Passive or Active Fund choice

arabianights

Retired_I.F.A. wrote: »

I retired 5 years ago at 45 will that do?

Of course not... it's not evidence of anything.

You're advocating an investment strategy which is very easy to backtest...

Hint: It has been

nrsql

Everone thinks the global market is changing so performance in the recent past might not be a indicator for the future (might even be a contra-indicator).

When looking at positions in tables for funds you should also take into account funds that have disappeared from the tables. Poorly performing funds will tend to be dropped or merged more than the better performing - as these will not be trackers it will tend to drop trackers down the table over time.

purch

I retired 5 years ago at 45 will that do?

That's a helpful way to end an argument

Anytime I'm losing an argument badly (which is quite often :cool: ) I'll just say.....I retired 11 1/2 years ago at 36 so there !!!!! ............I can't lose :T

arabianights

purch wrote: »

That's a helpful way to end an argument

Anytime I'm losing an argument badly (which is quite often :cool: ) I'll just say.....I retired 11 1/2 years ago at 36 so there !!!!! ............I can't lose :T

Only if you're arguing with someone who doesn't know anything about, er, logic.

jamesd

arabianights wrote: »

I don't see any pattern there at all

There were 200 funds in the sector. Have a look at how often one that didn't have a manager change left the top quarter or half of funds. It happened once in a sample of ten funds over five years, to the New Star fund. And since trackers tend to fall around the middle, these rankings show that, for this data set over this period, past relative performance was a useful predictor of future relative performance. Not perfect but perfection is not required.

arabianights wrote: »

and you can't ignore a change in managers because you don't know that's going to happen when you get into the fund :rotfl:

You know when the manager changes and the reduced performance doesn't happen instantly. Why would you refrain from acting when an event happens that you know is likely to change performance?

arabianights wrote: »

Show me some evidence that past record is a consistent predictor of returns (or at least nearly so.... shouldnt' be hard to some backtesting) and we'll talk.

How much consistency more than one failure to predict in 40 samples would you like? That's more than enough of an edge to improve performance.

arabianights wrote: »

What's this got to do with anything? Standard deviation only makes sense in terms of the normal distribution, which is not a feature of EMH per se - it came in as a way of modelling random walks... and we all know how that turned out (if you don't ask Mr. Meriwether).

Glad you recognise that - I expect that some with a purely theoretical and mathematical bent wouldn't, in spite of recent events.

If you don't like the simple data I've presented that does show patterns we can move on to formally published academic studies.

jamesd

nrsql, yes, changes to market conditions can completely invalidate past performance for different market conditions.

I'm not greatly interested in how poorly performing funds do - I'm interested in avoiding selecting one and avoiding sticking in one and it does seem that there's sufficient information around to improve the chances of doing that substantially.

But these things do call into question the conclusions of academic studies that assume investors stick the money in one fund and never touch it again, because they are ignoring what prudent investors know about market cycles and managers and how they react to changes in them. Fortunately there are a few studies that do a better job.

Retired_I.F.A.

purch wrote: »

That's a helpful way to end an argument

Anytime I'm losing an argument badly (which is quite often :cool: ) I'll just say.....I retired 11 1/2 years ago at 36 so there !!!!! ............I can't lose :T

The reallity was Purch It was just a quick exit for me when I posted that. I was going fishing for the day five mins later. Much much more fun than yapping about investment strategies.:D.

meester

arabianights wrote: »

:rotfl:

You still aren't getting it...

What relationship is there between the top performers one year and the top performers the next?

Answer: None has been found.

This isn't true. You are coming across that you have read on some website such as Motley Fool that "all studies show active management is bad", but haven't actually verified it for yourself, yet still repeat this statement at every opportunity. And it's not impressing anyone that you are coming across mega-arrogant even when it's apparent to all that you have not actually read a single study on the subject.

I posted some of the limited research that has been conducted in the UK here:
http://forums.moneysavingexpert.com/showthread.html?t=757539

"statistical tests suggest that much of the observed persistence is strongly significant, much at a confidence level as high as 99.9%. From this there appears to be very little doubt that investors can derive useful evidence from past performance data."

meester

purch wrote: »

That's a helpful way to end an argument

Anytime I'm losing an argument badly (which is quite often :cool: ) I'll just say.....I retired 11 1/2 years ago at 36 so there !!!!! ............I can't lose :T

I will be quite upset if I'm still working at 36..... Ten years to go.

meester

Retired_I.F.A. wrote: »

The only thing worth reading from that link is this..

..he found, would have to put in £1.55 to get a return equivalent to £1 invested directly in the market.

Why? , because it's absolute crap funnier than any cartoon I've ever seen. The American Economist who wrote that ought to go back to school and learn basic maths or do as his grandpappy did.... jump out of his 30th floor skyscraper window.

This is just poor journalism.

The actual finding was:

In his paper, Kevin James finds that, between 1987 and 1998, a consumer would have needed to invest about 1.50 on average in an actively managed unit trust or through a life office in order to obtain the notional market rate of return on an investment of 1.00. The figure of 1.50 is what James terms the MP1 of a fund. The difference between the return on 1.50 and on 1.00 is accounted for by a combination of direct, disclosed charges made by the fund manager, and costs arising from dealing, etc. Not all costs are currently disclosed to consumers at the time of investing. For index tracker funds, the effect of costs is lower; an investment of about 1.20 generates the market rate of return on 1.00.

They are talking about PTR and charges.

There is a response here

http://www.investmentuk.org/press/2000/20000224-01.pdf

pointing out that 1.05% PA of the beta was due to yield or risk management objectives, which the consumer actually is paying for. It's very well-known that reducing risk reduces return. It's pretty stupid to actually compare an index/passive fund with one managed to reduce risk, as reduced volatility is also a desirable goal.

For instance, IUKD declined 30.5% peak to trough. It has recovered only slightly. For the UK equity income funds the decline was under 20%.