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Active funds: how do you choose

General discussions about growth strategies which focus primarily on investing for capital growth
Leif
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Active funds: how do you choose

#384742

Postby Leif » February 8th, 2021, 1:40 pm

Most of us know that there is a belief shared by many that active investments funds are not worth owning as most underperform the index, as proved by SPIVA reports for example, and have higher charges than passive funds. Well, I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck. Clearly some people are happy to buy the dogs, for some reason.

Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?

Mike4
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Re: Active funds: how do you choose

#384766

Postby Mike4 » February 8th, 2021, 2:11 pm

Leif wrote:Most of us know that there is a belief shared by many that active investments funds are not worth owning as most underperform the index, as proved by SPIVA reports for example, and have higher charges than passive funds. Well, I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck. Clearly some people are happy to buy the dogs, for some reason.

Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?


This is a question I've often wondered about too, and now we have a real live successful active fund investor in our midst. We should have you stuffed and mounted!

I'd be most interested to hear YOUR strategy, given you clearly have one, please!

Urbandreamer
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Re: Active funds: how do you choose

#384795

Postby Urbandreamer » February 8th, 2021, 3:34 pm

I confess that I have a few issues with the belief that ALL people want to outperform the index over time.

I can think of more than one active fund who's intention is to preserve wealth. Surely it's a false argument to claim that they are failing if they under perform the market.

How do I identify funds that I believe will outperform the market? Well a combination of past performance and the description that the fund manager gives of how they invest.

To take the example of my son's JISA.

We invested 1/3 in CTY, despite the fact that historically it has underperformed the FTSE. Why? Well he needed something to pay the platform fees.
Another 1/3 was invested in SMT. For those who don't know they have been in the top ten performing trusts every decade in the last 30 years.
The final 1/3 was invested in the games company FDEV, as I wanted this to be a learning experience. He is interested in computer games and following the fortunes of a company that he is interested in was, I thought, a good idea.

Since then we have added FCIT as a reliable fund and PHI, top slicing the SMT holding. Again PHI was chosen because of past performance and a view that the region is a great place to invest.

I regard the performance of FDEV over the last few years as luck. Still his portfolio has done quite well over the last couple of years.

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Re: Active funds: how do you choose

#384800

Postby TUK020 » February 8th, 2021, 3:41 pm

Leif wrote:Most of us know that there is a belief shared by many that active investments funds are not worth owning as most underperform the index, as proved by SPIVA reports for example, and have higher charges than passive funds. Well, I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck. Clearly some people are happy to buy the dogs, for some reason.

Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?


There is quite an active Investment Trust board.
I have stakes in both a bunch of income HFEL, HICL, LWDB, MRCH & MYI
and growth FCIT, ATST, WTAN, SMT, MNKS, CLDN, RCP,

For a long term perspective on growth trusts, this is worth a gander
https://www.itinvestor.co.uk/2020/06/20 ... -compared/

bluedonkey
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Re: Active funds: how do you choose

#384801

Postby bluedonkey » February 8th, 2021, 3:49 pm

Use your lucky pin, not the unlucky one.

tjh290633
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Re: Active funds: how do you choose

#384807

Postby tjh290633 » February 8th, 2021, 4:13 pm

Leif wrote:Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?

I started investing in 1958, using a then unit trust (Investment Trust Units). I was on a monthly investment plan (£3 a month initially) and held them until 1977, when I sold them to provide the deposit on a house being built. The IRR was 5.9% based on the cash flow.

In 1970 I bought some Ebor Commodity Units, and began a monthly scheme in 1978 at £10 a month, effectively replacing ITU in my regular investing. The amount invested has been increased from time to time, and the IRR has been 11.5% over the entire period. There have been ups and downs along the way, and I have sold tranches on four occasions, to move money into a PEP or ISA. This is currently JP Morgan Natural Resources Fund.

I bought some M&G Dividend Fund in 1975, transferring it into a PEP in 2 tranches, in FY 94-95 and 95-96, reinvesting the income until 2006, since when it has been withdrawn. The IRR is 8.2% on the cash flow.

I bought some Eagle Star UK High Income Units in a PEP in 1994. The income was reinvested until 2006 and since has been withdrawn. I just had a single investment. The fund is now Threadneedle UK Equity Income, and the IRR is 7.64%.

It is difficult to make comparisons, because of differing time scales and different investing modes. My own share portfolio, which started in 1987 as a PEP and is now an ISA, has 36 holdings at the moment, which I manage myself, and its IRR since 1987 is 9.24%. Prior to 2000 it tended to be nearer the 13% level, but it varies as the market fluctuates.

I forgot to mention that for a considerable time I used Life Assurance unit-linked policies, which had tax relief on the premiums. The principal one was the Prudential Unit Trust, which started in 1969 and matured in 1997. That gave an IRR of 12.5% over that period. It merged into Prudential UK Growth fund in 1999 and I believe continues as M&G Global Recovery Fund, but my final disposal was in 2001.

TJH

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Re: Active funds: how do you choose

#384812

Postby Lootman » February 8th, 2021, 4:28 pm

Leif wrote:I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck.

Define "good returns". For example if you had bought a S&P 500 index fund a decade ago you would have had compounded annual returns of 15%. Are you saying you did better than that?

And how would you know it was not luck? After all by definition some people must beat index funds through active methods. If 100 monkeys picked funds using darts, some of them would out-perform the index.

A wise old fund manager once told me: "If you beat the market but do not understand how you did it, then that is luck". He actually preferred under-performing and knowing why, than out-performing and having no idea how that happened.

Leif
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Re: Active funds: how do you choose

#384819

Postby Leif » February 8th, 2021, 5:00 pm

Mike4 wrote:
Leif wrote:Most of us know that there is a belief shared by many that active investments funds are not worth owning as most underperform the index, as proved by SPIVA reports for example, and have higher charges than passive funds. Well, I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck. Clearly some people are happy to buy the dogs, for some reason.

Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?


This is a question I've often wondered about too, and now we have a real live successful active fund investor in our midst. We should have you stuffed and mounted!

I'd be most interested to hear YOUR strategy, given you clearly have one, please!


Thank goodness you don’t know where I live. :D

I should first point out that I invest in unit trusts (OIECS and the like) and not investment trusts. I have a very simple strategy:

    Choose the geographic region(s) to invest in.
    Choose the sector eg small cap growth.
    Choose funds that show consistent good growth over at least ten years. This suggests good management.
    Reject any whose performance includes unusually high growth over a few years, this may indicate chance, or risk taking.

And perhaps a final rule is don’t listen to experts. They know nothing about the future.

I am underweight in the US due to past stupidity, and I avoid China and emerging markets which I see as high risk, rightly or wrongly, others can decide.

I started around 2000 and an early buy was the Jupiter European fund, and that’s done very well. I had a few others that did well too. My dog bought around 2000 was a JP Morgan Japan trust that at one point lost 50%, I should not have invested in Japan as the experts were wrong, and it was not researched properly. It did recover, was transferred into a Japan fund with a good record, and since 2016 has soared.

I had an L&G European Index Trust for about 8 years that did well, sold in 2016.

Over the last five years returns have been very good. Admittedly I could have done as well using a US index fund, but I prefer geographical diversification, although realistically I should have been at least 33% in the US.

Clearly the past is no guide to the future. And I am concerned about the high CAPE ratios in the US market.

Leif
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Re: Active funds: how do you choose

#384851

Postby Leif » February 8th, 2021, 6:11 pm

Lootman wrote:
Leif wrote:I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck.

Define "good returns". For example if you had bought a S&P 500 index fund a decade ago you would have had compounded annual returns of 15%. Are you saying you did better than that?

And how would you know it was not luck? After all by definition some people must beat index funds through active methods. If 100 monkeys picked funds using darts, some of them would out-perform the index.

A wise old fund manager once told me: "If you beat the market but do not understand how you did it, then that is luck". He actually preferred under-performing and knowing why, than out-performing and having no idea how that happened.


I would rather compare like with like, comparing against an S&P 500 index fund is pointless as I mostly did not invest in that market. I did have some money in an S&P 500 index fund as it made more sense than an active fund in that market. I chose to diversify, however more in the US would have been wise. Isn't hindsight wonderful?

Apart from the US, I've invested in a mix of small, medium and large caps funds, mostly growth, mostly in Europe and the UK, with some in Japan. Returns over 5 years have been about 13%. I've had some funds since 2000, the oldest being Jupiter European. I also had for many years before that investments in the L&G UK index trust, and L&G European Index Trust.

I don't agree that you have to understand why investments do well beyond understanding basics of investing eg diversification. As you probably know the so called experts cannot predict the future and most financial predictions are wrong.

According to research most active funds underperform the index, so using monkeys to choose funds would not lead to good results.

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Re: Active funds: how do you choose

#384942

Postby JohnW » February 9th, 2021, 7:11 am

Leif wrote:... that active investments funds .. most underperform the index, ... Well, I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck. Clearly some people are happy to buy the dogs, for some reason.

Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?

An active fund can underperform its relevant index by a big margin and still have very good returns because 'very good returns' can mean very different things to different people. That comparison needs tightening up doesn't it?
Same with 'work out'; it can 'work out' yet still eat the index fund's dust.
Nonetheless, I think we'd benefit from hearing about the fund selecting strategies that beat the relevant index fund (costs included) or the index, and what the most compelling evidence there is that the strategies that did will continue to outperform.
Being told that choosing a business with initials 'B' and 'G' did it, will have me wondering why that should in future 'do it'.
The strategies that failed people would also be useful to know, to avoid.
For cream on the cake I'd have 'by how much it beat the comparator (approximately)?', because beating it by 0.2%/year might not be enough to risk on a strategy lacking water-tight proof of superiority.

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Re: Active funds: how do you choose

#384966

Postby scrumpyjack » February 9th, 2021, 9:21 am

Firstly I never invest in 'funds' (by which I think people mean unit trusts) but much prefer investment trusts for a number of reasons well aired on these boards.

Obviously one looks at the track record of the IT, the expositions by its managers of how they do what they do and whether the direction of their investing aligns with ones own view of where one wants to be invested in future.

Also I accept that I will get it wrong sometimes and that IT managers will also. Most of them inhabit the same square mile in the city and see each other all the time so one has to be aware of the danger of groupthink amongst them.

Also 'gut feel' is helpful. I recall Bouleversee saying she never invested with Woodford as she didn't like his narrow shifty eyes!
I too never liked something about him but I don't know what. The managers at BG on the other hand always fill me with confidence that they know what they are doing.

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Re: Active funds: how do you choose

#385036

Postby Leif » February 9th, 2021, 11:48 am

JohnW wrote:
Leif wrote:... that active investments funds .. most underperform the index, ... Well, I’ve had very good returns from active funds over more than 20 years. And I don’t believe this is through luck. Clearly some people are happy to buy the dogs, for some reason.

Has anyone here invested in active funds and if so did it work out? What strategies did you use to select funds?

An active fund can underperform its relevant index by a big margin and still have very good returns because 'very good returns' can mean very different things to different people. That comparison needs tightening up doesn't it?
Same with 'work out'; it can 'work out' yet still eat the index fund's dust.
Nonetheless, I think we'd benefit from hearing about the fund selecting strategies that beat the relevant index fund (costs included) or the index, and what the most compelling evidence there is that the strategies that did will continue to outperform.
Being told that choosing a business with initials 'B' and 'G' did it, will have me wondering why that should in future 'do it'.
The strategies that failed people would also be useful to know, to avoid.
For cream on the cake I'd have 'by how much it beat the comparator (approximately)?', because beating it by 0.2%/year might not be enough to risk on a strategy lacking water-tight proof of superiority.


I was assuming common sense on the part of the reader. So getting a nice 10% from a US active fund would not have ‘worked out’ given that you could get much more from a US index fund, without the worries that the manager does a Woodford.

There are those who want water tight, cast iron, copper bottomed, proven methods. And then there are others who take a more relaxed approach, whilst knowing the benefits of index funds. It doesn’t make sense to use active funds in the US, and I wouldn’t for the FTSE 100, not that I’d bother with the latter.

I can understand people who prefer index funds, and I do have some. The one weakness of index funds is that they are scarce or non existent for small and mid caps in various regions. So if you want that exposure, you have to walk away from the index fund haven.

I agree with your BG comment. Seeing huge outperformance makes me ask what they knew, or did they guess. If they guessed and lucked out, that means they might guess again, but fail.

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Re: Active funds: how do you choose

#385093

Postby Lootman » February 9th, 2021, 2:08 pm

scrumpyjack wrote:Also 'gut feel' is helpful. I recall Bouleversee saying she never invested with Woodford as she didn't like his narrow shifty eyes!
I too never liked something about him but I don't know what. The managers at BG on the other hand always fill me with confidence that they know what they are doing.

Funny you should say that. Back when I worked in fund management, the smallcap manager was considered a bit of a rock star, and got good numbers. But I always had a funny feeling about him because his eyes would constantly move about. He never looked me in the eye when we were talking.

Imagine my surprise when he was prosecuted for front running and had to pay a half million fine (in exchange for admitting no wrongdoing, naturally).

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Re: Active funds: how do you choose

#385411

Postby monabri » February 10th, 2021, 2:10 pm

Bouleversee did actually own shares in WPCT according to her post .

viewtopic.php?p=266053#p266053

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Re: Active funds: how do you choose

#385461

Postby AleisterCrowley » February 10th, 2021, 4:19 pm

Leif wrote:
And perhaps a final rule is don’t listen to experts. They know nothing about the future.



Who does?

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Re: Active funds: how do you choose

#385487

Postby Adamski » February 10th, 2021, 5:32 pm

Yes there's plenty of research showing actives underperform passives/trackers after taking off fees. I'm also of the view that many active funds are closet trackers as they so closely match their index/benchmark and move in sync.

Despite this I chose a core, satellite approach with the core as trackers and satellites being active funds. I chose the active funds based recommendation here and reviewing returns on Morningstar portfolio. Using the surfing analogy, we can chose to ride the bigger waves, but there is always a risk of injury from strong currents and falling over. I'm currently investing big on China, riding the wave, but do I get on the board and enjoy it, or get off and get on the smaller waves?

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Re: Active funds: how do you choose

#427078

Postby XFool » July 12th, 2021, 4:16 pm

bluedonkey wrote:Use your lucky pin, not the unlucky one.

Toss a coin to decide which pin is lucky?


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