XIRR

Veloflyer

I have been using Excel XIRR to monitor performance of my various funds (10 at present) within a SIPP and elsewhere. Clearly it is only a historical view and that in itself is fraught with caveats, but my admittedly simplistic thinking is to sell the worst performing fund over (say) a year and invest the proceeds in the best performing - with the XIRR rate over the year being the only factor. Repeat for the following years. I'd also like to rationalize my funds - many are similar low cost passive global-ish trackers.

Thoughts welcome

dunstonh

ut my admittedly simplistic thinking is to sell the worst performing fund over (say) a year and invest the proceeds in the best performing 

Why would you do that?

Investing based on past performance typically yields lower returns over the long run. In a typical portfolio, that would mean allocating more to Asia as it’s been the standout performer over the last year. One of the defensive funds has probably been your worst performer. You would significantly increase the risk by doing that.

DRS1

I distinctly recall some professional investment managers saying they did the precise opposite of what you propose - ie they would sell (or top slice) the best performing asset and reinvest the proceeds in the worst performing asset. It is called rebalancing.

It stuck in my mind because I thought it was a strange thing to do.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/6684089/xirr

This is momentum investing, but it also requires selling low and buying high which can be a bad choice. The success or failure will depend on the first derivative of the funds' prices. It's not something I would ever try to do. Instead I would rebalance asset classes ie equities, bonds, cash at certain predefined guard rails or just once or twice a year as necessary, or don't do anything which has been a successful strategy over that past few decades.

phlebas192

https://forums.moneysavingexpert.com/discussion/6684089/xirr

I'm more of a reversion to mean type of guy, so in the scenario you describe I would be more likely to sell some of the top performer and recycle it into the lowest performing one. There's nothing in the data to suggest that a random fund manager or approach will beat others on a consistent basis which is what your idea would rely on. But if you do believe that then presumably you would want to sell all of the lowest performing fund each year and by the tenth year you would only be holding a single fund - which would be the one that wasn't the worst performer in any previous year and happened to be the better one in year 9 (a 50/50 outcome with the other fund that happened not to be the worst performer in the previous 9 years). So why not now sell everything else and put it all in the best performer over the past year? If the idea works then why wait 10 years until you reach fulfilment?

The reality is that the market is not simple and simple ideas generally do not improve results. Not least because if anyone could implement the idea then they would already do so and the advantage would be priced out for subsequent investors (large firms employ very clever people specifically to find such advantages). It's not impossible to beat the market, even over many years, but it is almost certainly going to be as a result of taking on extra risk and / or coming up with something not easily back-tested.

Triumph13

It's the kind of strategy that would have lead you to sell all your equities after the GFC, locking in your losses, and buy bonds despite their negative yields. You would then have taken another huge loss when bond prices fell.

leosayer

Why do you need to hold more than one global equity tracker?

The standard approach is to decide on your asset allocation (eg. 5 funds at 20% each) at the start and then rebalance back to 20% either once a year/quarter or when they drift too far out from the target %.

This way you buy more of your losers and sell your winners.

However if you just hold one global equity index fund then that reallocation is done automatically within the fund.

Veloflyer

Many thanks - Many of my funds have significant overlap and I'd like to rationalize. I can understand the arguments against doing what I propose were they single equities or funds/ETFs of a different make-up, but essentially 3 or 4 of my funds are essentially global trackers. I'd just like to have the one global tracker and have at least some sort of methodology in deciding which of the other 3 I should sell.

barnstar2077

I would pick the most diverse of the global trackers, which also has one of the lowest charges, and put everything in it today.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/82144667#Comment_82144667

Global trackers are not all one thing. There are different benchmarks that they track. So, you need to take that into account as in some years, one benchmark will do better than another.

Veloflyer

I would pick the most diverse of the global trackers, which also has one of the lowest charges, and put everything in it today

Makes sense - cheers

Global trackers are not all one thing. There are different benchmarks that they track. So, you need to take that into account as in some years, one benchmark will do better than another.

I shall read up. Bit of crystal balling perhaps as I dont know which benchmark is/will do best.