Latest SPIVA Scorecard (Active Fund Mgrs Vs the Index)

Discussion in 'Share Investing Strategies, Theories & Education' started by Nodrog, 28th Sep, 2017.

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  1. Nodrog

    Nodrog Well-Known Member

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  2. hammer

    hammer Well-Known Member

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    Those numbers are staggering!
     
  3. qak

    qak Well-Known Member

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    According to the report - yes, nearly 50% of those funds that were there 10 years ago have gone. But: there were 214 of those funds 10 years ago; and one year ago there were 236!

    How many people holding share-type investments 10 years ago have not changed at least half of them? Do you get rid of the good performing ones, or the bad ones?

    I can understand there's a need to adjust for "survivorship bias".

    Looking at their charts, I do wonder what the differences would be if they used "index funds" (rather than just the indices) returns compared to active fund returns.
     
  4. The Falcon

    The Falcon Well-Known Member

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  5. willair

    willair Well-Known Member Premium Member

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    It's only 40 days till the Melbourne Cup,at least that way it's all over in a few minutes..
     
  6. Nodrog

    Nodrog Well-Known Member

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    Yep longer term data is what's important.

    I had to laugh at the article in the AFR today about active Mgrs staging a turnaround based on the latest ONE YEAR data:).

    The only sector of the market where there's any hope for active Mgrs is mid / small caps. But if this becomes a crowded trade then maybe it'll suffer a similar fate? Mind you the small cap index is a pretty ugly one compared to the likes of US and others. So maybe the best of the best might have some hope in small caps.
     
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  7. Redwing

    Redwing Well-Known Member

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    With Fund Managers they sometimes change names, or the names of the funds change

    It helps get rid of a bad performance history :D

    Or Funds no longer exist and assets have been returned to investors, or its terminated
     
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  8. Ross Forrester

    Ross Forrester Well-Known Member

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    It is unfair for compare all of the active managers to the index.

    It is mathematically impossible for them to outperform as a group.

    We know they will underperform as a group.

    The question every active manager should answer is "how can I demonstrate that I have a proven, certain ability to predict future unknown events that nobody else can replicate, is proprietary only to me and I can continue to apply with large scale investment inflows".

    If an active manager cannot answer that question I will not invest with them.
     
  9. Redwing

    Redwing Well-Known Member

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    Its is having an effect as active managers reduce fees or look at what they can do to make changes. One of Australia's biggest wealth managers has caved in to inexorable pressure on fees from index and computerised trading

    AMP works the system as index-hugging fades
     
  10. Nodrog

    Nodrog Well-Known Member

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  11. Pleep

    Pleep Well-Known Member

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    What is the evidence that index funds performance perfectly matches the index? I am being genuine here, I don’t know much about them. Logic tells me the index funds would always be a slight step behind in implementing its portfolio changes? And a 0.1% MER on top? Hence they’d be in the underperforming benchmark group as well...?
     
  12. Redwing

    Redwing Well-Known Member

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    That's why the focus on fees, my index funds should match the index performance minus the management fee

    Some actively managed funds can outperform and will earn their fees by generating returns that beat the market average's over the next 5-10-15-20 year periods, the difficulty is working out which ones will do so, the longer the term the harder it gets to consistently outperform
     
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  13. Nodrog

    Nodrog Well-Known Member

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    @Redwing if you don’t mind me asking are you still following the simple three fund portfolio of VAS (STW?) / VGS / VAF? And out of curiousity do you ever top up your earlier holdings of VTS / VEU or just focus on locally domiciled VGS now?

    To be honest I’ve really admired your approach to simplicity and determination to stay the course.

    Even though I’m a keen investor in the old LICs as well as index ETFs when I get the urge to add new holdings to our portfolio I make myself reread some of Taylor Larimore’s (now 93 years of age) wonderful thread on the Boglehead forum. A documented IPS agreed to with my wife also prevents me from straying off course:):

    The Three-Fund Portfolio - Bogleheads.org
     
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  14. Redwing

    Redwing Well-Known Member

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    Hi @Nodrog

    Yes, still following the basic portfolio

    I've let the VTS/VEU funds run along with STW which I've held for years and have directed new monies into VGS and VAS, re-balancing dispassionately via new funds; simple enough for a ten year old to follow.....well she looked like she understood
     
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  15. Anthony Brew

    Anthony Brew Well-Known Member

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    @Redwing, you weren't tempted to add in a little VGE to go with the VGS since EM, which is in VEU is missing from VGS?
     
  16. Pleep

    Pleep Well-Known Member

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    My questionnaire results... after the first 2 questions it was quite obvious where it was heading!
    5A5D0D40-2899-4032-8EEF-2E88E3986BDE.jpeg
     
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  17. Redwing

    Redwing Well-Known Member

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    Yes, there are always temptations :D , apparently it all started with Adam,Eve and the apple

    You could always have a 'core and explore' portfolio, there's always opportunities, especially after chaos

    The investment waters get muddier each year, I'm sure I could tilt this way or that with VGE, VAE, or even VEQ, there's always someone on the internet writing about the virtues of one or the other, then there's the factor-based, sector-based, value-based, dividend-based ETF's that roll out each year to tempt you, there's always an itch begging to be scratched :)

    It's the paradox of choice

    [​IMG]
     
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  18. SatayKing

    SatayKing Well-Known Member

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    Go on @Redwing, you know you want to. SK buggers off chuckling having been there done that.
     
    Last edited: 21st Sep, 2018
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  19. Nodrog

    Nodrog Well-Known Member

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    Very insightful post thanks @Redwing.

    When simplifying the portfolio awhile back and wondering if there were major gaps in the equity side of the portfolio I extensively researched various asset classes (some are really just sectors) including REITs, Infrastructure, value factor, Emerging Markets and Small Caps etc.

    Of course the pros and cons could be debated endlessly but simplicity was the aim and whether the addition of extra asset classes / sector overweights was really going to a make a major difference in our case as retirees. So my decision is very individual specific as opppsed to suggesting others should do similar.

    The following focuses on VGS (our exposure to international) supposed deficiencies.

    The exlusion of Small Caps doesn’t have much impact on performance given the nature of cap weighted indexes. And even if it did it increases risk / volatility. Of course the successful small caps often become mid / large caps and end up in VGS anyway which according MSCI captures 80% of the overall Index. Ok might have missed out on some of the early growth but also didn’t have the higher risk.

    As for REITs / Infrastructure I’m comfortable with market weight in the main index rather than overweighting these. By holding the main index I’m not missing out on these “sectors” but simply choosing not to overweight them. There are potential correlation benefits but they can change over time and tend to disappear when they’re most needed as in major negative market events. And given we’re wealthy enough to easily live off the natural yield of the overall portfolio we didn’t feel the need to try to smooth “capital” volatility. Then there’s cost. In VGS the cost is 0.18%, if I chose a sector specific index ETF the cost is around 0.50%.

    Emerging Markets / Asia was tempting though. But if you compare the actual allocation of EM that most investors hold through total market indexes it’s not sizable enough relative to the entire portfolio to make much of a difference. EM comes with high risk but over time those countries that get their act together including improved regulatory / legal / political environment will eventually get included in VGS. As retirees given our circumstances do we need to exposure to such risk and will the allocation to this asset class Really make of a difference to us? The answer was No.

    These are only a few of the entire array of issues I looked at and my reasoning may seem wrong to others. But when simplicity, risk, MER, our stage of life, ease of admin for heirs, protection from home country risk and whether the addition of extra asset classes were really going to make much of a major difference, VGS seemed to meet the criterea of close enough is good enough and Low cost.

    That said however if Vanguard were to create a locally domiciled Total World Ex-Australia Index ETF around the same cost as VGS I would consider it. But based on current product choice trying to achieve this would violate the goal of simplicity, add cost and have minimal impact on overall returns.
     
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  20. Zenith Chaos

    Zenith Chaos Well-Known Member

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