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Active v Passive Funds - Some Tests
Tom Bards
Posted: 27 March 2018 15:50:41(UTC)
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Was considering buying a S & P 500 index tracker yesterday and while looking at that I also looked at the active American focused funds on HL. It was interesting considering the US market is always looked at as one that is very hard to beat for active managers.

Baillie Gifford American especially has significantly outperformed the S&P in the last year with a 26% return while UBS S&P 500 Index has achieved a negative return in the same time frame. Looking at the other active funds, most have returned on low side (5% or under). I wonder how Baillie Gifford has managed to achieve such a high return in the notoriously difficult US market.


King Lodos
Posted: 27 March 2018 16:14:52(UTC)
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Everything Baillie Gifford are in right now seems to go straight to the top of the league tables .. EM, China, US, Tech, etc.

They're on the right side of the big trend at the moment – Tech doubled the S&P500 return in 2017, so it's been a good place to be .. Whether it's down to luck or skill will be seen when Tech stops being the easy money trade
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Tim D on 13/06/2018(UTC)
Harry Trout
Posted: 09 June 2018 07:48:29(UTC)
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Here is an update on the tests being carried out in my kids' junior ISAs as at today:

090618 Tracker Test

The annualised return on the fund portfolio is 16.0% and the tracker portfolio 11.1%
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Sara G on 09/06/2018(UTC)
Apostate
Posted: 09 June 2018 08:24:15(UTC)
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The real test is over longer periods of time. There aren't many trackers going back more than 10 years - L&G International is one that has a 10 year life.



with this comparison there really isn't much in it - except that in recent months an overweight to tech has been very handy - but will probably drop all the more when a crash comes
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Harry Trout on 09/06/2018(UTC), Jon Snow on 10/06/2018(UTC)
Apostate
Posted: 09 June 2018 08:32:05(UTC)
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BTW Fidelity EM and Vanguard EM track the same index.

"Global Emerging Markets Fund" is Vanguard's active fund partly managed by Baillie Gifford.
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Harry Trout on 09/06/2018(UTC)
Harry Trout
Posted: 09 June 2018 08:50:58(UTC)
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Apostate, could you clarify please?

090618 EM v VEMSI

Apostate
Posted: 09 June 2018 09:30:47(UTC)
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Sorry my mistake - Fidelity Emerging Markets is indeed an active fund. I was thinking of Fidelity Index Emerging Markets.
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Harry Trout on 09/06/2018(UTC)
Harry Trout
Posted: 09 June 2018 10:10:50(UTC)
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Apostate;63638 wrote:
Sorry my mistake - Fidelity Emerging Markets is indeed an active fund. I was thinking of Fidelity Index Emerging Markets.

Thanks for clarifying and I totally agree with your point about more time being needed for the tests in this thread.
Julianw
Posted: 09 June 2018 10:50:33(UTC)
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Average tenure of active manager is 7 years.

10 year survival of active fund is 50%

The two above statistics say it all.


Another problem is performance chasing is more prevalent with investors in active funds.

Average active fund under perform the relevant index by about 2 percent/year (charges)

Investor underperform the active fund they invest in by further 2 percent/year (performance chasing, buy high/sell low)


I personally believe some factor tilt such as value and momentum have fundamental basis and therefore likely to be enduring.
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Harry Trout on 09/06/2018(UTC)
Tom Bards
Posted: 09 June 2018 11:23:17(UTC)
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Apostate;63630 wrote:
The real test is over longer periods of time. There aren't many trackers going back more than 10 years - L&G International is one that has a 10 year life.



with this comparison there really isn't much in it - except that in recent months an overweight to tech has been very handy - but will probably drop all the more when a crash comes


Saying that there isn't really much in it is a bit of a misnomer, it really depends.

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Harry Trout on 09/06/2018(UTC)
Harry Trout
Posted: 09 June 2018 11:40:20(UTC)
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Julianw;63642 wrote:
I personally believe some factor tilt such as value and momentum have fundamental basis and therefore likely to be enduring.

I agree and prefer momentum.

I am adding £50 per month to each Junior ISA and I imagine that I will simply add to the one doing the best against it's tracker. This is how I invest in my own portfolio against a Vanguard World (VWRL) benchmark.

To keep the integrity of the tests in this thread, and in part to answer your point, I will not sell actives that under-perform their trackers. They will though inevitably become smaller in value terms unless they recover.

Time will tell and I will update you all again later in the year.

Harry Trout
Posted: 09 June 2018 16:36:13(UTC)
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Julianw;63642 wrote:
Another problem is performance chasing is more prevalent with investors in active funds.

Average active fund under perform the relevant index by about 2 percent/year (charges)

I have always liked this chart ....

090618 FTSE 250 v World

If you believe that this pattern might continue then a FTSE 250 tracker looks attractive. If you can find an active UK mid cap fund that beats FTSE 250 consistently then all the better.
King Lodos
Posted: 09 June 2018 17:46:40(UTC)
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Julianw;63642 wrote:
I personally believe some factor tilt such as value and momentum have fundamental basis and therefore likely to be enduring.


A lot of academics think this.

I really don't .. I'm more with Jack Bogle – that smart beta ETFs and factor investing are just active investing under new branding.

The problem is things like Value persisted over a century – but Value ETFs didn't .. Most the investing world didn't even think Value worked in the 80s .. As soon as an anomaly's out in the open, and tracked with ETFs, and long/short funds, it's likely to be arbitraged away – if not actually carry a premium (it could be that people are consistently overpaying for Value stocks .. which is sort of Lindsell Train's philosophy).


Momentum is very likely to persist, but the problem is how you measure it .. ETFs seem like a terrible vehicle for a strategy which involves having a slight buying and selling edge over the next guy.

The key (imo) with any active trading is that you can't stop moving: as soon as people work out what you're doing, they start doing it, and the inefficiency is gone .. Strategy is always dependent on looking at what other people are doing .. If everyone did Value, Value would = the market .. That's why active investing has never stopped being interesting


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Jon Snow on 10/06/2018(UTC), Sara G on 10/06/2018(UTC), Alan M on 10/06/2018(UTC), Harry Trout on 10/06/2018(UTC), Peter59 on 10/06/2018(UTC)
mark spurrier
Posted: 13 June 2018 20:33:20(UTC)
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King Lodos;59516 wrote:
Everything Baillie Gifford are in right now seems to go straight to the top of the league tables .. EM, China, US, Tech, etc.

They're on the right side of the big trend at the moment – Tech doubled the S&P500 return in 2017, so it's been a good place to be .. Whether it's down to luck or skill will be seen when Tech stops being the easy money trade


yep....... I am loving BG at the moment. What I really like about them is they aren't afraid and they publish their holdings so you can decide if you fancy what they are running. They will run highly concentrated portfolios to back their ideas. That is what you pay for.

If they stay in tech when oilers are the ones doing it then, my opinions might change. I listened to barnett and Woodford giving their "I am the one who is right everyone else doesn't understand" speeches. Exercise your ego with someone elses money...not mine :)

I like MYI. That has had down times but it stayed true to convictions and I shared those Stout had strong views on macro topics..... he doesn't go to the wall over a specific stock

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