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  • FIRST POST
    • apollo9
    • By apollo9 14th Feb 18, 8:49 AM
    • 56Posts
    • 3Thanks
    apollo9
    Passive trackers
    • #1
    • 14th Feb 18, 8:49 AM
    Passive trackers 14th Feb 18 at 8:49 AM
    After my recent thread on active v passive funds, I would like to move half my portfolio into passive tracker funds(Which will be into a SIPP)

    I am not an expert so want something that is invest and forget. Other than the initial bulk transfer there will be a monthly drip as well.

    My horizon is 15 years and I am middle of the road in terms of risk, and am happy investing in emerging markets and would like exposure to small caps as well in more developed economies.

    I realise the wisdom is a VLS / L&G type fund but I am willing to stick 100% with equities. I am not sure of the likelihood of much upside with bonds, even with the income re-invested.

    Thanks
Page 1
    • Lokolo
    • By Lokolo 14th Feb 18, 9:00 AM
    • 19,991 Posts
    • 15,120 Thanks
    Lokolo
    • #2
    • 14th Feb 18, 9:00 AM
    • #2
    • 14th Feb 18, 9:00 AM
    Are you asking us to build your portfolio? No-one here will do that. If you want to go passive DIY, you need to be the one to research what you invest in.

    You've got the VLS funds, which does have a 100% equities porfolio.

    You can make a portfolio using a number of iShares instead if you want more say in the asset allocation. HSBC also have a number of passive trackers as well.
    • AnotherJoe
    • By AnotherJoe 14th Feb 18, 9:04 AM
    • 9,606 Posts
    • 10,683 Thanks
    AnotherJoe
    • #3
    • 14th Feb 18, 9:04 AM
    • #3
    • 14th Feb 18, 9:04 AM
    Aren't all trackers passive, by definition ?
    • ValiantSon
    • By ValiantSon 14th Feb 18, 9:52 AM
    • 2,023 Posts
    • 1,872 Thanks
    ValiantSon
    • #4
    • 14th Feb 18, 9:52 AM
    • #4
    • 14th Feb 18, 9:52 AM
    After my recent thread on active v passive funds, I would like to move half my portfolio into passive tracker funds(Which will be into a SIPP)

    I am not an expert so want something that is invest and forget. Other than the initial bulk transfer there will be a monthly drip as well.

    My horizon is 15 years and I am middle of the road in terms of risk, and am happy investing in emerging markets and would like exposure to small caps as well in more developed economies.

    I realise the wisdom is a VLS / L&G type fund but I am willing to stick 100% with equities. I am not sure of the likelihood of much upside with bonds, even with the income re-invested.

    Thanks
    Originally posted by apollo9
    If you are a medium risk investor then you don't want to be in 100% equities: that's high risk!

    Additionally, your 15 year time frame is one and a half economic cycles (roughly) so you could find yourself trying to cash in during a downturn. As the end of your investment period approaches, you should really be looking at de-risking your portfolio. If you do decide that actually you are a high risk investor, then going 100% on equities for c.10 years and then introducing bonds to try and protect wealth might be a way forward, but I'm not convinced you are high risk. Perhaps consider a 70% equities allocation and still de-risk as you approach the end of the investment period.

    Look at VLS; HSBC Global Strategy; Blackrock Consensus; and L&G MI funds.
    • apollo9
    • By apollo9 14th Feb 18, 11:39 AM
    • 56 Posts
    • 3 Thanks
    apollo9
    • #5
    • 14th Feb 18, 11:39 AM
    • #5
    • 14th Feb 18, 11:39 AM
    Thanks, my aversion to the VLS, Blackrock funds is their bond holding. I should do some more research.
    • IanSt
    • By IanSt 14th Feb 18, 12:09 PM
    • 260 Posts
    • 194 Thanks
    IanSt
    • #6
    • 14th Feb 18, 12:09 PM
    • #6
    • 14th Feb 18, 12:09 PM
    You say your horizon is 15 years - does that include the number of years that you'll be in drawdown in your pension?

    You could find that you're actually going to be invested for a lot longer than that period unless you're planning on purchasing an annuity - which currently is not likely to be the best means of providing for the start of your retirement.
    • dunstonh
    • By dunstonh 14th Feb 18, 12:42 PM
    • 93,032 Posts
    • 60,418 Thanks
    dunstonh
    • #7
    • 14th Feb 18, 12:42 PM
    • #7
    • 14th Feb 18, 12:42 PM
    I am not an expert so want something that is invest and forget.
    If that is your criteria, then why are you picking index tracking funds that will require you to make changes every year?

    My horizon is 15 years and I am middle of the road in terms of risk, and am happy investing in emerging markets and would like exposure to small caps as well in more developed economies.
    Sounds like you are making a lot of management decisions. That doesnt really fit with a passive philosophy.

    My horizon is 15 years and I am middle of the road in terms of risk,
    100% equities does not fit with that risk profile. Middle of the road would be around 50-60% equities.

    100% equities is about 9 or 10 out of 10 on a typical 1-10 scale.

    I should do some more research.
    indeed you should.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • ValiantSon
    • By ValiantSon 14th Feb 18, 12:46 PM
    • 2,023 Posts
    • 1,872 Thanks
    ValiantSon
    • #8
    • 14th Feb 18, 12:46 PM
    • #8
    • 14th Feb 18, 12:46 PM
    Thanks, my aversion to the VLS, Blackrock funds is their bond holding. I should do some more research.
    Originally posted by apollo9
    VLS offer a 100% equities version and Blackrock Consensus does too. HSBC Global Strategy Adventurous is almost completely equities too. I do wonder, however, what your reasoning is for avoiding bonds, as 100% equities does not fit with your stated risk attitude. You also need to see bonds as a bit more diverse than just one thing, UK gilts and investment grade corporate bonds are quite different from each other, for example.
    • bostonerimus
    • By bostonerimus 14th Feb 18, 1:56 PM
    • 1,942 Posts
    • 1,281 Thanks
    bostonerimus
    • #9
    • 14th Feb 18, 1:56 PM
    • #9
    • 14th Feb 18, 1:56 PM
    My horizon is 15 years and I am middle of the road in terms of risk, and am happy investing in emerging markets and would like exposure to small caps as well in more developed economies.
    Sounds like you are making a lot of management decisions. That doesnt really fit with a passive philosophy.
    This is perfectly consistent with a passive approach. You can set any asset allocation you want and use passive trackers in the portfolio, but you might argue that inefficiencies in some markets can be exploited better by active funds.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 14th Feb 18, 2:00 PM
    • 1,942 Posts
    • 1,281 Thanks
    bostonerimus
    I realise the wisdom is a VLS / L&G type fund but I am willing to stick 100% with equities. I am not sure of the likelihood of much upside with bonds, even with the income re-invested.

    Thanks
    Originally posted by apollo9
    OK then buy a few passive trackers; a global equity, small cap and EM tracker. This will avoid the fees associated with a multi-asset fund. Just rebalance every so often.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 14th Feb 18, 2:49 PM
    • 93,032 Posts
    • 60,418 Thanks
    dunstonh
    This is perfectly consistent with a passive approach. You can set any asset allocation you want and use passive trackers in the portfolio, but you might argue that inefficiencies in some markets can be exploited better by active funds.
    it is not consistent with a passive approach as it is selecting sectors whilst eliminating others. Those are management decisions.

    OK then buy a few passive trackers; a global equity, small cap and EM tracker. This will avoid the fees associated with a multi-asset fund. Just rebalance every so often.
    But the op wants a lazy investor option. So, no self rebalancing.

    Everything points to a multi-asset fund as that is the only lazy investor option. its really a case of nailing down the risk level at this stage.

    Any single sector investing, whether managed or passive, requires work by the individual to rebalance.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • TheTracker
    • By TheTracker 14th Feb 18, 3:17 PM
    • 1,213 Posts
    • 1,198 Thanks
    TheTracker
    it is not consistent with a passive approach as it is selecting sectors whilst eliminating others. Those are management decisions.
    Originally posted by dunstonh
    I see this posted by you every 7-10 days.

    Would you mind explaining what you WOULD consider a passive approach?

    For the life of me I can not fathom what it might be. I infer it is where there are no 'management decisions'. But if choosing whether to weight EM or Small or value is a 'management decision', then surely so would be plumping for a vanilla all world capitalisation weighted index, which had a 'management decision' to weight it that way eons ago. Indeed, there a solid rational scientific basis for sector tilts that one could feasibly argue removes some of the arbitrariness of cap weighting.

    So, what would be an example of a passive portfolio that would not have you chastising a poster for making 'management decisions'?
    • TheTracker
    • By TheTracker 14th Feb 18, 3:33 PM
    • 1,213 Posts
    • 1,198 Thanks
    TheTracker
    Aren't all trackers passive, by definition ?
    Originally posted by AnotherJoe
    I suppose it is more by practise and circumstance than definition. There is nothing stopping an index being a reflection of some form of management decision. Indeed, they all are in some interpretations. One renowned active fundamentalist thinks one isn't passive if one makes a management decision: someone somewhere decided whats in an AsiaPac index, a Small Cap index, or even an all world index. Does that make them passive or not? An exercise for the reader.

    Now we see more and more Smart Beta and Factor ETFs, which in some ways are formulaic indices. The managers may make the logic of constituency (semi) public and transparent and make a commitment to not fiddle without notification. In many ways, these seem more 'logical' indices to me than one made by accident of geography.Are they active or passive? Some of both, probably.

    And of course, many active funds are closet trackers. And in that sense, that could be more 'passive' by some definitions than those smart beta ETFs.
    • dunstonh
    • By dunstonh 14th Feb 18, 3:44 PM
    • 93,032 Posts
    • 60,418 Thanks
    dunstonh
    Would you mind explaining what you WOULD consider a passive approach?
    One that does not involve management decisions on where to invest and where not to invest.

    But if choosing whether to weight EM or Small or value is a 'management decision', then surely so would be plumping for a vanilla all world capitalisation weighted index, which had a 'management decision' to weight it that way eons ago.
    Having a weighted portfolio of index trackers in all the major areas is fine. Yes you are making a management decision on the weightings but that is inevitable. it isnt truely passive like a global tracker may but its as close as you can get. However, once you start going into picking Large cap only or leaving sectors out, then you are making significant management decisions. You are effectively becoming a fund manager in your own right in an attempt to outperform. The very thing that passive investors would not look to do.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Linton
    • By Linton 14th Feb 18, 4:45 PM
    • 9,395 Posts
    • 9,529 Thanks
    Linton
    The often stated passive line is that you cannot beat the market except by random luck in the shorter term. That must imply that a decision to not follow the market and instead to go overweight in particular areas is futile at best and counter productive at worst. On the other hand if it is accepted that a private investor can benefit by overweighting particular areas in the longer term why cant a fund manager?
    • TBC15
    • By TBC15 14th Feb 18, 5:24 PM
    • 495 Posts
    • 251 Thanks
    TBC15
    Out of curiosity what occurs in 15ys time.
    • TheTracker
    • By TheTracker 14th Feb 18, 6:13 PM
    • 1,213 Posts
    • 1,198 Thanks
    TheTracker
    The often stated passive line is that you cannot beat the market except by random luck in the shorter term. That must imply that a decision to not follow the market and instead to go overweight in particular areas is futile at best and counter productive at worst. On the other hand if it is accepted that a private investor can benefit by overweighting particular areas in the longer term why cant a fund manager?
    Originally posted by Linton
    I usually find your logic very clear (although I tend to disagree with the assumptions fed into it). But in this case, I don't see the logical thread at all.

    Given any short term window of data, it is impossible to see whether actions taken in that window were significant to the performance within the window, or due to randomness vs the natural volatility. It's not possible to control for that volatility. You might call it a passive line, but I like to believe it still the case even if I fervently believed in a superiority of active management. Over time, the volatility begins to cancel itself out and the any underlying capability (alpha) will show its head. I see these as mathematical truths, not parochial assertions.

    "a decision to not follow the market and instead go overweight in particular areas is futile at best and counter productive at worst".
    I think this type of thinking possibly stems from a popular misconception that Passive/Index investing and Efficient Markets are joined at the hips. It is a mistake to equate market efficiency with the inability of active investors, as a group, to outperform passive indexes. That there may be slices of market with higher risk adjusted returns is not something that any passive investor I know would dispute, in fact they are often the more passionate advocators of the existence. Being 'overweight' in such a sector (a devotee might more likely say a mere cap-weighted portfolio is 'underweighted' in the sector) is not futile or counterproductive.

    On the other hand if it is accepted that a private investor can benefit by overweighting particular areas in the longer term why cant a fund manager?
    Again, the logic escapes me. As a passive investor I am very comfortable to say it is perfectly possible for a fund manager to benefit by overweighting (there is that pejorative word again) in an area like Value or EM. Even to the degree that, on average, all fund managers will benefit vs not overweighting. After all, that's what I'm tracking, minus fees. Indeed, I'd go so far as to say most of the publicly perceived ability of a fund manager is the result of such exposure!

    Anyhoo, I suspect this is one of those times when we all say our piece, step back, and think just the same as we always did, only stronger. It's valentine's day, and have to accept passive and active advocates aren't likely to be sharing a candlelit dinner tonight.
    • grey gym sock
    • By grey gym sock 14th Feb 18, 6:25 PM
    • 4,397 Posts
    • 3,949 Thanks
    grey gym sock
    It's valentine's day, and have to accept passive and active advocates aren't likely to be sharing a candlelit dinner tonight.
    Originally posted by TheTracker
    does your dating profile say "no active investors"?
    • capital0ne
    • By capital0ne 14th Feb 18, 6:48 PM
    • 524 Posts
    • 254 Thanks
    capital0ne
    I realise the wisdom is a VLS / L&G type fund but I am willing to stick 100% with equities. I am not sure of the likelihood of much upside with bonds, even with the income re-invested.
    Originally posted by apollo9
    Bonds provide a big upside when combined with equities, they actually minimise risk in the correct proportion. Read The Intelligent Asset Allocator by Bernstein for more info.

    This is subject rarely mentioned by the experts on MSE, probably because they seem more interested in guessing what to pick and why.

    Good luck
    • Prism
    • By Prism 14th Feb 18, 7:06 PM
    • 366 Posts
    • 285 Thanks
    Prism
    Bonds provide a big upside when combined with equities, they actually minimise risk in the correct proportion. Read The Intelligent Asset Allocator by Bernstein for more info.

    This is subject rarely mentioned by the experts on MSE, probably because they seem more interested in guessing what to pick and why.

    Good luck
    Originally posted by capital0ne
    Bonds can minimize volatility but have their own inherent risks. What they typically do in the long term though is reduce gains (while likely reducing volatility). The reason some people don't bother with bonds is because they are willing to accept short term volatility to maximise their long term gains.
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