Active VS Passive

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

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  1. monk

    monk Well-Known Member

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    Thanks for posting this @Big A as I need to continually be reminded of why I'm (very slowly) moving to passive/index portfolio.
     
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  2. Big A

    Big A Well-Known Member

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    Great point and something I mighty have to give further thought.

    While it is frustrating its not something that plays on my mind that often. I have no issue holding the actives longer term as they are shrinking in size. When I started the portfolio 6 years or so ago it was 100% active funds. At the moment we are close to 70% being index and the last 30% still in these actives. This will continue to quickly swing towards the index funds even if I don't sell down the actives.

    Another reason for selling IFP other than it was the only reasonable performer against the index is I needed the free up capital for the purchase of a new PPOR. So I figured if I am going to sell something it might as well be the active that's performing well right now.
     
  3. Isla_Nublar

    Isla_Nublar Well-Known Member

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    Hi @Big A - any updates on your portfolio over the past 6 months? Loved readying about your journey from active to passive...
     
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  4. Big A

    Big A Well-Known Member

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    Appreciate the kind words. I have a little peek here and there and don't like what I am seeing. The actives are not getting any better.
    Tomorrow I will have a close look and report back with some figures.
     
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  5. Big A

    Big A Well-Known Member

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    Took a closer look at the active holdings and how they are performing compared to the plain index options being VAS & VGS.

    I have been checking here and there and the turnaround in performance for the actives just hasn't happened yet. IFP Global funds, which I noticed a few months ago was performing well against VGS and I took that opportunity to dump it moving that capital across to VGS. The plan is to pretty much dump all the actives and move across to the index's. I am waiting because the actives have been underperforming and I am hoping they will have a bounce at some point VS the index. When that happens I will make the switch. I get that might take a long time or possibly never, but having watched them over the past 7 years, I notice they go through phases in which they shine and then like more recently not so shiny.

    Looking at some numbers starting with VAS. The vanguard website has been changed recently with how they chart performance and calculate the figures. To match the reporting periods of the active funds I have added up the different months of the vanguard website and came up with the following.

    Latest reporting period being 31st Aug

    VAS:
    1 Month : 1.17%
    3 M : -1.85%
    6 M : 1.41%
    1 Y : -2.54%

    Bennelong Aus Equities
    1 Month : -1.07%
    3 M : -0.34%
    6 M : -9.95%
    1 Y : -23.4%

    Bennelong Ex 20
    1 Month : -2.89%
    3 M : .5%
    6 M : -12.02%
    1 Y : -28.67%

    Hyperion Australian Growth Funds
    1 Month : -1.23%
    3 M : 2.34%
    6 M : -4.62%
    1 Y : -26.52%

    As the above the Australian active funds have had a terrible run over the last 12 months. Yes Hyperion is a growth fund is not a good comparison to VAS but for my portfolio that has always been the alternative. I remember when Hyperion was killing VAS and a few pointed out it wasn't a fair comparison. I was ok with the comparison and now that the tables have turned I have stuck with the same comparison for performance. I still like the theme behind Hyperion and long term might be the only active I would consider holding. Though overall it would only be a small portion of the portfolio as we transition to a predominantly index funds.

    I will check out the international holdings and report back.
     
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  6. PCHouse

    PCHouse Well-Known Member

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    @Big A thanks for continuing to share your journey and results, much appreciated.
     
  7. PCHouse

    PCHouse Well-Known Member

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    For those employing a simple strategy with VAS & VGS, do you tend to apportion more to VAS given its higher divvies? eg. VAS %70 VGS 30%
     
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  8. Big A

    Big A Well-Known Member

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    I have gone with a straight 50/50.

    I get what you're saying though. I would probably be inclined to overweight VAS for the divvies if it wasn't for the fact that I get my high income flow fix from other investments such as Unlisted property trusts and mortgage syndicates. In saying that as the property trusts and mortgage syndicates mature I am slowly moving towards a predominantly VAS / VGS portfolio.
    If you are fortunate enough to have a large portfolio, a simple 50 / 50 index portfolio should provide enough income to live of dividends comfortably.
     
  9. Big A

    Big A Well-Known Member

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    So the international part is now down to 2 active funds. Magellans global equity fund and Walter Scott global equity fund.

    Figures as of 30 Sep 2022.

    Starting with good old Walter.
    1 Month -2.83% vs index -3.23% Active wins in the month of September
    3 M -.082% vs .35% win for the index
    6 M -9.13 vs -8.11 another point for index
    1 Y -14.28% vs -9.79% the gap to index is getting bigger
    2 Y 2.95% vs 7.35% getting crushed by the index
    3 Y 3.88% vs 6.33% Still index
    5 Y 10.01% vs 9.65% Need to go out to 5 years to get ahead in the active and just. That assumes no accumulation since the ongoing underperformance.

    Now the legendary Magellan Global fund. I won't quote the index figures again and just go of the above.

    1 M -3.06%
    3 M -0.54%
    6 M -6.31%
    1 Y -12.67%
    2 Y -3.08%
    3 Y 0.3%
    5 Y 7.95%

    In the 6 months and under, they haven't done too bad Magellan. I reckon that's because they are so scared they are probably sitting in cash. Can't afford to lose any more investor capital.
    But anything from 1-5 years they have done terribly. The 2 year performance gap of over 10% against the index is abysmal.

    Figures like those above is the reason I will never stick another dollar in an active fund. Someone will come along and tell you but fund XYZ is outperforming by 123. When I started in this game of investing about 7 years ago, Mr advisor placed me in these and a whole heap more other active funds. He sat me down and showed my all the short term and long term performance figures and they look wonderful against the index. Within 7 years not a single one of the 15 or so active funds I started with has consistently outperformed. All have experienced periods of outperformance but none have continuously or overall outperformed. Had I just went all index 7 years ago I am certain I would be well ahead of where I am now.

    Fortunately for me it only took a few years and Property Chat to see the errors of my way and correct.

    Isn't it funny how the regulators are pushing against sharing of investment knowledge online by individuals, when it tends to be the licensed experts that led you up the garden path. :rolleyes:
     
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  10. Silverson

    Silverson Well-Known Member

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    Love your work mate, thanks for sharing!
     
  11. SatayKing

    SatayKing Well-Known Member

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    Maybe not.

    Quality of Advice Review | Treasury.gov.au

    Interesting the third dot point in Terms of Reference.

    Release of the Quality of Advice Review terms of reference and appointment of reviewer | Treasury Ministers

    "The Review presents an opportunity to assess how the regulatory framework could deliver better outcomes for consumers. Amongst other things, the Review will investigate:

    • whether there are opportunities to streamline and simplify regulatory compliance to reduce costs and duplication;
    • how to improve the clarity and availability of documents provided to consumers; and
    • whether parts of the regulatory framework have created unintended consequences."
     
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  12. SatayKing

    SatayKing Well-Known Member

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    Don't get your hopes up @Big A.

    The submissions are not from the likes of you or me but from the usual suspects with a high degree of self-interest.
     
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  13. Big A

    Big A Well-Known Member

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    Hopefully commonsense prevails. There is a lot of content out there by non-advisors that is educational and delivered by people who have nothing more than a desire to share and help others. I look at the knowledge I have gained from this forum, via experiences and information shared by members, who while not licensed seem to grasp what is suitable for the average investor than most licensed professionals.

    I for one am grateful for finding this site and the opportunity to learn from such a knowledgeable group. Otherwise I could have been stuck investing in underperforming active funds for many more years. Now just imagine overzealous regulating resulted in shutting down such valuable knowledge and experience sharing resources, your average investor would be so much worse off.
     
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  14. dunno

    dunno Well-Known Member

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    Hi @Big A

    Its great seeing you document you journey. Awesome job.

    I've just got a similar sort of comment as six months ago and will probably make the same one in six months time.

    How much do these Active Funds now have to outperform to get you back to where you would have been if you bit the bullet and switched as soon as you realised passive was for you?

    I sure hope they soon give you the shinny happy 'winner' exit you're waiting for.

    To be blunt which I know you won't take offence at;) I don't buy, and I suspect you don't either that your exit strategy makes the most sense. It feels more like you are betting against the house to try and win back your losses or at the minimum you are looking for a psychological softening to enable you to pull the trigger with some sort of recent 'winning' feeling. If Active funds are now a low conviction game for you then really you are playing for a shiny happy exit environment to arrive before a capitulation environment confronts you. If you don't think you could ever capitulate - well, I don't believe that either for anything but a highest conviction.

    But don't listen to me - do have a good think about it and listen to yourself though.
     
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  15. Big A

    Big A Well-Known Member

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    Love it. I want to say your way off, but no. You have hit the nail on the head once again. It's like your peeking through the window into my mind.

    It's funny cause only after writing my post I was thinking I should just bite the bullet and cut the actives loose now. Psychological softening is exactly what I am looking for. I hate to lose and want to feel like I had some sort of a win in the exit process. As you said I will get to a point where I get annoyed enough at the crappy performance and I capitulate. I won't capitulate out of fear or need but more from frustration and annoyance.

    Sometimes putting your thoughts down in a post helps clear things up in a strange way. Also feedback from others can sometimes wake you up to what you already know you should be doing.

    I couldn't tell you the answer to the question of how much outperformance to get back to when I gave up on active. Not sure how to work that out or if it really matters. My last active buy was in Dec 2020 and I literally saw the light in Jan-Feb 2021 over some threads and posts with yourself and a few of the otherwise heads on here. That same month I found John Bogles book on Common sense investing. Between that book and the discussions on here, I had my light bulb moment.

    Tell you what I'll do so you don't have to make the same comment again in 6 months' time. I am going to go over all the actives this week and start dumping them. I won't do it all in one hit and only because I need to do some restructuring with my holdings between the trust and company holdings. I am moving capital around for a new house build so I want to sell the actives in the trust and buy the equivalent value in index's via the company holding.

    Without going into the details I can dump the 2 Bennelong funds and the Walter Scott fund in the next week or 2 and buy up the equivalent index's. The Magellan and Hyperion fund I would need to wait another few months to have the capital available on the other side to sell and buy the equivalent index's simultaneously.

    Now for a silly question that I sort of already know the answer to. The Hyperion growth fund. It's my largest single active holding. Sits at 10% of total equities portfolio. I like the theme and even with the bad run of late, over the years I held it, it hasn't performed terribly. Is there any merit at all in holding onto that one single active? at 10% of total it will only get smaller as I keep adding to the index's. Or is it just trying to tinker for the sake of tinkering and easier to just finish the job of simplification into the two index fund portfolio?
     
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  16. Nodrog

    Nodrog Well-Known Member

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    Why bother, just an unwanted distraction. Own the index only and one never need waste energy checking on underperformance. And any outperformance of an active fund is generally fleeting not to mention the unwanted tax outcomes at times. Nowadays for me guaranteed market performance is much more welcome that the unpredictable and almost guaranteed long term underperformance of actives. Market return guaranteed without any effort and thinking involved freeing up energy to focus on far more important things such as your new PPOR, sounds like bliss to me.
     
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  17. Big A

    Big A Well-Known Member

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    Sensei you are right. :D

    Having that one active is more distraction than it’s worth.

    I shall follow in your path towards index enlightenment and drop all the actives. I’m going to dump 3 of the 5 active funds in the next week. Will need to give the last 2 more time or else I would have to sell down now without injecting the same amount of capital in the index’s now. I would be even more annoyed if I sold and the market ran up before I was able to buy back in the index.

    Don’t ask me why it has to be that way. It’s to do with how the holdings are structured and the fact I’m taking funds out of one structure for the PPOR while buying the index’s under a company holding. Working it out so I’m getting rid of non deductible debt and converting it to deductible debt.

    @Nodrog , just wanted to say a big thank you for all your guidance over the years. While I have learnt from many of the wise members on this forum, you have really been instrumental in moulding my mindset into what I believe is the best long term plan.
     
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  18. pippen

    pippen Well-Known Member

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    What's the plan?, vas,vgs, chicken breast, coffee beans, tuna, rice and cash at bank?? No lics then
     
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  19. SatayKing

    SatayKing Well-Known Member

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    Cuning plan.jpg

    And never forget if Plan A fails, you still have 25 letters remaining.
     
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  20. Big A

    Big A Well-Known Member

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    Just VAS & VGS. The chicken breast I count as part of the protein portfolio holding. That portfolio is made up of chicken breast / brown rice 50/50. It mirrors the VAS / VGS portfolio.
    No coffee or tuna for me. That’s just like trying to add in active holdings. No need for anything more than a simple chicken and rice combo.

    Cash is a no. Cash sitting in offset against debt yes. At 5% rates I’m starting to lose interest in using debt for investing. LICs I have never held. Gave it some thought after reading so much about them here, but never really made any sense to me over an index fund.
     
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