DIY investors ditch fund managers

[bitchstewie]

I think people are already aware of this but an article in the Telegraph on the shift towards passive and how 9/10 of the top funds at II and AJ Bell last month were trackers.

DIY investors ditch fund managers

[Derek Chevalier]

bhstewie said:

I think people are already aware of this but an article in the Telegraph on the shift towards passive and how 9/10 of the top funds at II and AJ Bell last month were trackers.

DIY investors ditch fund managers

Looks like good old-fashioned performance chasing (albeit in this case, bailing out of the biggest fallers (large cap growth) and buying funds that haven't fallen quite as far rather than going for the recent winners as happened prior to 2022) rather than a permanent shift.

Love Mr Khalaf's optimism regarding future potential outperformance

[mids]

Yeah, I saw that being discussed in the Animal Spirits podcast and they showed this chart.



I know for sure that I'm part of that trend, just wish I'd read Lars' book 20 years ago.....

[simong800]

The II best sold list is a demonstration of typical retail investor behaviour. It’s always just whatever has done well for a period before.

At one time it was all Baillie Gifford (after they had done well and before they plummeted) another point in time it was all UK small caps again after a good run.

I’d say it shows how many people constantly buy high and sell low.

[bitchstewie]

mids said:

Yeah, I saw that being discussed in the Animal Spirits podcast and they showed this chart.



I know for sure that I'm part of that trend, just wish I'd read Lars' book 20 years ago.....

One of my favourite YouTube channels and one that along with all their blog material has, I think, made the most difference to my behaviour.

There's a heavy US bias of course but I think their focus on behaviour and staying the course has helped me massively.

[Simpo Two]

bhstewie said:

There's a heavy US bias of course but I think their focus on behaviour and staying the course has helped me massively.

I remember a well-known member of this forum telling me that the best investors are dead ones - because they don't do anything!

[mids]

bhstewie said:

One of my favourite YouTube channels and one that along with all their blog material has, I think, made the most difference to my behaviour.

There's a heavy US bias of course but I think their focus on behaviour and staying the course has helped me massively.

Agreed. I somehow stumbled across Josh Brown in 2009 when he was just starting out online and I've been reading/following ever since and 'The Compound' has been a great development. Ever since I started WFH a couple of years ago their videos have been my lunchtime routine. I've learnt a lot and just find them interesting and easy to listen to plus they present loads of data/info from all sorts of sources. Good guests too on TCAF.

[Jon39]

mids said:

An interesting trend.

I assume not a surprising change of strategy, but the active fund managers must be the (fee) losers.
Of course the chart shows the flow of investment, but we can only guess that the average saver did benefit from the change.

Is there a similar trend in the UK ?
Do Hargreaves and other similar intermediaries, heavily promote index funds to their clients ?


Year to Date;
USA S&P 500 ....... -17.97% (before dividends)
UK FTSE 100 ......... -0.38% (before dividends)

Edited by Jon39 on Saturday 10th December 20:03

[bitchstewie]

I hold a couple of investment trusts on HL because they're dirt cheap for that kind of thing.

They send a fair bit of marketing stuff and my perception is it's mostly around active and around funds.

Maybe it's just perception but it doesn't seem to be about cheap passive options but in fairness I tend to glance rather than read them in their entirety so I may be being a bit unfair.

[Jon39]

bhstewie said:

I hold a couple of investment trusts on HL because they're dirt cheap for that kind of thing.

They send a fair bit of marketing stuff and my perception is it's mostly around active and around funds.

Maybe it's just perception, but it doesn't seem to be about cheap passive options, but in fairness I tend to glance rather than read them in their entirety, so I may be being a bit unfair.

HL (and others) are in business to make money. Nothing wrong with that. Oft forgotten, that is how public services are paid for.

Would the sales of active and funds, generate a higher level of commission than trackers ?

[bitchstewie]

Obviously nothing wrong with making money but as a customer of their I'm also very aware that they have ways of making more of it depending how I invest with them.

One of those ways is funds which they charge more to hold with them than they do ETFs or Investment Trusts.

Active funds don't cost any more in platform fees but if you're holding a cheap dumb tracker on HL you could be paying 0.12% for the fund and 0.45% to HL in platform fees.

At that point you might start to question why you need HL when there are plenty of lower cost platforms.

So my perception is that HL are more interested and make more effort to guide people towards active funds (including their own range) than they do to guide people towards cheap passives.

[Mr Whippy]

Just so I understand it clearly.

Money in these global trackers is apportioned based on market cap?

So if USA is going up, you also buy more USA? Ie, you buy more at a higher price?

And if say China dip, then you sell China and buy more of everyone else, including USA?


Does anyone not see a blind participant pyramid type scheme playing out here? Bidding up the highest price stuff blindly?

[simong800]

Mr Whippy said:

Just so I understand it clearly.

Money in these global trackers is apportioned based on market cap?

So if USA is going up, you also buy more USA? Ie, you buy more at a higher price?

And if say China dip, then you sell China and buy more of everyone else, including USA?


Does anyone not see a blind participant pyramid type scheme playing out here? Bidding up the highest price stuff blindly?

No, if that was the case the top 10 holdings of a tracker would simply keep getting more expensive and never change.

Edited by si800 on Sunday 11th December 11:30

[LeoSayer]

Mr Whippy said:

Just so I understand it clearly.

Money in these global trackers is apportioned based on market cap?

So if USA is going up, you also buy more USA? Ie, you buy more at a higher price?

And if say China dip, then you sell China and buy more of everyone else, including USA?


Does anyone not see a blind participant pyramid type scheme playing out here? Bidding up the highest price stuff blindly?

If the USA markets go up in value then so does the value of the holdings in the tracker fund.

Index trackers generally only buy and sell stocks when investors buy/sell units in the fund, the index changes its constituents or to pay for fees.

[Jon39]

LeoSayer said:

Index trackers generally only buy and sell stocks when investors buy/sell units in the fund, the index changes its constituents or to pay for fees.

As referred to, the constituents of indices change regularly.

I have never given much thought to this, but had wondered whether there might be an arithmetic flattering effect on the index number over time.

A poor performing company will drop down within the index and eventually is ejected. The replacement will be a better performing company.

I suppose the (say) FTSE 100 Index, is just a measure of the 100 most valuable companies, but after many years, those companies might be completely different ones.

Any comments from mathematicians ?

Edited by Jon39 on Sunday 11th December 16:48

[LeoSayer]

Jon39 said:

As referred to, the constituents of indices change regularly.

Quarterly and when companies are delisted eg. Twitter.

Jon39 said:

I have never given much thought to this, but had wondered whether there might be an arithmetic flattering effect on the index number over time.

Not sure what you mean by this but I've never seen evidence that the presence of a company in an index heavily used by trackers flatters the share price.

Jon39 said:

A poor performing company will drop down within the index and eventually is ejected. The replacement will be a better performing company.

I suppose the (say) FTSE 100 Index, is just a measure of the 100 most valuable companies, but after many years, those companies might be completely different ones.

To be somewhat pedantic, it's only the market cap of listed companies that drives inclusion in an index, not company performance.

[Derek Chevalier]

Mr Whippy said:

Does anyone not see a blind participant pyramid type scheme playing out here? Bidding up the highest price stuff blindly?

There's a strong argument to suggest so.

Have a listen to this

https://www.youtube.com/watch?v=xyzoCJY7BPU

and see the slide at 23 minutes

"Increase in valuation of securities"
"Increase in market concentration as momentum leads to larger companies becoming larger"

Also see 31 minutes - liquidity does not scale with market cap - example given is Apple and Delta.

Given the US large cap growth bubble (that has been slowly deflating in 2022), you can see some sense in his points.

[DaveA8]

Derek Chevalier said:

Mr Whippy said:

Does anyone not see a blind participant pyramid type scheme playing out here? Bidding up the highest price stuff blindly?

There's a strong argument to suggest so.

Have a listen to this

https://www.youtube.com/watch?v=xyzoCJY7BPU

and see the slide at 23 minutes

"Increase in valuation of securities"
"Increase in market concentration as momentum leads to larger companies becoming larger"

Also see 31 minutes - liquidity does not scale with market cap - example given is Apple and Delta.

Given the US large cap growth bubble (that has been slowly deflating in 2022), you can see some sense in his points.

This is a very complex because it covers a multitude of ideas, concepts and relationships. To be fair to Fund managers are promoting a product and like all must have things, success begets success, whatever that success is, it is often hard to define. For the customer, they naturally like to see lots of blue and not too much red but for the next 1 or 2 yrs, wherever you are, indexing is likely to be underwhelming will lots of volatility in the middle.
We have left a low or zero rate friendly CB era and are going into the era of being able, at least in theory get returns on cash. My point is everyone who piled in the ARKK did so as it was a one way bet until it wasn't. Cathie Wood can't be blamed for that but she is guilty of either insane belief in herself or selling a story that is now burst while all the time getting a mind blowing income stream.
The industry seems to want to make the whole think a "black art" and therefore people will move as other people move since I guess there is safety in numbers.
A lot of the successful funds often mentioned are I am starting to believe not maybe great stock pickers but understood thoroughly and knew how to work the macro environment all the while masking it as stock picking, that is not to diminish their skill or success but to highlight that skills moving forward may need to be different, who knows but time will tell.

[simong800]

DaveA8 said:

A lot of the successful funds often mentioned are I am starting to believe not maybe great stock pickers but understood thoroughly and knew how to work the macro environment all the while masking it as stock picking, that is not to diminish their skill or success but to highlight that skills moving forward may need to be different, who knows but time will tell.

Fund managers have had it piss easy for a decade to be honest - just overweight the US and FAANGs and you will outperform. That's where a lot of growth has been driven from, along with multiple expansion due to rock bottom interest rates.

These things are cyclical, US large cap growth having a good run for a decade came off the back of it having a dreadful run for a decade.

We are in a completely different investing era now, and I think it's highly unlikely the same factors that led returns for the last 10 years will be the ones for the next 10.

Fund managers mainly just bet on a factor and proclaim their genius when their factor is in vogue, whilst claiming "the market is wrong" when their factor isn't and they underperform.

[VR99]

Interesting thread.

I am 90+% in passive funds/ETF's and primarily 'Dev world' with some EM here and there and 'dabbling' in some active funds in my work pension.

The vast majority of the passive global equity trackers/funds are allocated anywhere from 60-70% US equities.....if US Large Cap does not deliver much growth over the next 10 ish years then curious as to what are the alternatives as Small Cap can be v volatile and same applies for EM. I don't see much alternative than to carry on investing in my passive funds and hope that the 'global' diversification delivers reasonable returns...whatever that is..no idea what to expect as no crystal ball!