Quantitative Easing

[Roy Scott]

Because it's byzantinely complicated and the only people who even half-way understand it are greedy self-interested b*****ds. Oh, and because debate quickly becomes heated and polarized.

And therein lies the problem. The fact that reasonably intelligent people can not get their head around these issues and are therefore excluded from debates that shape our country is a failing of the whole system in my opinion.

Take active investing in stocks and shares. This is so complicated with so many layers of bureaucracy that passive investment on almost all measures gets you a better return. It frustrates me that you do not have transparency around fees when investing. There needs to be more pressure from the general population on these issues.

We should not have to accept that these issues are too much for our fuzzy little heads, leaving it to these greedy, self-interested b*****ds to slug it out.

[shaunaneto]

Another what LJ said.

[LissaJous]

Another what LJ said.

+4. I'm feeling dizzy.

[shaunaneto]

It was a quality rant Lissa, well done.

[TheHeathens]

Take active investing in stocks and shares. This is so complicated with so many layers of bureaucracy that passive investment on almost all measures gets you a better return. It frustrates me that you do not have transparency around fees when investing. There needs to be more pressure from the general population on these issues.
.

Not in my experience; I use a blended method with Actives and Passives but the actives have massively outperformed the Passives even accounting for charges.

It depends on how you're choosing your fund manager - if you're doing it on past performance, you're likely to fail.

[Roy Scott]

It depends on how you're choosing your fund manager - if you're doing it on past performance, you're likely to fail.

So what indicators should I be using other than past performance please TH? Actives are a mugs game and it has been proven time and time again in economic studies. Unless you get the cycle right and get out in time, you are likely to lose out.

Do you know the exact fees you are paying for your active funds?

[Roy Scott]

Not in my experience; I use a blended method with Actives and Passives but the actives have massively outperformed the Passives even accounting for charges.

It depends on how you're choosing your fund manager - if you're doing it on past performance, you're likely to fail.

http://www.nerdwallet.com/blog/inves...-market-index/

[TheHeathens]

http://www.nerdwallet.com/blog/inves...-market-index/

This debate has been going on for years but don't get conned by the passive only argument. I could easily do a paper arguing the other side - I may do that when I do my MSc in a few years.

Some things to note:

1) The study assumes a buy and hold strategy. I update portfolios quarterly so get rid of underperforming funds early.
2) Most funds in the market are 'closet trackers'. They are actively managed but the fund manager just tries to replicate the index. Because he charges more, he invariably underperforms. I filter out these before choosing an active fund.
3) The US market is the most developed (efficient) market; this is where I use passives. The same does not apply to the UK, Europe, Asia or Emerging Markets.
4) The study was 2002 -2012. I wonder why they didn't do it over 15 years and include the tech bubble.......
5) You are assuming you pick active funds at random.

I'm more than happy to speak to you about this further but I select the funds on the following basis, starting with all 60,000+ funds available to a UK investor:

• Must be domiciled in the UK.
• Fund manager must have been running the fund for the last 3 years.
• Must be over £100m in size.
• Must have an OBSR rating.
• Must have beaten the index on an annualised basis over 3 years.

Those filters whittle the number of available funds down to around 150 and gets rid of the closet trackers. I would then look at risk adjusted return over the last 3 years. You can do your own research as to what these metrics are but I look at:

• Alpha in each of the last 3 years
• Beta in each of the last 3 years
• R2 (R squared) in each of the last 3 years
• Information Ratio in each of the last 3 years
• Sharpe Ratio in each of the last 3 years
• Sortino Ratio in each of the last 3 years
• Historic Volatility
• Value at Risk

I typically select 12-16 funds across different sectors (UK equity, North America, Europe, Asia, Emerging Markets, Japan, Commercial Property and Fixed Interest) to ensure that you're not 'putting your eggs all in one basket'. I create 10 portfolios depending on risk; all have the same funds but the riskier portfolios have a higher proportion of the riskier funds (e.g emerging markets).

Been running portfolios in this way since 1st October 2008 and the performance has varied between 14.82% (Risk 1), 63.08% (Risk 5) and 104.59% (Risk 10). I've backtested them against the passive benchmark and each portfolio has far exceeded the performance.

Being blind to active or passive management is a mugs game, a blended approach is the only game in town

[TheHeathens]

So what indicators should I be using other than past performance please TH?

Filter out the closet trackers and use Fund Metrics.

If you gave me £100k and I came back in 3 years and said it was worth £360k, you'd be happy right?

What if I told you that it was only worth £10k on month 35 but I went to Vegas and struck it lucky on the roulette table? Still happy?

That's why you don't pick funds solely on past performance, you assess how much risk the manager has taken to deliver the returns. You don't want someone who is going to shoot the lights out one year and be bottom the next; you want someone who delivers consistent returns year in, year out.

Good performance can hide risky behaviour.

Actives are a mugs game and it has been proven time and time again in economic studies. Unless you get the cycle right and get out in time, you are likely to lose out.

Utter rubbish. There are many fund managers who have consistently outperformed the market. It would be a more interesting study if they got rid of the 'closet trackers'.

The OBSR rated fund managers outperformed the index over the last 10 years by 3-4% each year, after charges, except in the US. I have a printed version of the presentation but will try and scan it in.

Do you know the exact fees you are paying for your active funds?

With respect mate but I'm a Chartered & Certified Financial Planner. I'd be pretty rubbish at my job if I didn't and would be breaking the law when I give advice to clients.

With your passives (without looking at google) can you tell me what index your passive funds track, what the tracking error is, what the total expense ratio is and which of the four main methods of index tracking they use? (Clue: Replication, Stratification, Optimisation, Synthetic Replication).

Don't be blinkered towards one argument; there are times to use both. For the inexperienced investor, it's probably best to go with passives but I manage around £26,000,000 worth of assets and obviously have the time and resources to dedicate to picking the right managers. I won't make every call right every time but as long as I'm right more often than not, which I have been, I'll be doing a good job.

However, there is no point in investing unless you have an idea of what the end-game looks like, i.e. what you are investing for. You can't control markets so the biggest single factor on how much you get out at the end is how much you've put in. Aim for prudence, not peformance, and don't take excessive risk.

[Roy Scott]

Filter out the closet trackers and use Fund Metrics.

If you gave me £100k and I came back in 3 years and said it was worth £360k, you'd be happy right?

What if I told you that it was only worth £10k on month 35 but I went to Vegas and struck it lucky on the roulette table? Still happy?

That's why you don't pick funds solely on past performance, you assess how much risk the manager has taken to deliver the returns. You don't want someone who is going to shoot the lights out one year and be bottom the next; you want someone who delivers consistent returns year in, year out.

Good performance can hide risky behaviour.



Utter rubbish. There are many fund managers who have consistently outperformed the market. It would be a more interesting study if they got rid of the 'closet trackers'.

The OBSR rated fund managers outperformed the index over the last 10 years by 3-4% each year, after charges, except in the US. I have a printed version of the presentation but will try and scan it in.



With respect mate but I'm a Chartered & Certified Financial Planner. I'd be pretty rubbish at my job if I didn't and would be breaking the law when I give advice to clients.

With your passives (without looking at google) can you tell me what index your passive funds track, what the tracking error is, what the total expense ratio is and which of the four main methods of index tracking they use? (Clue: Replication, Stratification, Optimisation, Synthetic Replication).

Don't be blinkered towards one argument; there are times to use both. For the inexperienced investor, it's probably best to go with passives but I manage around £26,000,000 worth of assets and obviously have the time and resources to dedicate to picking the right managers. I won't make every call right every time but as long as I'm right more often than not, which I have been, I'll be doing a good job.

However, there is no point in investing unless you have an idea of what the end-game looks like, i.e. what you are investing for. You can't control markets so the biggest single factor on how much you get out at the end is how much you've put in. Aim for prudence, not peformance, and don't take excessive risk.

Thanks TH, there is some great information here. I will do some more research based on your suggestions. I think I am a bit out of my depth to challenge you in this area. Well done on beating the market for 5 years, that is impressive.