Friday 21 September 2012

Managed Funds VS Index Trackers

Every year index tracker funds, on the whole, outperform their actively managed brethren. When you look at longer time frames this out performance becomes more pronounced as many active managers can get lucky in the short run, but are very unlikely to stay lucky for a 10+ year period.

'' A study by research firm WM Company found that 82% of managed funds failed to beat the market over the course of twenty years. While you may think that sounds bad, it's actually even worse, because this figure only includes funds survived for the whole twenty years -- many poorly performing funds are shut down or get merged into other funds.

This means that the chances of picking a fund now that will do worse than the market over the next twenty years is likely to be a lot higher than 82%, and is probably well in excess of 90%. '' -

Index trackers cost less too. Most managed funds charge 3%-5% initial fee plus approximately 1.5% annually, while index funds generally have no initial fee and only cost around 0.5% annually. This is because index funds obviously have much lower labour costs to pass on and they generally trade much less than managed funds so incur less trading fees. These savings when compounded for many years can make a huge difference to the end result of an investment.

On the whole then, index tracker funds appear to be a fairly sensible place to stash your cash if you are looking for stock market exposure.


There are a small minority of fund managers out there who have fantastic track records and have proved themselves well worth the extra fees incurred. Anthony Bolton to give one example, managed to return his investors on average 19.5% a year during his 28 year tenure at the Fidelity Special Situations fund (starting 1979). That would have turned a £10,000 investment into £1,470,000. The same £10,000 invested in a tracker over the same period would have got you only £346,644. (still not too shabby!!)

Managers of this calibre who can consistently beat the market over the long term are few and far between but it is well worth keeping your eye out for them. Mr Bolton is now managing the Fidelity Special Situations China fund, it's had a bit of a rocky start but after watching the video link below I gave him a bit of my money to look after.

Where are your investments and pensions invested? Are they in index trackers or managed funds? If they are in managed funds then it could be well worth finding out who exactly is managing them and if they have proved themselves worthy of the extra fees involved.

Tuesday 18 September 2012

September Market Update

Most Western markets have experienced a sustained rally during the last few months, the most recent leg being mostly attributed to Ben Bernanke's further monetary easing measures at the US FED.

On the face of it everything is looking quite rosy. My personal portfolio is hitting all time highs, thanks in part by some great recent gains in my house builders' shares. Persimmon have now almost doubled since I bought, and others such as Barrat, Redrow, Taylor Wimpey and Telford Homes are up between 25%-50%.

Also my Lloyds bank shareholding is doing quite well at the moment up about 30% to 40p from my average purchase price of 31p

My tobacco stocks, Imperial Tobacco and British American Tobacco, have fallen from grace a little after a great run, following a decision from the Australian government to ban advertising on cigarette packets. However I still see this pair as a great long term holding as they are positioning themselves to reap rich rewards from emerging markets and have a great track record for delivering returns to shareholders.

BAE systems, the weapons and technology company, is up about 20% from my purchase price of 285p on news of a potential merger with EADS, if the merger goes ahead I will re-evaluate and may well liquidise this holding as EADS dividend yield is much lower than BAE and their PE ratio is substantially higher. More research definitely needed here.

My big Pharmaceutical plays are treading water, a small loss showing on my AstraZeneca shares being offset by a small gain in GlaxoSmithKline. Both companies however throw off a good dividend of circa 5% and are attractively priced and should benefit long term from our ageing population so i will continue to hold.

My other holdings, BT, Vodaphone, Aviva, BG Group, Polo Resources and Tesco are all showing nominal gains (except Tesco which is down about 15%) and are generating decent dividend returns so will continue to hold these as well.

I must add that although I don’t plan to sell any holdings soon (except perhaps BAE) I am not wholly confident about the market's short/mid term prospects. As stated in previous posts I don't agree with the way Western governments are tackling their huge debt problems and I think we could see large fluctuations in market prices as the debt scenario plays out. I still believe however that good quality company shares are the best bet for the long term and will view any subsequent crashes/recessions as further buying opportunities.