LICS vs ETF vs Managed Accounts vs Managed Funds

Sorry Barny, that was a draft post that I didn't complete attached to my reply.

I don't own the Vanguard unlisted fund but I have the MLC Platinum Global unlisted vehicle. What I know is that without receiving any dividends in my pocket, I was given a significant capital gains tax bill for that fund. I still don't know where they pulled the figure from as it was far too high based on the fund performance.

What @austing is saying that with Vanguard opting in to AMIT there won't be such problems with their unlisted funds - that is, unexpected surprises in terms of CGT.

 

Cheers eryan, so you paid cgt for your fund without selling? What percentage did you pay if you don't mind me asking.

 

From what I remember the amount owed was around 6% of my balance, which is ridiculous. Crooked and I have sold down since then. Anyone out there got any ideas why I was charged so much? It reminds me I need to chase them up on it.

 

Sounds like you've bought in to an existing tax position, so buying in part way through the year - you are liable for all tax events in that year whether you benefitted or not. Buying a managed fund with gain near end of financial year is bad news.

This is what the new AMIT scheme is addressing.

 

I bought this early 2000s. The fund is now closed. I put in $100 a week for a long time.

That figure didnt make any sense to me, which is why I sold most of my holding and bought vgs/pmc as the closest instruments in my arsenal.

 

I am sympathetic to this view. As per my previous comment, the majority of active managers do not outperform the benchmark at the sector level. There are some exceptions where there are more runs - e.g. small/microcaps. Investors Mutual is a good pick - Anton runs a very good shop.

They run a great Aussie Equity strategy (uses options): Investors Mutual Equity Income - Managed fund profile - Managed funds - InvestSMART

Now that is something that has done well on a risk adjusted basis, which I think is something that most people do not adequately consider.

To clarify my point, not all funds are the same - e.g. a vanguard offer managed funds and they are not expensive. Using Vanguard as an example, if you were to try and buy all the constituents and try to regularly rebalance them using a brokerage account, it could be expensive.

I agree that most active managers are a waste of money, however I see merit for out performance at the asset allocation level (risk adjusted, not just return). I like active asset allocation with passive or smart beta or even active exposures to underlying sectors where it makes sense to do so (that's what my firm does, e.g. start with European Financials ETF to gain broad exposure when the whole sector was cheap, then a custom factor based strategy which stripped out Italian banks). There are times where I don't think a pure passive exposure is ideal, e.g. fixed income or where market cap exposure results in strong sector/country biases.

For example, when you buy an Aussie Equity ETF, you are effectively taking an oversized bet on banks and resources. Nothing wrong with that if that is the view you wish to take, but in my view, asset allocation is critically important.

You raise some very valid points. Also most dud funds do get killed off, to your point about survivorship.

To be clear, I generally believe that stock picking is a mugs game (there are obviously some exceptions). However, I see value at the asset allocation level, which can be systematic in nature - e.g. it isn't a single 'gun' manager sitting there saying let's go into Japan, there are capital markets teams that value all asset classes and feed this through a framework.

Most reputable firms will have performance at trust inception date. I have repurposed trust vehicles to launch different strategies and I have been unable to reset the track record. I have had to apply for a new APIR code to reset.

With the introduction of AMIT, a lot of the tax issues should go away.

Sorry but I don't fully understand your comment about the high watermark. Also, a lot of good managers also don't charge performance fees (we don't).

This could have occurred if a large unitholder made a significant redemption, crystalising capital gains and this was distributed to unit holders.

Thanks for the welcome. I am definitely humbled by the knowledge and success of members and their willingness to contribute to the forum. I am a young guy (low 30's), so have a lot to learn.

I think having a buffer is important. As Buffett and Sir John Templeton once said: "Holding cash is uncomfortable, but not as uncomfortable as doing something stupid" and "The four most expensive words in the english language are, This time it’s different.".

Having been heavily invested in Sydney, I am watching the market quite closely.

AMP Capital is an example of that type of product (although, one that I don't particularly like). Schroders, Perpetual, MLC, Morningstar Investment Management are some others.

In terms of international active, I generally have a low opinion of them. I know everyone seems to love Magellan and Platinum (both unbelievably expensive with the latter having seen better days). Definitely see factor as having an edge in this space - I definitely like a value tilt. I gain my international exposure via diversified/multi-asset funds.

Personally, I think there is a lot of merit in the SPIVA reports. The findings are consistent with other research findings.

I really can't comment here because you are spot on in that there are really limited providers in this space that are available via ASX or retail investment. From a retail perspective, I quite like BlackRock's offerings. Sorry I can't be more helpful here.

Vanguard are one of our biggest competitors . In terms of stewardship and survivorship, Vanguard are hard to beat. They also have a very interesting ownership structure (the unitholders effectively own the company). If you are a strategic asset allocation style investor, who makes regular contributions, it is very hard to beat vanguard on fees and track record. However, it is quite difficult to access Vanguard's diversified offerings as a retail investor (unless you use a wrap, which is expensive). We are talking minimum $500K investment unless you want in on their retail class, which is expensive. You can only really buy their sector ETFs.

Must be a massive unitholder redemption, change in index methodology or buying just before EOFY distribution, just like shares going ex div...

 

@bookworm said:

It's widely known that Vanguard will accept minimum $100k for wholesale fund option. Mix and match any of their wholesale funds as you please.

Their diversified product is great then you can add individual funds to overweight / diversify further if desired. Or simply create your preferred combination. ASX and Developed International (ex AUS) at 0.18% MER a reasonably cheap option. Diversified funds have been reduced to 0.29% MER from 1 July.

 

Thanks for your excellent comments @bookworm.

Further to:

Yes one of the best Equity Income Funds available.

As a retiree with a SMSF account based Pension I was very interested in IML's new LIC QVI which was to be a LIC equivilent of the unlisted fund. Big fanfare promoting the IPO then Jason Teh the portfolio Mgr decided to leave just before the IPO was due to list. The IPO was shelved till further notice. A huge embarrassment to IML.

It would appear there's key person risk not just at the top.

 

Interesting... clearly I spend too much time in adviser distribution land and not retail. Not bad way for those inclined to go for an active/passive mix or core satellite approach.

A huge embarrassment indeed, but completely understandable. With a good boutique incubator, Jason shouldn't have an issue raising a couple hundred mil. Even if he charges less than the current 99bps and after expenses, it would be a lot more than what you earn as a Senior Portfolio Manager.

 

Meant to add that Vanguard never publicly promoted this but if you follow various forums there are countless investors who have done this. I rang then myself recently and was immediately told $100k no problem to access wholesale option.

The other thing is that you can also make much lower BPay top ups than the $5k advertised. Even over the phone they're non-committal on this other than saying there's a little flexibility. But I know of numerous investors who have Bpay'd as little as $500 into Vanguard wholesale funds.

So any wonder the active Mgrs are worried about the large drift of investors to passive Mgrs like Vanguard when they are offering retail investors great deals this this. These are a "direct" offering to retail investors. No having to go through financial planners or messing with expensive wraps / platforms etc.

Given the recent changes to Vanguard wholesale diversified funds and lowering of the fee these would make a wonderful core for core / satellite approach or simply as ones Complete portfolio other than some cash.

Note the significant increase in International exposure (introduction of partial hedging of int equities), elimination of Areit index funds and more as shown below. They appear to be taking a slightly more dynamic approach with asset allocation as well intending to adjust based on periodic reviews.

Detailed here:
https://api.vanguard.com/rs/gre/gls/stable/documents/10508/au

Only trouble is @bookworm now us retail investors have let you in on a few of our secrets we're gonna have to kill you.

 

While it wasn't my intention to collect competitor intel, I really appreciate the information from different perspectives. If we can develop better products for investors it's a better outcome for everyone. I can see how these non-investment related, client friendly features really resonate with end customers.

In the states, Bogle basically told us (and a room full of managers) that active players can either continue to clip high margins and let assets run down (as Vanguard will continue to hoover the industry) or you innovate and add value, as you can't compete against Vanguard on cost.

It is good that Vanguard are taking a more active approach to asset allocation. It's a common misunderstanding in the market that asset allocation can be passive. Vanguard are in fact active asset allocators with passive building blocks. Someone needed to make the decision to allocate x% to Australian shares. Vanguard are actually a prospect for us to sell our capital market assumptions which flow through to their strategic asset allocations.

I must say that it makes me cringe when I see the average retail investor constructing sector portfolios using individual building blocks, to save a couple of bps from say Vanguard! Are they conducting regular analysis on asset class valuation and fundamentals? What are their capital market assumptions etc. etc.

I hope that building better, retail friendly products will spare my life .

 

Correction - a somewhat 'passive' asset allocation product that I am aware of is AMP's Super Easy suite on their retail super product. Last time I checked, they used a simple average of surveyed active managers to form their Strategic Asset Allocation. My understanding is that they they fill the building blocks with passive exposures.

 

@bookworm said:

We can never be sure whether to trust a fundie or not, we have spy's all around so be afraid, very afraid.

An article yesterday in AFR discussed a little on active vs passive survival strategies but unlikely to be of much value to someone with your level of skill and knowledge:

Active manager Baillie Gifford uses lessons from Vanguard to resist passive

 

See, i read this and pretty much spit the coffee over the keyboard. The industry has given up on picking stocks as the market its really pretty bloody efficient, way to many Bloomberg terminals in circulation! But, the new thing is that they build these "predictive" quant models "machines" that somehow predict the future of asset classes and now they can pick asset classes / markets, while accepting they cant pick stocks....the irony is that all the instos have access to the same info and pretty much the same models.........hmmm.....incredible stuff. This is really about product, not investor outcomes.

 

@Il Falco the following could be an updated suitable avartar for you:

 

Perhaps in the ASX mid / small cap sector there is potential for a quality Mgr (eg IML Small Companies fund) to outperform the relevant index. But I suggest in many cases this is not so much about Mgr skill but the consituents of the index itself being still somewhat concentrated and loaded with speculative mining rubbish etc.

SPIVA data supports this anomaly which exists in the small cap sector of the Australian market. See page 4 of following report:

http://us.spindices.com/documents/spiva/spiva-australia-year-end-2016.pdf

 

Well yes, you know I agree with this. I am talking generally of course. Dividend filter good enough for ASX small cap rubbish removal.

 

Sorry, it wasn't intended to be directed at you as we have personally discussed this stuff privately at length. So we thoroughly know each other's views.

I was just clarifying the issue for the potential benefit to others. When it come to indexing ASX small cap sector really is an anomaly relative to most of the other main markets.

 

Funny you say this, I've just put 100k a Vanguard Wholesale High Growth fund account as a core for my equities portfolio. Will start researching LICs next.

 

Hi djyella
Thanks for posting.
It will be interesting to hear about your experiences.

I will update (repost below this one anyway)my earlier post with incorrect franking calls,,, hopefully we can all learn something.