Fund investing in the present market
Discussion
I’m sitting on some funds and I am looking to invest them. I don’t want an income, I’m looking to grow them for whatever the future may bring and to add on to an inadequate pension pot. Currently mid 30s so it’s a longer term thing.
I’ve read various threads on the forum and bought the forum favourite, How to Own the World. Was working on the cash slush fund previously anyway and now it’s investment time.
I’ve also gone ahead and opened a S&S ISA and bedded my transferable existing share holdings in to it. That leaves me with about 75% of this year’s ISA allowance to put in and most of next year’s when the time comes. Per nigh on every thread on here, I’ve been looking at low cost global (passive) trackers. Narrowed it down to a handful and done some digging in to their constituents. All are about -7% past 3 months, +3% for this year, +11.5% 5 years annualised and all carry an ongoing charge of <0.15%. However, I’ve also read some articles on smart beta funds after flagging up the need to read up on them from the book.
My sticking point is where the market is in the current cycle and where it may be going. Most global markets seem to have “humped” for want of a better term, and are now back to ~10% over where they were 2 years ago, the notable exception being US indexes. These US indexes being composed of the same US stocks that the global passive funds have 60-65% of their holdings in. Also pretty much without exception, the largest holdings of the funds are US tech stocks which have all taken a bit of a battering.
I’d be curious to hear the opinions of the forum on what they would do at this time?
I can either:
- Dump in this year’s allowance now, and next year’s allowance mid April-2019, in to low cost passive funds and hope it’s a correction at present
- £ cost average the remaining allowance over this year’s remaining months and next years allowance over 12 months and risk losing some gains but also slightly de-risk sizeable losses
- Same as the first option but try and 50/50 it low cost passive & value weighted smart beta ETFs
- Same as the second option but 50/50 it low cost passive & value weighted smart beta ETFs
Or just sit out the Santa rally and see how things look in the New Year
I’ve read various threads on the forum and bought the forum favourite, How to Own the World. Was working on the cash slush fund previously anyway and now it’s investment time.
I’ve also gone ahead and opened a S&S ISA and bedded my transferable existing share holdings in to it. That leaves me with about 75% of this year’s ISA allowance to put in and most of next year’s when the time comes. Per nigh on every thread on here, I’ve been looking at low cost global (passive) trackers. Narrowed it down to a handful and done some digging in to their constituents. All are about -7% past 3 months, +3% for this year, +11.5% 5 years annualised and all carry an ongoing charge of <0.15%. However, I’ve also read some articles on smart beta funds after flagging up the need to read up on them from the book.
My sticking point is where the market is in the current cycle and where it may be going. Most global markets seem to have “humped” for want of a better term, and are now back to ~10% over where they were 2 years ago, the notable exception being US indexes. These US indexes being composed of the same US stocks that the global passive funds have 60-65% of their holdings in. Also pretty much without exception, the largest holdings of the funds are US tech stocks which have all taken a bit of a battering.
I’d be curious to hear the opinions of the forum on what they would do at this time?
I can either:
- Dump in this year’s allowance now, and next year’s allowance mid April-2019, in to low cost passive funds and hope it’s a correction at present
- £ cost average the remaining allowance over this year’s remaining months and next years allowance over 12 months and risk losing some gains but also slightly de-risk sizeable losses
- Same as the first option but try and 50/50 it low cost passive & value weighted smart beta ETFs
- Same as the second option but 50/50 it low cost passive & value weighted smart beta ETFs
Or just sit out the Santa rally and see how things look in the New Year
SJfW said:
I’m sitting on some funds and I am looking to invest them. I don’t want an income, I’m looking to grow them for whatever the future may bring and to add on to an inadequate pension pot. Currently mid 30s so it’s a longer term thing.
I’ve read various threads on the forum and bought the forum favourite, How to Own the World. Was working on the cash slush fund previously anyway and now it’s investment time.
I’ve also gone ahead and opened a S&S ISA and bedded my transferable existing share holdings in to it. That leaves me with about 75% of this year’s ISA allowance to put in and most of next year’s when the time comes. Per nigh on every thread on here, I’ve been looking at low cost global (passive) trackers. Narrowed it down to a handful and done some digging in to their constituents. All are about -7% past 3 months, +3% for this year, +11.5% 5 years annualised and all carry an ongoing charge of <0.15%. However, I’ve also read some articles on smart beta funds after flagging up the need to read up on them from the book.
My sticking point is where the market is in the current cycle and where it may be going. Most global markets seem to have “humped” for want of a better term, and are now back to ~10% over where they were 2 years ago, the notable exception being US indexes. These US indexes being composed of the same US stocks that the global passive funds have 60-65% of their holdings in. Also pretty much without exception, the largest holdings of the funds are US tech stocks which have all taken a bit of a battering.
I’d be curious to hear the opinions of the forum on what they would do at this time?
I can either:
- Dump in this year’s allowance now, and next year’s allowance mid April-2019, in to low cost passive funds and hope it’s a correction at present
- £ cost average the remaining allowance over this year’s remaining months and next years allowance over 12 months and risk losing some gains but also slightly de-risk sizeable losses
- Same as the first option but try and 50/50 it low cost passive & value weighted smart beta ETFs
- Same as the second option but 50/50 it low cost passive & value weighted smart beta ETFs
Or just sit out the Santa rally and see how things look in the New Year
Would be interested to know which (truly) global trackers are <0.15%I’ve read various threads on the forum and bought the forum favourite, How to Own the World. Was working on the cash slush fund previously anyway and now it’s investment time.
I’ve also gone ahead and opened a S&S ISA and bedded my transferable existing share holdings in to it. That leaves me with about 75% of this year’s ISA allowance to put in and most of next year’s when the time comes. Per nigh on every thread on here, I’ve been looking at low cost global (passive) trackers. Narrowed it down to a handful and done some digging in to their constituents. All are about -7% past 3 months, +3% for this year, +11.5% 5 years annualised and all carry an ongoing charge of <0.15%. However, I’ve also read some articles on smart beta funds after flagging up the need to read up on them from the book.
My sticking point is where the market is in the current cycle and where it may be going. Most global markets seem to have “humped” for want of a better term, and are now back to ~10% over where they were 2 years ago, the notable exception being US indexes. These US indexes being composed of the same US stocks that the global passive funds have 60-65% of their holdings in. Also pretty much without exception, the largest holdings of the funds are US tech stocks which have all taken a bit of a battering.
I’d be curious to hear the opinions of the forum on what they would do at this time?
I can either:
- Dump in this year’s allowance now, and next year’s allowance mid April-2019, in to low cost passive funds and hope it’s a correction at present
- £ cost average the remaining allowance over this year’s remaining months and next years allowance over 12 months and risk losing some gains but also slightly de-risk sizeable losses
- Same as the first option but try and 50/50 it low cost passive & value weighted smart beta ETFs
- Same as the second option but 50/50 it low cost passive & value weighted smart beta ETFs
Or just sit out the Santa rally and see how things look in the New Year
Regarding smart beta, I think you've first got to ask yourself whether the (expected) market return is sufficient to enable you to reach your objectives. If not, I'd want to know exactly what "tilts" were being taken vs the market and whether I was comfortable with these (including potential prolonged periods of underperformance).
You're only mid 30s so not sure why you are focusing on what the market is doing at present or what it might do in the near future.
I’m not going to lie, yours was one of the voices I was hoping to hear on the thread.
Straight away, you have probably identified a hole in my research. Global passive funds would probably be more accurate as they all state they aim to match various world indexes but aren’t technically trackers? Narrowed down to 4 potential funds at present:
- Fidelity Index World P Acc
- Vanguard FTSE Dev Wld ex UK Eq Idx Acc
- L&G International Index I Acc
- L&G Global 100 Index I Acc (allocation wise this is the least “global” in that its very much weighted to Europe and North America)
Smart beta, I evidently don’t know enough about this to make an informed decision so it should really be taken off the table.
With respect to mid-thirties and why the near future bothers me, that’s largely down to where the funds to invest came from. At the end of 2007 I convinced myself I needed to buy my own place; messy break up, back living at my parents, frankly I wanted a town centre bachelor pad to go out on the lash and have somewhere to return to for rutting. The reality; the English property market was already dropping, Scotland was about to follow suit, I didn’t need to move out. Ten years later, I have only just got out of that purchase and if I ignore the cost of the furniture I bundled in with the sale, it only lost me a grand. If I had sat on my hands for a year which it really wouldn’t have harmed me to do, I would be twenty grand up based on direct comparison of what the flat directly below mine sold for in 2009 and again in 2017.
Now I am convinced I need to do something about my long term finances, but I don’t need to right this minute. I’m wary of the same situation as above and looking at the US indexes over the last 8-10 years, I’m more inclined this time to edge in to it or sit on my hands, than go all in and end up waiting for recovery. Think that’s why I’m leaning towards averaging in.
Straight away, you have probably identified a hole in my research. Global passive funds would probably be more accurate as they all state they aim to match various world indexes but aren’t technically trackers? Narrowed down to 4 potential funds at present:
- Fidelity Index World P Acc
- Vanguard FTSE Dev Wld ex UK Eq Idx Acc
- L&G International Index I Acc
- L&G Global 100 Index I Acc (allocation wise this is the least “global” in that its very much weighted to Europe and North America)
Smart beta, I evidently don’t know enough about this to make an informed decision so it should really be taken off the table.
With respect to mid-thirties and why the near future bothers me, that’s largely down to where the funds to invest came from. At the end of 2007 I convinced myself I needed to buy my own place; messy break up, back living at my parents, frankly I wanted a town centre bachelor pad to go out on the lash and have somewhere to return to for rutting. The reality; the English property market was already dropping, Scotland was about to follow suit, I didn’t need to move out. Ten years later, I have only just got out of that purchase and if I ignore the cost of the furniture I bundled in with the sale, it only lost me a grand. If I had sat on my hands for a year which it really wouldn’t have harmed me to do, I would be twenty grand up based on direct comparison of what the flat directly below mine sold for in 2009 and again in 2017.
Now I am convinced I need to do something about my long term finances, but I don’t need to right this minute. I’m wary of the same situation as above and looking at the US indexes over the last 8-10 years, I’m more inclined this time to edge in to it or sit on my hands, than go all in and end up waiting for recovery. Think that’s why I’m leaning towards averaging in.
SJfW said:
I’m not going to lie, yours was one of the voices I was hoping to hear on the thread.
Straight away, you have probably identified a hole in my research. Global passive funds would probably be more accurate as they all state they aim to match various world indexes but aren’t technically trackers? Narrowed down to 4 potential funds at present:
- Fidelity Index World P Acc
- Vanguard FTSE Dev Wld ex UK Eq Idx Acc
- L&G International Index I Acc
- L&G Global 100 Index I Acc (allocation wise this is the least “global” in that its very much weighted to Europe and North America)
Smart beta, I evidently don’t know enough about this to make an informed decision so it should really be taken off the table.
With respect to mid-thirties and why the near future bothers me, that’s largely down to where the funds to invest came from. At the end of 2007 I convinced myself I needed to buy my own place; messy break up, back living at my parents, frankly I wanted a town centre bachelor pad to go out on the lash and have somewhere to return to for rutting. The reality; the English property market was already dropping, Scotland was about to follow suit, I didn’t need to move out. Ten years later, I have only just got out of that purchase and if I ignore the cost of the furniture I bundled in with the sale, it only lost me a grand. If I had sat on my hands for a year which it really wouldn’t have harmed me to do, I would be twenty grand up based on direct comparison of what the flat directly below mine sold for in 2009 and again in 2017.
Now I am convinced I need to do something about my long term finances, but I don’t need to right this minute. I’m wary of the same situation as above and looking at the US indexes over the last 8-10 years, I’m more inclined this time to edge in to it or sit on my hands, than go all in and end up waiting for recovery. Think that’s why I’m leaning towards averaging in.
The reason I ask re global is because global (to me) is large, medium and small cap from developed and emerging markets. Your first choice skips small cap and emerging markets (I haven't checked the rest). You may be happy with that but good to be aware. Exposure to small cap and EM tends to cost more.Straight away, you have probably identified a hole in my research. Global passive funds would probably be more accurate as they all state they aim to match various world indexes but aren’t technically trackers? Narrowed down to 4 potential funds at present:
- Fidelity Index World P Acc
- Vanguard FTSE Dev Wld ex UK Eq Idx Acc
- L&G International Index I Acc
- L&G Global 100 Index I Acc (allocation wise this is the least “global” in that its very much weighted to Europe and North America)
Smart beta, I evidently don’t know enough about this to make an informed decision so it should really be taken off the table.
With respect to mid-thirties and why the near future bothers me, that’s largely down to where the funds to invest came from. At the end of 2007 I convinced myself I needed to buy my own place; messy break up, back living at my parents, frankly I wanted a town centre bachelor pad to go out on the lash and have somewhere to return to for rutting. The reality; the English property market was already dropping, Scotland was about to follow suit, I didn’t need to move out. Ten years later, I have only just got out of that purchase and if I ignore the cost of the furniture I bundled in with the sale, it only lost me a grand. If I had sat on my hands for a year which it really wouldn’t have harmed me to do, I would be twenty grand up based on direct comparison of what the flat directly below mine sold for in 2009 and again in 2017.
Now I am convinced I need to do something about my long term finances, but I don’t need to right this minute. I’m wary of the same situation as above and looking at the US indexes over the last 8-10 years, I’m more inclined this time to edge in to it or sit on my hands, than go all in and end up waiting for recovery. Think that’s why I’m leaning towards averaging in.
https://www.msci.com/world
Regarding the state of the market and your experiences in 2007 (we also bought then, ouch!), I think you need to be careful that you don't let hindsight bias skew your thinking - the market may well not have dropped massively in 2007-2009 and you would've had a very different outcome, but I understand your reluctance.
While drip feeding may not be the optimal choice over lump sum investing in terms of raw returns (on average), if it makes you sleep better at night then surely that's the best option?
Problem (or benefit) with global fund trackers as far as I can see is currency fluctuations. I thought my foreign investment funds were doing well as the pound fell the foreign assets were worth more in Stirling, the underlying performance may have been different in local currency. When the pound comes up the reverse happens.
If you are worried about short term volatility then drip feeding your investments to achieve £ cost averaging could work in your favour, but as you highlight could also work against you.
Smart beta has long been my preferred route rather than using a global passive tracker for the obvious reason that there is a full investment management team behind this who asses global weightings and exposure based on objective factors, rather than blindly sticking to market cap weightings.
So whilst a global passive tracker will always be the cheapest option, it isn't necessarily the best. Paying a bit more for active asset allocation management with the smart beta model could help achieve what you are looking for in current and future markets.
Nothing wrong with global trackers in the slightest BTW. I just consider that a global tracking portfolio controlled and managed using smart beta is better.
Smart beta has long been my preferred route rather than using a global passive tracker for the obvious reason that there is a full investment management team behind this who asses global weightings and exposure based on objective factors, rather than blindly sticking to market cap weightings.
So whilst a global passive tracker will always be the cheapest option, it isn't necessarily the best. Paying a bit more for active asset allocation management with the smart beta model could help achieve what you are looking for in current and future markets.
Nothing wrong with global trackers in the slightest BTW. I just consider that a global tracking portfolio controlled and managed using smart beta is better.
Croutons said:
Yes Brexit, but what led you to conclude the Vanguard choice was ex UK?
If I'm understanding your question, why the ex-UK Vanguard out of the multiple Vanguard funds available, purely because it was the one that came through my filter criteria. It wasn't actually a conscious decision to avoid the UK.The fund selector on my web broker allows you to apply filter criteria so I searched; funds, global, passive, ISA eligible, 5yr annualised >10%, ongoing fees <0.5% Of all the funds returned, the 4 I mentioned were in the sweet spot between lowest ongoing fees vs high annualised growth.
That being said, the Fidelity and L&G Global funds, have 5.8% and 10.8% of the funds in UK stocks respectively. The other 2 its decimal percentages.
Derek Chevalier said:
The reason I ask re global is because global (to me) is large, medium and small cap from developed and emerging markets. Your first choice skips small cap and emerging markets (I haven't checked the rest). You may be happy with that but good to be aware. Exposure to small cap and EM tends to cost more.
https://www.msci.com/world
Regarding the state of the market and your experiences in 2007 (we also bought then, ouch!), I think you need to be careful that you don't let hindsight bias skew your thinking - the market may well not have dropped massively in 2007-2009 and you would've had a very different outcome, but I understand your reluctance.
While drip feeding may not be the optimal choice over lump sum investing in terms of raw returns (on average), if it makes you sleep better at night then surely that's the best option?
Thanks for that, something I really should have been more tuned in to from reading the book! On reviewing my spreadsheet of the funds' breakdowns, you are completely correct. The L&G Global is 100% large & giant cap, the other 3 are in the region of 86% large and giant.https://www.msci.com/world
Regarding the state of the market and your experiences in 2007 (we also bought then, ouch!), I think you need to be careful that you don't let hindsight bias skew your thinking - the market may well not have dropped massively in 2007-2009 and you would've had a very different outcome, but I understand your reluctance.
While drip feeding may not be the optimal choice over lump sum investing in terms of raw returns (on average), if it makes you sleep better at night then surely that's the best option?
Emerging markets is an interesting one, the fund summaries give a geographical breakdown which features Europe Emerging and Asia Emerging, again you are correct across the board, not many percentage points in those columns! Would Africa and the Middle East also be considered emerging? More research needed here before I pull the trigger on anything.
I've spent an evening geeking out with my beloved spreadsheets, I think I'm now slightly less concerned about a bubble-pop style crash. Since the dotcom bust, the FTSE and DJIA have seen annual % increases which are approx. 50% over their long term average. This is even steeper after the financial crisis, but with the enormous scale of QE applied, I don't think it is that surprising or shocking.
Heres Johnny said:
Problem (or benefit) with global fund trackers as far as I can see is currency fluctuations. I thought my foreign investment funds were doing well as the pound fell the foreign assets were worth more in Stirling, the underlying performance may have been different in local currency. When the pound comes up the reverse happens.
Yes indeed, I'm very much aware of this one based on my pension funds' ups & downs over the last few years. I have to say, being invested prior to Brexit seems like a good hedge to me at the moment. I don't know whats going to happen and I don't think anyone else really does either, but I think being invested globally does a good job of reducing risk.JulianPH said:
If you are worried about short term volatility then drip feeding your investments to achieve £ cost averaging could work in your favour, but as you highlight could also work against you.
Smart beta has long been my preferred route rather than using a global passive tracker for the obvious reason that there is a full investment management team behind this who asses global weightings and exposure based on objective factors, rather than blindly sticking to market cap weightings.
So whilst a global passive tracker will always be the cheapest option, it isn't necessarily the best. Paying a bit more for active asset allocation management with the smart beta model could help achieve what you are looking for in current and future markets.
Nothing wrong with global trackers in the slightest BTW. I just consider that a global tracking portfolio controlled and managed using smart beta is better.
Courtesy of further reading, number crunching and this thread, I'm less worried about averaging in now. I'm more inclined to think being invested in any fashion of global funds now, is preferable to waiting to see what the value of my pound is at the very end of this year's ISA season with all the uncertainty around Brexit.Smart beta has long been my preferred route rather than using a global passive tracker for the obvious reason that there is a full investment management team behind this who asses global weightings and exposure based on objective factors, rather than blindly sticking to market cap weightings.
So whilst a global passive tracker will always be the cheapest option, it isn't necessarily the best. Paying a bit more for active asset allocation management with the smart beta model could help achieve what you are looking for in current and future markets.
Nothing wrong with global trackers in the slightest BTW. I just consider that a global tracking portfolio controlled and managed using smart beta is better.
Definitely going to do more reading in to smart beta over the Christmas break and understand the factors and which ones are most important & applicable to me.
Heres Johnny said:
Problem (or benefit) with global fund trackers as far as I can see is currency fluctuations. I thought my foreign investment funds were doing well as the pound fell the foreign assets were worth more in Stirling, the underlying performance may have been different in local currency. When the pound comes up the reverse happens.
If you are referring to equity global trackers the argument is that equity volatility and growth (hopefully) dwarves currency volatility over time and hence the cost of hedging isn't worth it. For bond trackers these tend to be currency hedged - e.g.
https://www.vanguardinvestor.co.uk/investments/van...
Most portfolios will contain elements of equity and bonds so will have an element of hedging.
Smart beta simply means being able to add value through selective and objective asset allocation.
Global trackers are completely passive and so all exposure is identical to the market capitalisation of each sub sector as it stands in the global marketplace.
So if the US, for example, represents 30% then you get exactly 30% exposure to the US (I am keeping things simple here). If it falls to 20% or rises to 40% then your tracker expose you to exactly this (whether this make any financial sense or not).
Smart beta (as it is called) is when your exposure to any particular market is selected based upon objective principles (rather than the simple market capitalisation) and can be changed (rather than not being able to be changed) at any point an objective view calls for this.
Smart Beta ETFs do not enable this BTW. They usually stay aligned to the original remit (as opposed to having the flexibility to change this remit as market conditions require).
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
An actively managed portfolio of passive index trackers will cost slightly more, but should add extra value from the ability to change market weightings as the manager sees fit (otherwise known as Beta).
Of course, I could be completely wrong. I am only going upon historical evidence and my own personal experience. I have no crystal ball!
Global trackers are completely passive and so all exposure is identical to the market capitalisation of each sub sector as it stands in the global marketplace.
So if the US, for example, represents 30% then you get exactly 30% exposure to the US (I am keeping things simple here). If it falls to 20% or rises to 40% then your tracker expose you to exactly this (whether this make any financial sense or not).
Smart beta (as it is called) is when your exposure to any particular market is selected based upon objective principles (rather than the simple market capitalisation) and can be changed (rather than not being able to be changed) at any point an objective view calls for this.
Smart Beta ETFs do not enable this BTW. They usually stay aligned to the original remit (as opposed to having the flexibility to change this remit as market conditions require).
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
An actively managed portfolio of passive index trackers will cost slightly more, but should add extra value from the ability to change market weightings as the manager sees fit (otherwise known as Beta).
- Alpha is when the asset allocation is selected upon individual stocks. This approach is guaranteed to give you either the best or worse outcome!!! Stock selection (Alpha) has never proven itself to be better than index tracking over the long term.
- Asset allocation (Beta) has consistently proven itself to be better than active Alpha (stock selection) management over the long term. It therefore appears to be more likely to be able to do so in the future, though obviously nothing is guaranteed).
- Focusing on Smart Beta (active management of passive trackers) therefore stacks up as being entirely sensible when looking at all research.
Of course, I could be completely wrong. I am only going upon historical evidence and my own personal experience. I have no crystal ball!
JulianPH said:
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
Show me how you know which smart beta providers will beat a tracker over the next 10 years. - Focusing on Smart Beta (active management of passive trackers) therefore stacks up as being entirely sensible when looking at all research.
Once a methodology is known, the market will correct for its beta.
Very few funds beat the market. And we don't know which ones they will be looking forward. Most funds underperform the market by at least the amount of their charges.
By far the best indicator of a fund's future performance is the inverse of its charges.
JulianPH said:
Smart beta simply means being able to add value through selective and objective asset allocation.
Global trackers are completely passive and so all exposure is identical to the market capitalisation of each sub sector as it stands in the global marketplace.
So if the US, for example, represents 30% then you get exactly 30% exposure to the US (I am keeping things simple here). If it falls to 20% or rises to 40% then your tracker expose you to exactly this (whether this make any financial sense or not).
Smart beta (as it is called) is when your exposure to any particular market is selected based upon objective principles (rather than the simple market capitalisation) and can be changed (rather than not being able to be changed) at any point an objective view calls for this.
Smart Beta ETFs do not enable this BTW. They usually stay aligned to the original remit (as opposed to having the flexibility to change this remit as market conditions require).
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
An actively managed portfolio of passive index trackers will cost slightly more, but should add extra value from the ability to change market weightings as the manager sees fit (otherwise known as Beta).
Of course, I could be completely wrong. I am only going upon historical evidence and my own personal experience. I have no crystal ball!
Global trackers are completely passive and so all exposure is identical to the market capitalisation of each sub sector as it stands in the global marketplace.
So if the US, for example, represents 30% then you get exactly 30% exposure to the US (I am keeping things simple here). If it falls to 20% or rises to 40% then your tracker expose you to exactly this (whether this make any financial sense or not).
Smart beta (as it is called) is when your exposure to any particular market is selected based upon objective principles (rather than the simple market capitalisation) and can be changed (rather than not being able to be changed) at any point an objective view calls for this.
Smart Beta ETFs do not enable this BTW. They usually stay aligned to the original remit (as opposed to having the flexibility to change this remit as market conditions require).
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
An actively managed portfolio of passive index trackers will cost slightly more, but should add extra value from the ability to change market weightings as the manager sees fit (otherwise known as Beta).
- Alpha is when the asset allocation is selected upon individual stocks. This approach is guaranteed to give you either the best or worse outcome!!! Stock selection (Alpha) has never proven itself to be better than index tracking over the long term.
- Asset allocation (Beta) has consistently proven itself to be better than active Alpha (stock selection) management over the long term. It therefore appears to be more likely to be able to do so in the future, though obviously nothing is guaranteed).
- Focusing on Smart Beta (active management of passive trackers) therefore stacks up as being entirely sensible when looking at all research.
Of course, I could be completely wrong. I am only going upon historical evidence and my own personal experience. I have no crystal ball!
JulianPH said:
Smart beta simply means being able to add value through selective and objective asset allocation.
Smart beta/factor investing is surely tilts (value, small cap etc) within a given asset class, not cross asset?JulianPH said:
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
Some would argue the less "management" the betterJulianPH said:
Focusing on Smart Beta (active management of passive trackers) therefore stacks up as being entirely sensible when looking at all research.
I think it's a bit strong to say all research.pteron said:
Once a methodology is known, the market will correct for its beta.
Not 100% convinced. For example, the value premium has been known for a long time yet has still outperformed over the long term It could be argued that you are being compensated for long periods of underperformance (e.g. last decade), consistent outperformance is not guaranteed.https://thebamalliance.com/blog/portfolio-pain-and...
pteron said:
By far the best indicator of a fund's future performance is the inverse of its charges.
The lower the charges the better the predicted performance
(Basically, as the vast majority of funds under perform the market, and most are actually pseudo tracking the market in the background, all you are doing by paying higher fees is buying the manager another Porsche)
(Basically, as the vast majority of funds under perform the market, and most are actually pseudo tracking the market in the background, all you are doing by paying higher fees is buying the manager another Porsche)
Edited by pteron on Thursday 29th November 18:44
Derek Chevalier said:
JulianPH said:
Smart beta simply means being able to add value through selective and objective asset allocation.
Smart beta/factor investing is surely tilts (value, small cap etc) within a given asset class, not cross asset?Derek Chevalier said:
JulianPH said:
Fundamentally, a global passive tracker will save you money on fees, but is highly constricted and provides no management (or defence) of your money.
Some would argue the less "management" the betterDerek Chevalier said:
JulianPH said:
Focusing on Smart Beta (active management of passive trackers) therefore stacks up as being entirely sensible when looking at all research.
I think it's a bit strong to say all research.Having just read the same book on holiday I had a look around his website, turns out there is now a Plain English Finance fund. As he says himself, the snappily titled “VT PEF Global Multi-asset A GBP Accumulative” fund.
Very much a fund of funds with zero equity holdings in itself but through the funds it holds a mix of equity, bonds, gilts, cash. Interestingly no property and precious metals.
It’s only just now hit it’s first year anniversary, so not the best time to have launched a fund, but could be worth keeping an eye on for the future.
Edited now I’ve read it properly
Very much a fund of funds with zero equity holdings in itself but through the funds it holds a mix of equity, bonds, gilts, cash
It’s only just now hit it’s first year anniversary, so not the best time to have launched a fund, but could be worth keeping an eye on for the future.
Edited now I’ve read it properly
Edited by emicen on Friday 30th November 11:04
emicen said:
Having just read the same book on holiday I had a look around his website, turns out there is now a Plain English Finance fund. As he says himself, the snappily titled “VT PEF Global Multi-asset A GBP Accumulative” fund.
Very much a fund of funds with zero equity holdings in itself but through the funds it holds a mix of equity, bonds, gilts, cash. Interestingly no property or precious metals.
It’s only just now hit it’s first year anniversary, so not the best time to have launched a fund, but could be worth keeping an eye on for the future.
1.14% annual charge seems a bit hefty, particularly when you consider a platform charge needs to be added to this (so 1.59% a year with HL, for example).Very much a fund of funds with zero equity holdings in itself but through the funds it holds a mix of equity, bonds, gilts, cash. Interestingly no property or precious metals.
It’s only just now hit it’s first year anniversary, so not the best time to have launched a fund, but could be worth keeping an eye on for the future.
pteron said:
The lower the charges the better the predicted performance
(Basically, as the vast majority of funds under perform the market, and most are actually pseudo tracking the market in the background, all you are doing by paying higher fees is buying the manager another Porsche)
Thanks for the explanation.(Basically, as the vast majority of funds under perform the market, and most are actually pseudo tracking the market in the background, all you are doing by paying higher fees is buying the manager another Porsche)
I'm not convinced by the argument although clearly in a like-for-like comparison of identical funds with different charges the lower charged fund will perform better.
I don't think "buying everything" is the answer. I'm happy to pay a fund manager a reasonable fee in the hope that he will "avoid the dogs" and thereby achieve above average performance. You don't have to spot the winners if you can spot the losers - and I think losers are easier to identify. This detail stuff I leave to the fund manager because I certainly have neither the time nor inclination to try to match the knowledge of their research teams.
As regards "allocation" it seems pretty clear to me that, for instance, the long term performance of North America has been significantly better than that of Japan so I wouldn't pay anyone to make those decisions and I certainly wouldn't "buy the world".
I also rather doubt the fund managers would be paid vast amounts of money for doing their jobs unless some of them actually know what they are doing and deliver good results. It may be a bit of a money-go-round but it's not a complete hoax. They'd have been found out a long time ago.
Finally, never forget that every index fund must, by definition, under-perform the index it is tracking! (Because of charges)
JulianPH said:
1.14% annual charge seems a bit hefty, particularly when you consider a platform charge needs to be added to this .
1% overall seems to me a good target. As you say, if an investor is paying more they need to watch very carefully to make sure they're getting value for money.Gassing Station | Finance | Top of Page | What's New | My Stuff