Index vs managed funds the great war
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Simply looking at how my active funds compared. My suspicion is that much of it is small company advantage - UK all company funds I pick always seem to have more small companies than the All Share index. Similarly with the Japanese and European funds, though a little less marked.
With the non equity stuff the active funds seem to perform better and are less volatile. One issue I have is that many funds don't have a history that goes back far enough - I like to see how they performed in 2008 - then this point covers many passives as well.
Actually it's very true that we don't have data that goes back far enough. The standardised data on fund factsheets covers five discrete years. What would be good would be to have ten discrete years - we'd get a much clearer picture on performance then. This is especially true in 2018 where, if we go back the maximum of five years, all we get to see is a fairly stable (in relative terms) and steady increase in valuations, as markets have behaved in a similar fashion with no sudden, nasty shocks.0 -
Actually it's very true that we don't have data that goes back far enough. The standardised data on fund factsheets covers five discrete years.
Trustnet goes back 10 years in its tables and using the graphs back to 2000. Its interesting to see how various funds and managers coped with 2008/20090 -
If I understand him correctly, it is not having the best active funds that has made Linton's growth portfolio so successful, but rather having a very diverse asset allocation including high volatility funds in different sectors and geographical regions that are not correlated, so the portfolio overall will possibly not be any more volatile that the likes of the VLS100, but will still get better returns.Exactly! You have done well, beating a comparative asset allocation with your own choice of funds - especially, weightings/ other factors being equal, as 4 out of 6 of your funds are 1st or 2nd quartile. But, for every Linton portfolio there is a non-Linton with a portfolio where whose choices have resulted in the opposite - 4 out of 6 funds being in the 3rd and 4th quartiles. It's the maths: If you have four quartiles then half will be above and half will be below. For every active fund winner there is an active fund loser and, due to the ever changing landscape of active fund performance, the top funds interchange with the bottom funds and there is no way anyone can be sure which fund will do well or badly next. Or is there?
It is precisely because of the lack of "mystic powers" and the lack of consistency amongst active fund managers that your portfolio cannot always be a winner. It's done well, it might do very well again for some time but at some point you would expect it to underperform, would you not?
This is the conundrum at the crux of the great mystery: to index or not to index, that is the question.0 -
If it's possible to pick active funds that will outperform their peers or passive equivalents, then surely we'd see funds consisting of sets of active funds that satisfy the magic formula. Asia Pacific Best Managers or something.0
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Trustnet goes back 10 years in its tables and using the graphs back to 2000. Its interesting to see how various funds and managers coped with 2008/2009
Trustnet chart data can go back longer than that, the limitation is that many of the funds and indexes were started more recently. You can analyse the tech bubble as well for further insight.0 -
That was my aim. I don’t claim the portfolio is wildly successful, just a useful bit more successful over the past few years than one based on index funds which after all don’t claim to be more than marginally better than average.If I understand him correctly, it is not having the best active funds that has made Linton's growth portfolio so successful, but rather having a very diverse asset allocation including high volatility funds in different sectors and geographical regions that are not correlated, so the portfolio overall will possibly not be any more volatile that the likes of the VLS100, but will still get better returns.0 -
bostonerimus wrote: »I'm glad for you. We always hear from the winners, the folks that have made good "choices". I look at the basic maths and the average person is better off using indexes, keeping costs down and rebalancing once in a while. Hubris is the enemy of success for most investors, but a friend for the minority that come out ahead. I will always have lower annual returns with my indexing strategy than the "good" active investors, but I came to the belief/realization that yesterday's winners are tomorrow's losers and so decided to be average. I am a broken record, but in no way working for Vanguard etc. I have been a client of Vanguard for 20 years and been indexing for 30 years getting an annual average of 8.5% return and now have a mid 7 figures portfolio. So it worked well for me and I did nothing special at all....other than saving 20% of my wages and indexing.
I’m not someone who has done well just in the last year or so. I started investing over 20 years ago, and my one regret is that I swallowed the passive hype. As a result some of my returns were less than they could have been. Vanguard is largely in the US market, and US index funds do indeed do well. Linton has already made many of the points I would have made.
Some of my poor funds were in company pensions where you have a limited choice of fund, and hence I transferred out when I could. But I suspect a lot of poor performing active funds are bought as part of a pension fund where the prime objective is large commission for the pension advisors. And a lot are sold to unsuspecting and naive investors. I have the impression quite a few new funds are sold on the basis of a name fund manager, and they go on to underperform. Frankly it is not hard to find active funds that perform well, and by diversifying you avoid the risk that a given sector or market underperforms. I don’t think anyone denies that something like Vanguard’s index funds are decent, but picking good active funds is easy, and simply denigrating active funds because most underperform is silly.0 -
I think regardless of whether you go the active or passive route, or even just a mixture of the two what really matters is your asset allocation, diversification and whether you stick to your plan and see it through - i.e not get spooked in times when markets crash. That would have a far more detrimental effect on your investments than whether you went for index trackers or active management.
Personally I'm a passive investor, only because I have an obsession with minimising costs. I cannot predict future market performance, but costs are something which I feel I have control over. This means finding the cheapest possible platform and the cheapest way to diversify my portfolio. Trackers were just the simplest and cheapest way to achieve my goals.0 -
I have learned a lot on this forum, but picking the right mix of active funds to get a fully diversified and balanced asset allocation is not that easy for the inexperienced investor. A post on here recently advised that even IFAs buy in their asset allocations, so it can't be that easy.BananaRepublic wrote: »I don’t think anyone denies that something like Vanguard’s index funds are decent, but picking good active funds is easy, and simply denigrating active funds because most underperform is silly.
With low cost multi asset funds you may not do as good as a well devised active or hybrid (active and passive) portfolio, but they are low maintenance and you have a level of confidence that they will give you decent long term returns, probably a lot better than most DIY active portfolios.0 -
I’m an active investor because I’m obsessed with making money.
If you discover active is not your skill set, go passive. It’s really, really that simple.
Only a fool actively loses money.0
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