Passive or Active Fund choice

purch

I will be quite upset if I'm still working at 36.....

Remind me never to argue with you then..........I got no chance :eek:

[Deleted User]

Thanks for the responses guys, very useful in shaping my decision. Based on my age, my perceived level of acceptable risk and from what I've read about the funds I've selected 100% Actively Managed... Just in case you wondered!

bigbloke45

What a lively debate!

No-one seems to have said whether the top half of active fund managers are the same year in, year out. I think you'll find that they are not so, unless you have the ability to switch to the winners year in, year out, you may do a lot worse that a tracker which will always be consistent.

Just take a look at graphs of those funds plotted against the all-share to see what I mean!

Or have a look in Money Management (or similar) at the past performance tables against the all share.

Finally, most bigger funds are "closet" index trackers; they daren't move their weightings to far away from the benchmark index for fear of getting it wrong. They therefore end up as "core and satellite" funds (look it up). You can do that yourself and maybe have some fun as well.

jamesd

bigbloke45, there are many that are consistently good but since different sectors perform differently at different times and managers often specialise in specific sectors it follows that at least the absolute performance will differ from year to year, even if they remain best performers in the area where they are managing money.

One of the UK academic studies referenced in the thread linked to earlier found that switching to the best performers each year produced consistent outperformance, inhibited significantly because the investments were assumed to be purchased inefficiently with initial charges paid, unlike what a sensible investor would do today. Efficient buying would have significantly increased the outperformance.

A passive tracker will always be consistently below average. It's only worth accepting that if you're unwilling to do the work of looking for better performance. This may apply to those who want invest it and forget about it options like some pension investors. If you're going passive, ETFs might be a better idea for their lower cost passive tracking. Though personally I'm not greatly keen on investments that are forced to do daft things like hold Northern Rock all the way to the bottom just so they can track accurately.

It seems clear that at least for collective investments offered in the UK there is potential benefit both from selecting good managers and from using recent past performance to judge future potential, though choosing the correct sector weightings would still be more important. If the whole sector is going down the good manager is still at a big handcap compared to a bad one in a sector that's going up.