macq
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Post by macq on Aug 9, 2017 18:50:25 GMT
It's worth remembering that by definition active investing is a zero sum game. Passive investing will return the index minus the, on average, much lower fees than active funds. For every active pound/dollar that beats the index one must trail it by the same amount. Thus, the returns of active investing must trail those of passive investing because of their, on average, much higher fees. That's not to say there isn't a place for active investing because they set the market price and ensure it's efficient. Active investing enables you to beat the market but remember someone has to lose. When I deviate from a well diversified passive approach I always try to remember who I'm competing against and what gives me the edge? P2P is very different because the markets are highly inefficient when compared to the developed world stock markets. As someone who has trackers,ETFs & IT its always interesting to get others point of view.Can see where you say you have active funds & that they can beat the market.But wonder what you mean by active investing must trail passive investing due to their fees,while it may be hard to pick the top funds all the time if you do you will surely beat the trackers.There are also some IT with charges of about .5% that are worth a look.
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Monetus
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Post by Monetus on Aug 9, 2017 18:59:23 GMT
Would any "active" investors care to share their current favourite fund picks?
I currently have ISA investments with Fundsmith, Scottish Mortgage IT and Lindsell Train Global Equity.
Thinking I am heavy into US so been considering adding some UK and India diversification....
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macq
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Post by macq on Aug 9, 2017 19:48:03 GMT
Personally, I think active funds are just a device to enable financial institutions to make money out of the little people. IT are a little better at providing a consistent long term return but the premium/discount is something to watch out for. All I need to know is that the single most successful investor ever says that just about everyone should buy cheap trackers. I don't believe I am special enough to know which few percent of the active funds that do manage to beat the index consistently I should buy. Also, if you're old like me, it can be risky investing in something priced in a currency other than the one used in the country you intend to retire in. i would prefer to be in Warren Buffett's own fund then in a tracker 
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Post by dan1 on Aug 9, 2017 19:57:37 GMT
Ah I get you now, makes sense. All an active fund that charges 0.6%, compared to a passive fund that charges 0.1%, has to do is add 0.5% value in a year. Also when active funds are compared against trackers, you usually have the best performing (usually cheapest) tracker stacked up against vs the average performance of all active funds, which includes all the 1.5% charging closet trackers, default pension/life funds, and absolute jokers like Manek Growth. I may very well end up in 40 years time realising I have been no better off by using actives, but where's the fun in that! It has to add 0.5% compared to the benchmark every year just to match the return of the tracker. If it adds nothing you've lost 0.5%, or given historic returns average something like 5% in inflation adjusted terms, then you've lost 10% of your return. The flip side is why people invest in active returns, to beat the market but it's just not possible for everyone to do it. I understand the rationale for going active (passive is quite simply a bore) but I recommend you track (no pun intended) your returns independent of your broker. Preferably by unitising to be able to compare directly to your benchmark.
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Post by dan1 on Aug 9, 2017 20:15:51 GMT
It's worth remembering that by definition active investing is a zero sum game. Passive investing will return the index minus the, on average, much lower fees than active funds. For every active pound/dollar that beats the index one must trail it by the same amount. Thus, the returns of active investing must trail those of passive investing because of their, on average, much higher fees. That's not to say there isn't a place for active investing because they set the market price and ensure it's efficient. Active investing enables you to beat the market but remember someone has to lose. When I deviate from a well diversified passive approach I always try to remember who I'm competing against and what gives me the edge? P2P is very different because the markets are highly inefficient when compared to the developed world stock markets. As someone who has trackers,ETFs & IT its always interesting to get others point of view.Can see where you say you have active funds & that they can beat the market.But wonder what you mean by active investing must trail passive investing due to their fees,while it may be hard to pick the top funds all the time if you do you will surely beat the trackers.There are also some IT with charges of about .5% that are worth a look. I'll try an example (and probably fall flat on my face!). The index returns 10% for the year, an index tracker charging 1% fee will therefore return 9%. Two active funds charging 2% fee, the 1st holds the index but overweights HSBC (this is their edge, alpha, call it what you want), the 2nd underweights HSBC. Say HSBC perform well increasing the return of the 1st active to 15% (13% after fees), but the return of the 2nd is 5% (3% after fees). The aggregate return of the actives is 8%, trailing the return of the tracker by the difference in fees.
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jonah
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Post by jonah on Aug 9, 2017 20:35:49 GMT
Would any "active" investors care to share their current favourite fund picks? I currently have ISA investments with Fundsmith, Scottish Mortgage IT and Lindsell Train Global Equity. Thinking I am heavy into US so been considering adding some UK and India diversification.... I have money in two of those three... both doing ok, with one at over 20% annual return for the last 2.5 years. That said, stock markets have been a little like the proverbial fish in a barrel recently. Not sure how long that will last. For completeness I've significantly more in passive funds than actives, but do think actives have their place.
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macq
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Post by macq on Aug 9, 2017 21:06:50 GMT
As someone who has trackers,ETFs & IT its always interesting to get others point of view.Can see where you say you have active funds & that they can beat the market.But wonder what you mean by active investing must trail passive investing due to their fees,while it may be hard to pick the top funds all the time if you do you will surely beat the trackers.There are also some IT with charges of about .5% that are worth a look. I'll try an example (and probably fall flat on my face!). The index returns 10% for the year, an index tracker charging 1% fee will therefore return 9%. Two active funds charging 2% fee, the 1st holds the index but overweights HSBC (this is their edge, alpha, call it what you want), the 2nd underweights HSBC. Say HSBC perform well increasing the return of the 1st active to 15% (13% after fees), but the return of the 2nd is 5% (3% after fees). The aggregate return of the actives is 8%, trailing the return of the tracker by the difference in fees. Can see where you coming from in your example but think its the words "must trail" that confuse me as your 2 active funds could be up by 25% so still be in front(or thats the bit where i fall on my face!).An interesting change in the last couple of years in trackers & ETFs are the smart beta ones that are semi active in that they follow a set path and can make changes rather then just buying every stock in the market there following. p.s would say dont buy a tracker paying 1%  but think the only one left is the Virgin money uk tracker
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am
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Post by am on Aug 9, 2017 21:09:01 GMT
Personally, I think active funds are just a device to enable financial institutions to make money out of the little people. IT are a little better at providing a consistent long term return but the premium/discount is something to watch out for. All I need to know is that the single most successful investor ever says that just about everyone should buy cheap trackers. I don't believe I am special enough to know which few percent of the active funds that do manage to beat the index consistently I should buy. Also, if you're old like me, it can be risky investing in something priced in a currency other than the one used in the country you intend to retire in. i would prefer to be in Warren Buffett's own fund then in a tracker If you happen to have a spare quarter million dollars and counting to pay for a single share ... (The B-shares are more affordable, but come with reduced voting rights.) Extra: some issues with Berkshire Hathaway are cash drag (nearly $100bn in cash, but this does give them a war chest for the next correction/recession), the size (which makes it harder for them to be more than a closet tracker), and the succession questions.
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macq
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Post by macq on Aug 9, 2017 21:12:01 GMT
Ah I get you now, makes sense. All an active fund that charges 0.6%, compared to a passive fund that charges 0.1%, has to do is add 0.5% value in a year. Also when active funds are compared against trackers, you usually have the best performing (usually cheapest) tracker stacked up against vs the average performance of all active funds, which includes all the 1.5% charging closet trackers, default pension/life funds, and absolute jokers like Manek Growth. I may very well end up in 40 years time realising I have been no better off by using actives, but where's the fun in that! As Manek got the chance to run his Manek growth fund by winning a newspaper share tipping competition 2 years running back in the 90's may be there's a chance for one of us yet
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macq
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Post by macq on Aug 9, 2017 21:13:27 GMT
i would prefer to be in Warren Buffett's own fund then in a tracker If you happen to have a spare quarter million dollars and counting to pay for a single share ... (The B-shares are more affordable, but come with reduced voting rights.) i did say prefer not buy as i would have to sell my holding in the Medallion fund ( i wish ) 
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Post by dan1 on Aug 9, 2017 21:36:03 GMT
I'll try an example (and probably fall flat on my face!). The index returns 10% for the year, an index tracker charging 1% fee will therefore return 9%. Two active funds charging 2% fee, the 1st holds the index but overweights HSBC (this is their edge, alpha, call it what you want), the 2nd underweights HSBC. Say HSBC perform well increasing the return of the 1st active to 15% (13% after fees), but the return of the 2nd is 5% (3% after fees). The aggregate return of the actives is 8%, trailing the return of the tracker by the difference in fees. Can see where you coming from in your example but think its the words "must trail" that confuse me as your 2 active funds could be up by 25% so still be in front(or thats the bit where i fall on my face!).An interesting change in the last couple of years in trackers & ETFs are the smart beta ones that are semi active in that they follow a set path and can make changes rather then just buying every stock in the market there following. p.s would say dont buy a tracker paying 1% but think the only one left is the Virgin money uk tracker Yes, two independent funds could be up 25% but who is down? All the money in the market gives the market return, trackers just buy market-weighted proportion of the market so deliver the market return, that leaves the active money. So, if you only have 2 funds in the active money of equal AUM and one is up 25%, what return will the other have? It's a zero-sum game. Question is can you pick the winners and take that excess return from someone else's attempt to pick their winners? Yes, agree smart beta blur the passive-active boundary. They also charge higher fees Active funds do have their place, for example ITs are great investment vehicles delivering stable and increasing dividend payouts.
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Post by nellerdk on Aug 9, 2017 21:40:32 GMT
i would prefer to be in Warren Buffett's own fund then in a tracker If you happen to have a spare quarter million dollars and counting to pay for a single share ... (The B-shares are more affordable, but come with reduced voting rights.) Extra: some issues with Berkshire Hathaway are cash drag (nearly $100bn in cash, but this does give them a war chest for the next correction/recession), the size (which makes it harder for them to be more than a closet tracker), and the succession questions. lol.. nobody on this forum is rich enough to have substantial Berkshire voting rights, whether they own A or B shares...
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macq
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Post by macq on Aug 9, 2017 22:24:11 GMT
Can see where you coming from in your example but think its the words "must trail" that confuse me as your 2 active funds could be up by 25% so still be in front(or thats the bit where i fall on my face!).An interesting change in the last couple of years in trackers & ETFs are the smart beta ones that are semi active in that they follow a set path and can make changes rather then just buying every stock in the market there following. p.s would say dont buy a tracker paying 1% but think the only one left is the Virgin money uk tracker Yes, two independent funds could be up 25% but who is down? All the money in the market gives the market return, trackers just buy market-weighted proportion of the market so deliver the market return, that leaves the active money. So, if you only have 2 funds in the active money of equal AUM and one is up 25%, what return will the other have? It's a zero-sum game. Question is can you pick the winners and take that excess return from someone else's attempt to pick their winners? Yes, agree smart beta blur the passive-active boundary. They also charge higher fees Active funds do have their place, for example ITs are great investment vehicles delivering stable and increasing dividend payouts. i like and have trackers but prefer ITs.Would agree over the years its hard for active managers to be at the top of the charts year after year but as an example i have the HSBC mid cap tracker in my company pension over a year its at about 15-16%. According to citywire the 12 funds in their mid cap chart range from 45% down to 17% so not exactly a zero sum game and everyone is a winner but some not as much.Trackers may match the market/index but there is the loss due to costs & tracking error so will never beat the market and may work best in the bigger stock markets and are not that great for income.But you are right you cant guarantee to pick the top fund @ 25% but if it makes 16% should people still not be happy its partly our greed in comparing charts that makes us doubt our choice if offered 16% at the start would we not be happy?.When i compare funds i only look at annualized returns over 3 years minimum & preferably 5 to 10 years and the max draw down(and then probably still get it wrong!)so hopefully missing the one hit wonders but as was said it can be fun. Anyway i am off to read Trustnet now and get more confused
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yangmills
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Post by yangmills on Aug 9, 2017 23:20:26 GMT
... All I need to know is that the single most successful investor ever says that just about everyone should buy cheap trackers ... Buffett is a great investor but hardly the world's most successful investor, especially once you strip out the leveraging impact of the reinsurance business. Let me introduce you Jim Simons and the Renaissance Technologies Medallion Fund ( link). Making Buffett look mediocre since 1990. It's delivered over 70% annually compounded, with no down years except it's launch year in 1989. It made 98% in 2008 when the S&P lost 35%. Of course for investors it delivered "just" 35% per annum because it charged a 5% management fee and 45% performance fee. Except you can't invest since they closed the fund to new investors in 1993 and threw out all the external investors in 2005. It's just the partners and employees (and their offshore trusts of course). Well who wants to share sort of performance for just 50% in fees? I love trackers for their low costs and ease of use. But I sleep better at night knowing I have a large lump of my portfolio in a pure alpha product (more like the Medallion fund). Absolute return, constrained downside, long vol, and zero correlation with all those beta assets like stocks, bonds, property (and of course P2P loans). I actually look forward to another 2008 ...
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macq
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Post by macq on Aug 10, 2017 7:18:38 GMT
Always think that the words Alpha & Beta have been used in the last few years to make their funds sound different and some how more clever and then charge more as if to say trackers can't do this when in fact they were just terms which measured how a fund was doing but are now used as a buzz word.Its like there had been funds like RIT and big pension funds from insurance companies that had been around for decades aiming for slow steady growth with low down side, then Standard Life launched a so called Absolute fund with the same sort of ideas but at twice the fee of a so called normal fund and then the other companies rushed to market the same.
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but think the only one left is the Virgin money uk tracker
