Active VS Passive

Discussion in 'Share Investing Strategies, Theories & Education' started by Big A, 13th Feb, 2019.

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  1. Big A

    Big A Well-Known Member

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    In light of the ongoing discussions of the superior strategy actively managed funds Vs Index funds, I thought I would start a thread displaying the monthly results of actively managed funds I hold and how they have performed each month against a simple index equivalent.

    Since we are at the start of a new year the performance figures for the month of January have now been published by most of the funds I hold. There are a few that are yet to publish January results yet so I have worked it out based on the NAV on the 1st of the month vs NAV on the last day of the month. For months that a distribution is paid I will add the distribution into the performance figure for that month. NAV would normally drop the day after the distribution is activated so not sure how to capture that as part of the performance figures as yet. Any suggestions on the best way to work that into the performance figures would be appreciated.

    So below is what I have for January.

    Bennelong WS Plus ex-20 Australian Equities Fund 3.54%
    Hyperion Australian Growth Companies Fund 5.72%
    Investors Mutual All Industrials Share fund 2.30%
    Pengana Australian Equities Core Fund 2.36%
    Perpetual Wholesale Ethical SRI Fund 2.57%
    Perpetual Wholesale Industrial Share Fund 2.13%
    Perpetual Wholesale SHARE- PLUS Fund Long-Short 2.91%
    Bennelong Kardinia Absolute Return Fund 1.66%
    Vanguard Australian Equities Index Fund ( VAS ) 3.86%



    Grant Samuel Epoch Global Equity Yield (Unhedged) Fund 1.75%
    IFP Global Franchise Fund 3.80%
    Lazard Global Listed Infrastructure Fund 6.28%
    Magellan Infrastructure Fund 7.30%
    Magellan WS Plus Global Fund 1.82%
    Walter Scott WS Plus Global Equity Fund 4.06%
    Vanguard MSCI Index International Shares ( VGS ) 4.08%
    Vanguard Global Infrastructure Index ( VBLD ) 4.13%
     
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  2. Big A

    Big A Well-Known Member

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    For context the top group are all Australian equities Managed funds with the last one on the list being index which I also hold.

    The second group are all International managed funds with the last two being index. At this time I don't hold either of the last 2 international index funds. VGS I will open a holding in soon. Vanguard Infrastructure fund I threw in there as its a fair equivalent of the 2 actively managed funds I hold.
     
  3. sharon

    sharon Well-Known Member

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    Interesting - Index is better in the OZ space.
    But not so much for the Global space.
     
  4. Big A

    Big A Well-Known Member

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    Only in the international infrastructure funds. The other international funds all underperformed the index for the month. Only a 1 month snap shot though so by no means conclusive.

    Look at Magellan Global fund for instance. Not so good for the month but last year performed well and if I recall correctly outperformed the index over the year.

    I am putting this together in a excel spreadsheet. I will accumulate the info month on month so as time goes on it will start to show a better picture of the difference in performance. And as far as I know these active funds are quality funds managed by strong managers. Lets see how well they play the game.
     
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  5. Barny

    Barny Well-Known Member

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    Big al, are these performances including all costs?
     
  6. Big A

    Big A Well-Known Member

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    These figures are net after fund fees. I pay a fee for using the BT wrap platform but that applies to any investments held in the wrap.
     
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  7. Big A

    Big A Well-Known Member

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    Some food for thought.

    Recent discussion with the adviser about 1 of the particular managed funds. ( Bennelong Kardinia Absolute Return Fund )
    Last year with the rough 3rd quarter that fund had a shocking year. It underperformed the Aus index significantly. January we had a nice bounce and it gained as we can see above approx. 50% of the index upside.

    As Pauline Hanson would say: Please Explain.
    How is it that it managed to capture all the downside and some but only half of the upside? Is not the whole purpose of managed funds that they capture less of the downside and more of the up?
    So I am told that this result was due to cash holding in the fund during that period and how changes in cash holding and stock picking can give you such a result.

    Ok so right now in the Bennelong fund they are holding almost 50% cash. This is supposed to protect me on the downside. Though on the upside this has also cost me 50% of the gain. Now in my mind I would think the benefit of active managed over passive is they can make the decision to hold cash and protect on the down. But that's assuming that these fundies can pick the next up or down and make the move out of the cash and back in at the right time.

    So can they? Well Bennelong obviously didn't this time around did they. Can anyone do it consistently with any real accuracy? Assuming some fund manager out there could I would imagine there performance most years would be amazing. Not just beat the market but obliterate it. Yet I haven't found one of those yet.

    I guess the question then is: Is the benefit in active being able to switch in and out of cash really a benefit? Based on the above I would say not really. Its a hit and miss strategy.

    Index is all in all the time. And if you believe over all the market should have more up periods than down periods then in all the time is the best way. Switching to more cash then back to less cash means you believe you can do what they the fund managers cant seem to do.

    I guess you could also be in index and also use that strategy by holding cash and putting it in or moving out of the index based on your ability to consistently and accurately pick the next up or down. Anyone who has been able to do that please raise your hand.

    Thoughts?
     
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  8. Anne11

    Anne11 Well-Known Member

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    My former colleague timed it well before GFC so he preserved his capital, however he has been mostly in cash for a number of years now and have not fully bought back in (this is for his super), so I would think he has been missing out good returns for a number of years. Maybe it was luck not skill after all.
     
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  9. Islay

    Islay Well-Known Member

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    Hi @Big Al. I am a long term investor. One of the things I have learnt is to keep it simple. Being complicated is expensive. If you have enough cash (or cashflow) to cover expenses for x years then invest the rest of your funds in what ever floats your boat. You do not need fund managers to have cash holdings too. Passive is boring but predictable. The cost benefit of actively managed portfolios does not work for me. However I am one of the retired ones here. Just my 2c
     
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  10. Big A

    Big A Well-Known Member

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    You would have to say if it was skill he would have went all back in and rode the last 10 year bull.
     
  11. Big A

    Big A Well-Known Member

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    Couldn’t agree more. That’s why I’m slowely turning the boat towards a simple index based portfolio.
     
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  12. Redwing

    Redwing Well-Known Member

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    This will be a long watch and wait for the long term (10+ years) investor :D

     
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  13. Big A

    Big A Well-Known Member

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    Lol. In 10 years time this will be a great thread. A real life PC investment research piece.
     
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  14. Nodrog

    Nodrog Well-Known Member

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    We’re not talking about any managed fund here but an Absolute Return Fund able to Short shorts hoping to help protect the portfolio and profit in down markets. So it appears to be a fail during the recent correction. Of course they will tell you it’s our performance over the cycle or minimum of 5 years etc that matters. Are you confident in them to achieve this or would your cash be better utilised elsewhere?
    But regardless of performance the fees and in particular the performance hurdle is pathetic:
    Performance fee of 20.5% for beating the RBA CASH RATE! No high water mark either by the look of it. Usually the domain of Market Neutral Funds but numerous Absolute Return Funds are guilty of it as well.

    I don’t care how good the reputation of these guys are I downright refuse to invest in these type of funds.

    But that’s just me. I’m led to believe that there are some excellent Hedge Funds in the world but they are very few in number. It’s unlikely a retail investor directly or even through their advisor’s platform will have access to these very small number of exceptional funds. Investors in these are likely to be those with hugely deep pockets.

    Not advice of course and I encourage others to challenge my view if they disagree. That said I have no intention of ever putting money in such things.

    Latest Mgr report:

    https://www.bennelongfunds.com/modules/bPerformance/uploads/Kardinia monthly report - January 2019.pdf
     
    Last edited: 16th Feb, 2019
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  15. Redwing

    Redwing Well-Known Member

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    A quote from an active manager

    Investors need an active money manager for one simple reason: to protect them from themselves
     
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  16. Nodrog

    Nodrog Well-Known Member

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    I think investors need a good financial advisor to protect them from themselves, not an active Mgr. Investors generally do badly because they switch from one active Mgr to another when performance disappoints. An active Mgr won’t protect the investor from that.
     
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  17. Hodor

    Hodor Well-Known Member

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    Who's going to protect the investor from the active money manager?
     
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  18. Ross Forrester

    Ross Forrester Well-Known Member Business Member

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    Looking forward to your monthly update.

    I enjoyed the bet with Buffett v hedge funds. Maybe this time it will be different.
     
  19. SatayKing

    SatayKing Well-Known Member

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    It is still all about ME!
  20. Snowball

    Snowball Well-Known Member

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    And who protects the active manager from himself? They’ll have biases like the rest of us lol.