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bostonerimus wrote: »Ahh...yes.........that's always the reason given for owning active funds.
I am sure there was no intention to be patronising here
so passing on that... but this topic is something I struggle with. Every personal finance blogger you read is 100% wedded to passive low cost index investing..and to a large degree I get it (costs matter, lots of poor quality active funds that don't beat the index etc).. indeed I have index funds with Vanguard and others. BUT...
I have been investing and carefully selecting Active funds for over 25 years... and they are a big part of the reason why I don't need to work at 52.. so maybe i have some sentimental attachment to them...they have made me a lot of money.
3 examples with the annualised growth rate vs index that I have held for 20, 10 and 5 years
20 yrs Schroder UK smaller 43% pa vs 31%
10 yrs Stewart AP Leaders 43% vs 23%
5 yrs Fundsmith Equity 35% vs 18%
so with OCF typically 0.7% higher (0.9 vs 0.2) for the above, was it so crazy to go active.
It takes more effort to identify the better active funds, and you don't get it right all the time, but is there really never a benefit?
I will continue to use active and passive and I am very selective about active and use passive/index if I see no or marginal upside, but I do see markets where active managers can do better (not the US). They also add some spice to the portfolio, which might not be a good reason to hold them of course :rotfl:
Anybody else still see a place for active funds in their portfolio. Maybe I am kidding myself and have just been lucky.
sorry for going off topic0 -
Of course. Bostonerimus recently asked something similar and I replied with a data source.It takes more effort to identify the better active funds, and you don't get it right all the time, but is there really never a benefit? ... Anybody else still see a place for active funds in their portfolio. Maybe I am kidding myself and have just been lucky.
Results are from Annex 1 of the final report of the FCA Asset Management Market Study. To expand a little:bostonerimus wrote: »Could you link to the FCA report you mentions as I'd be interested to see the results.
Active funds outperformed passive funds by 0.65% on average. Table 4 in the annex 1 showing active with weighted average performance compared to benchmark of 0.13% and passive at -0.52%.
Table 5 shows that they found an even larger difference for equity funds, with active beating passive by 1.34%. Active 0.91% vs passive -0.43%.
Table 6 shows pretty much expectable variation in active beating passive by region, with the US of course showing the expected average significant underperformance of actives vs passives and somewhat similar for global, which is likely to have a 60 percent or so US component. Perhaps a useful table to give some idea where to go passive rather than active, it's actually close to how I split between the two.
Though personally I found paragraph 30 most interesting because paraphrased it says that the results of the FCAs work are largely meaningless due to the wide variations between funds.
It's not at all surprising that with US residence bostonerimus would strongly favour passive approaches, as I would if I was investing mainly in US investments.
Like you, I use a mixture of active and passive, particularly favouring active for smaller companies investing.0 -
Thanks James. Those % are quite marginal, but as you and the report state, the averages make it a less useful as a guide. An average active fund is not really worth having, but those that perform better than the market fairly consistently over time, even if not every year, certainly can make a material difference and are worth having (and those are the ones I aim to find and keep)0
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I am sure there was no intention to be patronising here so passing on that... but this topic is something I struggle with.
An active fund is only worth owning if after fees there is a measurable Alpha ie it beats it's risk adjusted benchmark. So your comment thatI have a mix of low cost passive index funds and active funds, the latter only where I think they are adding sufficient value to warrant the higher cost.
is a bit of a truism. I cannot lie, in my comment I was emphasizing that it is the only reason, to own active funds and also being a bit cheeky about active funds in general and their use in portfolios.........it's Pavlovian for me.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Thanks James. Those % are quite marginal, but as you and the report state, the averages make it a less useful as a guide. An average active fund is not really worth having, but those that perform better than the market fairly consistently over time, even if not every year, certainly can make a material difference and are worth having (and those are the ones I aim to find and keep)
The report James linked to is a useful addition to the UK financial landscape. It has been criticized because it analyzes the "average active fund" when the "star funds" have consistently beaten the market and so you should buy those. The error here is that even I can pick the winners after the race is over. If you can consistently choose active funds the beat the market after fees then its a great strategy.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus wrote: »An active fund is only worth owning if after fees there is a measurable Alpha ie it beats it's risk adjusted benchmark. So your comment that
is a bit of a truism. I cannot lie, in my comment I was emphasizing that it is the only reason, to own active funds and also being a bit cheeky about active funds in general and their use in portfolios.........it's Pavlovian for me.
I must be reading too many US blogs... Makes you feel like a pariah for using active funds.
But clearly the US is different...as is Vanguard as a company.0 -
I am sure there was no intention to be patronising here so passing on that... but this topic is something I struggle with. Every personal finance blogger you read is 100% wedded to passive low cost index investing..and to a large degree I get it (costs matter, lots of poor quality active funds that don't beat the index etc).. indeed I have index funds with Vanguard and others. BUT...
I have been investing and carefully selecting Active funds for over 25 years... and they are a big part of the reason why I don't need to work at 52.. so maybe i have some sentimental attachment to them...they have made me a lot of money.
3 examples with the annualised growth rate vs index that I have held for 20, 10 and 5 years
20 yrs Schroder UK smaller 43% pa vs 31%
10 yrs Stewart AP Leaders 43% vs 23%
5 yrs Fundsmith Equity 35% vs 18%
so with OCF typically 0.7% higher (0.9 vs 0.2) for the above, was it so crazy to go active.
It takes more effort to identify the better active funds, and you don't get it right all the time, but is there really never a benefit?
I will continue to use active and passive and I am very selective about active and use passive/index if I see no or marginal upside, but I do see markets where active managers can do better (not the US). They also add some spice to the portfolio, which might not be a good reason to hold them of course :rotfl:
Anybody else still see a place for active funds in their portfolio. Maybe I am kidding myself and have just been lucky.
sorry for going off topic
Aaah you had to set him off.I knew this would happen.
I’m with you an active investor.
I’m not the sharpest tool in the financial worlds tool box, however I’m probably best described as financially prudent ( tight). If my self select funs had underperformed the run of the mill benchmarks over the years I would be totally passive, no pride just want the money.
I’ve started to track Vanguard LS funds from the beginning of this year, just to see if I’m living in a fantasy world. To date apparently I’m not.
I must admit my only passive fund L&G Global Technology Index Trust I Acc( bought for the sake of diversity and lets give it a try) is currently eating my portfolios lunch.
On the upside AXA Framlington Global Technology Z Acc my active selection appears to doing rather well at the moment.0 -
bostonerimus wrote: »The report James linked to is a useful addition to the UK financial landscape. It has been criticized because it analyzes the "average active fund" when the "star funds" have consistently beaten the market and so you should buy those. The error here is that even I can pick the winners after the race is over. If you can consistently choose active funds the beat the market after fees then its a great strategy.
Following a strong fund manager with a good or great track record seems to work more than it fails in my experience. I didn't buy Terry Smith, Neil Woodford, Hideo Shiozumi, Angus Tulloch or Nick Train from the start...but in time to benefit from their skills.
There are plenty of very average fund managers who are not worth buying but that does not have to mean you give up on finding and buying the few that do add value.0 -
3 examples with the annualised growth rate vs index that I have held for 20, 10 and 5 years
20 yrs Schroder UK smaller 43% pa vs 31%
10 yrs Stewart AP Leaders 43% vs 23%
5 yrs Fundsmith Equity 35% vs 18%
so with OCF typically 0.7% higher (0.9 vs 0.2) for the above, was it so crazy to go active.
It takes more effort to identify the better active funds, and you don't get it right all the time, but is there really never a benefit?
I will continue to use active and passive and I am very selective about active and use passive/index if I see no or marginal upside, but I do see markets where active managers can do better (not the US). They also add some spice to the portfolio, which might not be a good reason to hold them of course :rotfl:
Anybody else still see a place for active funds in their portfolio. Maybe I am kidding myself and have just been lucky.
sorry for going off topic
Impressive numbers, did you ever pick any losers? if so could you share those too. If you didn't then annualized returns of 43% for 20 years is fantastic. I can only sign up to roughly 8.5% annualized returns over the last 30 years from my basically 60/40 index portfolio.
The next question, is why would you own index funds if you can chose active winners so readily?“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Aaah you had to set him off.I knew this would happen.
I’m with you an active investor.
I’m not the sharpest tool in the financial worlds tool box, however I’m probably best described as financially prudent ( tight). If my self select funs had underperformed the run of the mill benchmarks over the years I would be totally passive, no pride just want the money.
I’ve started to track Vanguard LS funds from the beginning of this year, just to see if I’m living in a fantasy world. To date apparently I’m not.
I must admit my only passive fund L&G Global Technology Index Trust I Acc( bought for the sake of diversity and lets give it a try) is currently eating my portfolios lunch.
On the upside AXA Framlington Global Technology Z Acc my active selection appears to doing rather well at the moment.
it's a fun debate
. And nice to have company.
I checked my 3 Japan funds vs the index and vanguard earlier. My active selection massively ahead.
Its not that I am anti passive (my US funds are 90% passive) just don't want to throw the baby out with the bath water.0
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