LICS vs ETF vs Managed Accounts vs Managed Funds

I used a very complex formula to come up with my 50/50 split between Australian and International equities . Are you saying that I need to adjust my allocation periodically? I thought the purpose of a static allocation was so that when one asset class becomes expensive or cheap then appropriate balancing occurs automatically.

 

The industry has given up picking stocks because they have always failed at beating the index and the GFC is still recent.
In time they will go back to telling us they can beat the market, just as soon as they have a couple good years.

As for the market being efficient, chance are between buckleys and none.
Because it cannot be efficient for long.

 

I can appreciate the sentiments towards the industry, particularly when some shops that 'lose less' than a sector index in a down market then turn around and collect performance fees through this 'alpha'. It is not only disingenuous, but exactly why my industry has such a bad name. However, I respectfully disagree with some of the comments and assumptions.

Investment management to me isn't just about stock selection. For example, asset allocation is more important, covering investing in other areas such as fixed interest (credit, paper, syndicated loans, inflation linked, high yield, government, developed markets, emerging markets etc.etc.), alternatives (e.g. alternative beta, market neutral, insurance linked, unlisted infrastructure and private equity) the list goes on.

Models are nothing new and while I agree with your sentiment that anyone who says that they can reliably predict tomorrow's price action is full of it, at its simplest, there is nothing controversial about using filters to select stocks based on proprietary, set investment criteria. A 'model' could be as simple as culling a universe of stocks based on their piotroski score.

There is also nothing controversial about an active manager considering mean reversion, long term valuations and fundamentals in forming active asset allocation decisions. You don't need a Bloomberg terminal to look at periods of low and high valuation in asset classes e.g. low Shiller P/E and what happens in the decade following. Asset classes can and do become overvalued and undervalued.

The information is definitely out there. It's just a matter of how it is applied. I pride our firm on offering products that deliver strong risk adjusted investment outcomes to investors with fair pricing, so it's unfair to paint the entire industry as a bunch of self interested people.

Active or passive management does not need to be mutually exclusive. A good manager should have the ability to use all the tools at their disposal, including passive strategies, smart beta, active management, derivatives (which are a cheap way to gain passive exposure) etc.

 

The allocation is heavily skewed towards banks and resources, which is a good or bad thing depending on your view of these sectors. While I can appreciate the home bias and franking credits, the ASX makes up something like 2% of the global market cap and doesn't have exposure to other great industries available more globally. Just something to consider, in my view.

There is definitely a time and place to be passive versus active and it's 'efficient' until it stops being efficient...

In a GFC style crash, it's hard to fault a high beta approach to capture the inevitable rally. But in very expensive or concentrated markets, it's probably not a bad idea to consider some beaten down countries and sectors which should provider some valuation support and a margin of safety.

 

Well generally it is pretty efficient ; this is why its hard for managers to beat the market. Price discovery works quite well. Thats not to say that market is not prone to exuberance, pessimism or that it is perfectly efficient all the time, which is not the case.

 

I appreciate how you are coming at this Bookworm. Kudos.

I guess where I am coming from is the opposite side of the table. I read all of above, and my reaction is "who doesn't know that". i.e. There is that much insto money pursuing the same sources of alpha that the value is quickly competed away. It's also very difficult to determine whether an outcome was driven by skill, or just risk exposure. Speaking of valuation metrics, how many managers have been sitting on the sidelines for a few years now, waiting for mean reversion in the US market?

The Investment problem is that information is now, more than ever ubiquitous. Everybody can run screens that a generation ago only instos could run. Anyone can get hold of PE 10 for developed / emerging markets and buy ETFs to chase "value". Everybody will look through the tea leaves of history for a hint of what comes next....but markets are forward looking. This is the problem.

As a private investor when I think about the whole picture, I think about after tax outcomes. This is very significantly different from paper returns. So, we talk about SAA....well, Vanguard in chasing paper returns has changed its SAA in its diversified funds, creating tax events for holders, with no guaranteed outperformance. See to me, this is highlights the tension between paper returns and after tax returns.

Where I have come to, is to accept market beta at the lowest cost, in the most tax efficient package with the appropriate mix of risk/risk free assets based on ones position and focus on "investor behaviour" which I believe in the long run is far more important...i think the chase for alpha neglects this to the long term detriment of investors.

 

And sure enough:
Former Investors Mutual manager Jason Teh launches own company

 

Anyone going to participate? Appears as if the fund wants to limit FUM to give them agility but let's see how the greed factor influences their decision.

• 1% performance fee
• Market reasonably expensive
• Proven performer with IML
• Minimum $50K investment required

 

1% performance fee? I thought the MER was 0.97% with no performance fee. Not sure if that's with it without GST. But I haven't read up on it as I'm not interested.

I won't be investing in it. The fact that IML had to shelve QVI (equity income LIC) IPO due to Jason leaving highlights the key person risk involved.

 

+1

 

Sorry, I meant 1% (0.97%) MER.
Key man risk sounds dangerous.
I don't really have the cash so I won't take the risk without a very good reason.

 

AMIT - can anyone point me to an explanation of how this works. From what I can gather it is trying to address the situation where you have a unit trust investment, say its an old trust that only ever had one asset, on which it has a significant gain, if you get a new investor in the trust, and the following day the trust sells the asset, the new investor wears the tax effect of the sale along with the old trust holders, which is patently not fair.
How exactly does amit address this situation?? anyone have any clue??
Thanks
gavin

 

An AMIT could apportion the CG to the other investors, particularly if they were the ones who triggered the tax event (e.g. a large insto client).

 

I'm trying to understand the AMIT changes too.

Consider a very basic example:
- A & B both invest $1000 into the fund, which invests the $2,000
- Fund investments double to $4,000 in a few weeks
- B wants to sell out and take the (now) $2000
- Fund has to sell half the investment to get the required cash, so Fund realises a capital gain of $1000 (plus $1000 original investment).

So what happens under old way vs AMIT?
My guess is:

Old: A-income distribution of $500 taxable gain, and they retain investment $2000 (but there must only be $1500 left?); B-income & taxable CG $500 + return of capital $1500???

AMIT: A - no income (but retains $2000 investment), B- receives taxable distribution of $1000 gain + return of capital

 

Hi @djyella, just wonder how you're going with this? both the Vanguard wholesale & LICs? thanks