appear on any comparison software unless its manually input.

Thanks for the offer. However I have looked up a number of suggested links (private client index etc) and of course the devil is in the risk/asset class allocations. As my portfolio has regularly changed composition, taking into account my personal requirements I disclosed to them, at the start, (wanted more UK coverage than market cap) and they have moved the weightings up and down (within agreed parameters) over the years, (more individual shares, commodities up and down in importance etc etc), what I have done is assess the general averages, then compared that with the common off the shelf multi asset funds (eg life strategy 40,60 etc and others - the life strategy are a good comparison as they do favour UK a little more) and that I also privately invest in with personal sipps,  and then determine performance averages (e.g. make up a life strategy 50 equivalent) So far after fees it's doing a bit better.  So I will stick for now.