Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • sixpence.
    • By sixpence. 4th Jan 18, 7:28 PM
    • 138Posts
    • 31Thanks
    sixpence.
    Index vs managed funds the great war
    • #1
    • 4th Jan 18, 7:28 PM
    Index vs managed funds the great war 4th Jan 18 at 7:28 PM
    Hello hello

    I have been researching index funds versus managed funds, as an investing newbie. There seems to be general war between investors who believe that one is better than the other. I am in the process of rebalancing my portfolio (will be approx 24k in total in an ISA).

    I am thinking of favouring index sums but adding in some managed funds for the wow factor: 88% in mixed Index funds [70% Vanguard 60, 10% Asia pacific ex Japan, 8% global tech] and 12% in "rouge" managed funds [3% Emerging Markets, 3% UK small businesses, 3% UK growth 3% China]

    Do people on here have an opinion either way on which is better? Currently reading John C. Bogle's The Little Book of Common Sense Investing which is all about how much better index funds are.

    EDIT: I am 28 years old and write this with the awareness that index funds are better suited to older investors as if diversified they are perceived to be lower in risk.
    Last edited by sixpence.; 04-01-2018 at 7:32 PM.
Page 8
    • sixpence.
    • By sixpence. 9th Jan 18, 2:44 PM
    • 138 Posts
    • 31 Thanks
    sixpence.
    If you set up that portfolio, it would be interesting to see whether the returns on your overall portfolio are higher than on your VLS60 alone.

    Also, if some of your active funds take a dip when the VLS60 makes gains are you prepared to sell some VLS60 and buy more of the active funds to rebalance back to your original percentages?
    Originally posted by Audaxer
    I think it will be higher but only if chose funds I am confident in. If I don't feel like I can do that, after all of my research and reading etc, I might just go the passive route.

    I haven't really got my head around re balancing yet, but I think my percentages refer to the initial investments - i.e if I have 1k it will be split up that way, not how I will rebalance it....
    • Filo25
    • By Filo25 9th Jan 18, 2:59 PM
    • 1,510 Posts
    • 2,207 Thanks
    Filo25
    Hahaha very funny

    Current thoughts re portfolio structure are:

    Index funds:

    73% VLS (60% equity)
    10% Asia ex Japan tracker
    3% Global tech tracker

    Managed funds:

    3% Japan small caps
    3% Europe growth ex UK
    3% China
    3% UK small caps
    2% India

    Top two sectors of equities currently work out at: 19% tech, 14.4% financial, after that it's like 6-7% industrials, healthcare etc

    I figure this is geographically diverse enough. All I need to do now is find decent funds that aren't too expensive and make sure as I choose that my sectors don't get un-diversified. Easier said than done really
    Originally posted by sixpence.
    I still haven't finalised mine either, quite a different draft mix for me though on a broad brush, still not completely locked in to the Europe/Japan/Asia +EM split yet though

    US 25% (Passive)
    UK 20% primarily mid and small cap and value (Active)
    Europe 15% (Active)
    Japan 20% (Active)
    Asia Pac/EM 15% (Active)
    Frontiers 5% (Active)
    Last edited by Filo25; 09-01-2018 at 3:06 PM.
    • BananaRepublic
    • By BananaRepublic 9th Jan 18, 3:12 PM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    I still haven't finalised mine either, quite a different draft mix for me though on a broad brush, still not completely locked in to the Europe/Japan/Asia +EM split yet though

    US 25% (Passive)
    UK 20% primarily mid and small cap and value (Active)
    Europe 15% (Active)
    Japan 20% (Active)
    Asia Pac/EM 15% (Active)
    Frontiers 5% (Active)
    Originally posted by Filo25
    You are quite high in Asia with over a third of the total, plus Frontiers too. So you have 40% in more volatile markets, that is courageous, in the Yes Minister sense ... It used to be said that much less should be in Asia, though I'm not sure what the 'accepted opinion' is these days, whatever that phrase means.
    • bostonerimus
    • By bostonerimus 9th Jan 18, 3:30 PM
    • 1,945 Posts
    • 1,283 Thanks
    bostonerimus
    I still haven't finalised mine either, quite a different draft mix for me though on a broad brush, still not completely locked in to the Europe/Japan/Asia +EM split yet though

    US 25% (Passive)
    UK 20% primarily mid and small cap and value (Active)
    Europe 15% (Active)
    Japan 20% (Active)
    Asia Pac/EM 15% (Active)
    Frontiers 5% (Active)
    Originally posted by Filo25
    This allocation worries me. All that UK small cap and Asian exposure, underweight of the US and no fixed income...........
    Misanthrope in search of similar for mutual loathing
    • Filo25
    • By Filo25 9th Jan 18, 3:48 PM
    • 1,510 Posts
    • 2,207 Thanks
    Filo25
    This allocation worries me. All that UK small cap and Asian exposure, underweight of the US and no fixed income...........
    Originally posted by bostonerimus
    It's not my whole portfolio by any means, about 100k of my pension pot, the total pension pot is currently at 220k and being added to through my work scheme at 30-40k a year, all of the rest of it will be in a generic work fund (tracker I believe with about 30% bonds).

    Happy to be underweight US, a combination of valuation concerns and I don't see why I would want to be over 50% holding in one market in any case (given it isn't my home market), if we had a market pullback in the US at the some stage I would probably add to that a bit.

    Am considering pulling 5% from the Asia/Frontier numbers to Europe though

    If nothing else its an offset to the more conservatively invested selection of my pension, the funds which are being transferred in to my SIPP (previous work pensions) haven't exactly been stellar performers either.
    Last edited by Filo25; 09-01-2018 at 3:59 PM.
    • Prism
    • By Prism 9th Jan 18, 4:35 PM
    • 368 Posts
    • 286 Thanks
    Prism
    Am considering pulling 5% from the Asia/Frontier numbers to Europe though
    Originally posted by Filo25
    There are some various Asia/EM funds around which behave very differently. There are funds which focus on developed Asia (Australia, Japan, Singapore) and barely touch China and India. Then you've got the China focuses ones which all invest in the same tech and insurance companies. Then you have the sustainable ones that focus on defensive companies for the emerging consumer.

    For example, over the last 3 months my China fund is up 6% and my EM fund which avoids China is up 12%. Over the last year its 51% and 23% in favour of China.
    • bostonerimus
    • By bostonerimus 9th Jan 18, 4:55 PM
    • 1,945 Posts
    • 1,283 Thanks
    bostonerimus
    Happy to be underweight US, a combination of valuation concerns and I don't see why I would want to be over 50% holding in one market in any case (given it isn't my home market), if we had a market pullback in the US at the some stage I would probably add to that a bit.

    Am considering pulling 5% from the Asia/Frontier numbers to Europe though
    .
    Originally posted by Filo25
    Like I said, there's a lot of hunch and guess work that goes into many allocations.
    Misanthrope in search of similar for mutual loathing
    • Filo25
    • By Filo25 9th Jan 18, 5:02 PM
    • 1,510 Posts
    • 2,207 Thanks
    Filo25
    Like I said, there's a lot of hunch and guess work that goes into many allocations.
    Originally posted by bostonerimus
    I totally agree, could justify moving a fair bit of mine around quite easily.

    I prefer not to have over 50% in one country in a diversified portfolio though, I'm not sure I would achieve better diversification by following the value of global capitalisation in this instance, just personal opinion.

    It's hard to see how the wall of cheap money out there and its impact on asset prices isn't going to have the impact of depressing returns going forwards one way or another across all markets.
    Last edited by Filo25; 09-01-2018 at 5:06 PM.
    • Filo25
    • By Filo25 9th Jan 18, 5:04 PM
    • 1,510 Posts
    • 2,207 Thanks
    Filo25
    There are some various Asia/EM funds around which behave very differently. There are funds which focus on developed Asia (Australia, Japan, Singapore) and barely touch China and India. Then you've got the China focuses ones which all invest in the same tech and insurance companies. Then you have the sustainable ones that focus on defensive companies for the emerging consumer.

    For example, over the last 3 months my China fund is up 6% and my EM fund which avoids China is up 12%. Over the last year its 51% and 23% in favour of China.
    Originally posted by Prism
    Yes, was more looking at Aspac excl Japan funds for that section, even some of the Frontier funds I have looked at have a fair bit of overlap with the Asia Pacific developing markets.
    • sixpence.
    • By sixpence. 9th Jan 18, 6:42 PM
    • 138 Posts
    • 31 Thanks
    sixpence.
    This allocation worries me. All that UK small cap and Asian exposure, underweight of the US and no fixed income...........
    Originally posted by bostonerimus
    You seem to be pretty wise. Do you have any opinion on the allocation or anything else of the plan I've shared?
    • Thrugelmir
    • By Thrugelmir 9th Jan 18, 7:30 PM
    • 58,964 Posts
    • 52,284 Thanks
    Thrugelmir
    underweight of the US .
    Originally posted by bostonerimus
    The US influence on global weightings is going to decline over time.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • BananaRepublic
    • By BananaRepublic 9th Jan 18, 10:30 PM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    The US influence on global weightings is going to decline over time.
    Originally posted by Thrugelmir
    Yup. My view is that the US is somewhat overvalued compared to for example the UK.
    • BananaRepublic
    • By BananaRepublic 9th Jan 18, 10:34 PM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    There are some various Asia/EM funds around which behave very differently. There are funds which focus on developed Asia (Australia, Japan, Singapore) and barely touch China and India. Then you've got the China focuses ones which all invest in the same tech and insurance companies. Then you have the sustainable ones that focus on defensive companies for the emerging consumer.

    For example, over the last 3 months my China fund is up 6% and my EM fund which avoids China is up 12%. Over the last year its 51% and 23% in favour of China.
    Originally posted by Prism
    Those sorts of gains would scare me, as they indicate a volatile market. That is why I expressed concern at so much invested in the Far East. There is also a lot of debt in China, as a result of the government creati;g cheap money around the time of the GFC.
    • Prism
    • By Prism 9th Jan 18, 10:53 PM
    • 368 Posts
    • 286 Thanks
    Prism
    Those sorts of gains would scare me, as they indicate a volatile market. That is why I expressed concern at so much invested in the Far East. There is also a lot of debt in China, as a result of the government creati;g cheap money around the time of the GFC.
    Originally posted by BananaRepublic
    I assume you mean the China fund. Yes 51% for China is a little volatile but its coming from a low point in 2015. Its less than 3% of my portfolio.

    The EM fund I am much happier with. Slow steady growth, admittedly with a recent burst of gains. It seems that's how emerging markets go. South Africa drops like a stone and then recovers week after week. When that finishes Russia goes nuts. I'm in it for the long term so volatility doesn't worry me too much yet.

    The Vanguard EM fund is 6% of the VLS80 fund and its up and down like a yoyo but nobody seems to notice
    Last edited by Prism; 09-01-2018 at 11:10 PM.
    • Filo25
    • By Filo25 9th Jan 18, 11:09 PM
    • 1,510 Posts
    • 2,207 Thanks
    Filo25
    Those sorts of gains would scare me, as they indicate a volatile market. That is why I expressed concern at so much invested in the Far East. There is also a lot of debt in China, as a result of the government creati;g cheap money around the time of the GFC.
    Originally posted by BananaRepublic
    China would probably be the one market in the EM space that would concern me most given its debt issues, but then again at present you can find reasons to be concerned in most markets.

    For the US it is valuations, the UK political risk around Brexit and the possibility of a Corbyn administration, political risk in Europe, and still structural economic issues to address there albeit in an improving economic environment, Japan has demographic issues and EM will always be more volatile.

    Equally if you decide that equity is too scary everywhere, bonds don't exactly look attractive and cash is returning next to nothing, these are the joys of the ultra loose monetary policy world.

    My projected portfolio certainly wouldn't be something I would hold as my main fund, but it does act as an offset to my company scheme which is undoubtedly be more heavily invested in the US than I would choose to be, and underweight Asia Pacific and EM.

    These are funds I don't aim to touch for 20 years so in my mind I can afford more volatility, equally given I am heavily feeding into my pension over the coming years I would welcome a correction in the near future, this fund hedges against the possibility of the long bull keeps on running and gives me greater participation in any short-medium term upside.

    I do think there is a huge amount of potential in markets like India in the coming years as well
    Last edited by Filo25; 09-01-2018 at 11:13 PM.
    • sixpence.
    • By sixpence. 9th Jan 18, 11:49 PM
    • 138 Posts
    • 31 Thanks
    sixpence.
    I feel like India is going to kick off in in the next ten years but the returns at the moment aren't terrible. I'd rather get in early, personally.

    I agree that the UK is more unstable due to Brexit. I think Trump (although he makes me want to learn magic so that I can turn him into a frog) has the potential to boom the US economy in the next 3-7 years (I think he will be elected a second term).

    From what I've learned, it seems to make sense to buy up EM/Asia because this balances out the US.
    • cloud_dog
    • By cloud_dog 10th Jan 18, 12:35 AM
    • 3,726 Posts
    • 2,215 Thanks
    cloud_dog
    I think Trump (although he makes me want to learn magic so that I can turn him into a frog) has the potential to boom the US economy in the next 3-7 years (I think he will be elected a second term).
    Originally posted by sixpence.
    Please, no.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • BananaRepublic
    • By BananaRepublic 10th Jan 18, 7:26 AM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    I think Trump (although he makes me want to learn magic so that I can turn him into a frog) has the potential to boom the US economy in the next 3-7 years (I think he will be elected a second term).
    Originally posted by sixpence.
    The sad truth is you might be right. I hope your magic lessons go well.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

85Posts Today

1,515Users online

Martin's Twitter