Sunny said:
What I am saying is twofold:
1. Fund managers performance has been shown to be the luck of the draw. Some perform well (for a while) but in the long run (15+years) less than 15% will beat the market
2. You cannot predict which fund managers will be the in the 15% that beat the market in the long run.
Now as a consequence of that, I would claim that fund managers are an added expense with no value. Of couse if you want to gamble and try and pick one of the 15% then you are welcome to do that with your money. For me I am investing and trying to keep the gambling to a minimum.
PS. The 15% I am quoting here is off the top of my head. I will post more accurate figures later when I have access to them
well I think there's a difference in gambling and using skill. Do you not see the irony of this? You don't want to pick a manager yet, you'll pick an index or asset class. The values of those indices are influenced by the actions of the people chosen to run the underlying companies, i.e managers! Given the asset weighting composition, many indices are fairly dependent on the fortunes of relatively few companies...also: re 'you cannot predict which fund manager...'; yes you can (see my above post but we'll need years to actually prove it but yes you can. Perhaps even more so than in predicting individual equities as there are fewer inputs)
kellyiom said:
This isn't true, I know because I've read many of them. I'd suggest you read the linked paper which is generally regarded as the definitive study on fund persistence as of now.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=8036
This also isn't true, again see the link.kellyiom said:
http://www.sec.gov/investor/pubs/mfperform.htm
Active management still exists because of a combination of ignorance and the gambling instinct. Many people accept that markets are efficient but nevertheless choose to invest in actively managed funds in the unlikely hope of being lucky.kellyiom said:
zephyro said:
Zeph: can't belive you're quoting that paper which is now nigh-on ten years old...think if you look a bit harder you might find your comment is on shaky ground. Generally regarded?...by whom? Not going to get into a post a link battle- it's there if you want to find it.
OK, perhaps my wording was wrong about insistence by regulators but one link proves nada; there's millions others I could post giving info where regs ask providers to give relevant info like past performance etc. Again, spurious I reckon.
Finally, so let's get this straight: you think active investors, eg George Soros etc ad nauseum are nothing more than deluded gamblers...right? So these people gambling billions in state pensions in California are punters. Why Warren Buffett doesn't just buy an insurance sector tracker rather than General Re? Isn't he gambling? Is this really what you are saying...?
kellyiom said:
Look, it's your money. If you choose to ignore any recent study in this then it's your call. We can come back in 10 years and look at your predictions and see how you do.
BTW Just out of curosity how are you going to pick these fund managers? Please don't say their performance from the last 3 years.
Well I'm not ignoring any recent study on it, just those which support your limited point. Don't think you've really addressed my point there anyway about gambling and investing and how economic returns are actually earned. How am I going to pick those fund managers- well of course I wouldn't upset you by saying the last three years performance. I have a mystic hedgehog which snuffles them on a big board in my garden!
Academia. No need to get into a link battle, a single link to a paper that statistically disproves its conclusions will do. I emphasise the phrase "statistically disproves", I'm aware of papers that dispute it's findings but completely sacrifice statistical rigour for the sake of an attention-grabbing conclusion.kellyiom said:
Again, a single example from a reputable regulator will do.kellyiom said:
I think and the evidence supports the position that "George Soros etc ad nauseum" are gamblers. I never said deluded, people may realise the odds are against them and nevertheless gamble and win.kellyiom said:
CalPERS manages the majority of it's assets passively and believes the market is efficient, see the link.kellyiom said:
[broken link removed]
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Sunny said:
Easy, compare their performance against the index they say they are tracking. Then compare their charging structures.
zephyro said:
also [broken link removed]
clearly allocating more to active than passive! (55% to 44%) Please explain why Mark Anson ex-CIO of CalPERS left to head up an active company?! And why Jack Meyer of Harvard did the same?! Smart alecs who can milk the fees or genuine investment talents who can repeatedly demonstrate returns in excess of the 'market'?
Think sunny's said the most sensible comment on the whole thread on this ^^^. I don't for one minute believe that people who make money from investing for a living get bogged down in debates over active & passive. How do you explain arbitrageurs? How come any of them exist at all, never mind that some last for decades! Don't understand why this topic generates such blinkered dogma. I mean, nobody has a problem understanding that Michael Schumacher exists, yet he's better than most and repeats it. Why then do some people have a fit when you try and claim a fund manager can do it. Personally, think it's envy and insecurity as people can't admit mistakes or believe that someone can do something they can't. But then I'm a behaviouralist and that's a whole different thread!
You have a pdf in front of you and are misrepresenting the actual figures in it !!kellyiom said:
In fact of the equities held in the fund ($122Billion)
75% of the Domestic are passively managed and
56% of the International are passively managed
But of course the guys managing this 122Billion dollar fund don't have your foresight to pick the fund managers that will outperform the market so they have to settle for a passively managed fund.
Diarmuidc, this is a very weak post; how can linking a verbatim pdf which clearly shows the overall position be misrepresenting? Clutching at straws I think...
Since when were we focusing on equities only anyway? This thread has discussed active & passive management - bonds were mentioned earlier.
Your point if I can recap boils down to 'that fund managers are an added expense with no value'.
My point is why then are the world's most successful (in absolute, not relative terms) investors using active management?
I then post a pdf which clearly shows one of the world's leading pension funds with $211bn assets employing 55% of its assets in active management. Explain this discrepancy a little more and expand please on my 'misrepresentation'.
Diarmuidc, think you need some further education on this area; I would suggest that the reason CalPERS passively manages 75% of its domestic equity is that the US markets are deep, liquid and relatively efficient; suited for passive strategies. By the way, $25bn in domestic equities is still given over to active management- does that sound like they really believe active can't add value to you? Do you think they thought 'ah well, if we put it all in trackers, that'll hurt a lot of fund managers so we'd better give them something?'!
Moving on to international equities, as you rightly mention, they're crazy enough to give over 56% to active managers! The same managers perhaps that you allude to which is a shame as they clearly 'don't have your foresight to pick the fund managers that will outperform the market'; Actually, if you do some homework and ask CalPERS nicely, they'll probably tell you who they are and you'll probably find a number of names overlapping in their list and the one I posted, but don't let facts get in the way of a good argument, eh! I'd suggest that they recognise active management can add value in less liquid, less researched and sector-driven investing, thus their higher allocation when in non-US sectors. I'd also suggest actively investing a whole $200bn would be difficult putting it 100% with active managers. That's been my argument all along; most managers detract from performance but there are many who add it; that sort of talent though does not have infinite capacity to manage unlimited capital. Moreover, it's not impossible for some investors to identify those managers likely to outperform.
While you're at it, I'd respect your points a bit more if you attempted to answer any of the questions I raised; like, why then did Mark Anson, former CIO of CalPERS leave them to go to an active management group. How have Harvard managed to achieve consistent absolute returns using active management? Do you know how and why people like George Soros 'gamblers' to quote zephyro, have consistently made money?
Also, I'd like to point out I've never said anywhere in this thread that past performance is a key factor in selecting a manager; that data is not without value however. I therefore expect zephyro to put their money where their mouth is and next time they interview someone for a job, don't look at their CV; next time you get a builder in to do some work, don;t ask about their track record, what jobs they did, etc- because that's what you're saying yeah? You KNOW past performance has no worth....
Another nice little touch to think about when you're putting money in trackers is to think about who else uses them; they're actually a useful hedging mechanism and stocklending facility which is often used by the very same people to add value which you claim do not exist! Next time you're in London, go and have a walk around Berkeley Square, you'll see plenty of them with your own eyes!
I love sceptics; ask an awkward question and immediately you start getting ' on page 200 of that link it says....' and a load of ducking and diving!
Since when were we focusing on equities only anyway? This thread has discussed active & passive management - bonds were mentioned earlier.
Your point if I can recap boils down to 'that fund managers are an added expense with no value'.
My point is why then are the world's most successful (in absolute, not relative terms) investors using active management?
I then post a pdf which clearly shows one of the world's leading pension funds with $211bn assets employing 55% of its assets in active management. Explain this discrepancy a little more and expand please on my 'misrepresentation'.
Diarmuidc, think you need some further education on this area; I would suggest that the reason CalPERS passively manages 75% of its domestic equity is that the US markets are deep, liquid and relatively efficient; suited for passive strategies. By the way, $25bn in domestic equities is still given over to active management- does that sound like they really believe active can't add value to you? Do you think they thought 'ah well, if we put it all in trackers, that'll hurt a lot of fund managers so we'd better give them something?'!
Moving on to international equities, as you rightly mention, they're crazy enough to give over 56% to active managers! The same managers perhaps that you allude to which is a shame as they clearly 'don't have your foresight to pick the fund managers that will outperform the market'; Actually, if you do some homework and ask CalPERS nicely, they'll probably tell you who they are and you'll probably find a number of names overlapping in their list and the one I posted, but don't let facts get in the way of a good argument, eh! I'd suggest that they recognise active management can add value in less liquid, less researched and sector-driven investing, thus their higher allocation when in non-US sectors. I'd also suggest actively investing a whole $200bn would be difficult putting it 100% with active managers. That's been my argument all along; most managers detract from performance but there are many who add it; that sort of talent though does not have infinite capacity to manage unlimited capital. Moreover, it's not impossible for some investors to identify those managers likely to outperform.
While you're at it, I'd respect your points a bit more if you attempted to answer any of the questions I raised; like, why then did Mark Anson, former CIO of CalPERS leave them to go to an active management group. How have Harvard managed to achieve consistent absolute returns using active management? Do you know how and why people like George Soros 'gamblers' to quote zephyro, have consistently made money?
Also, I'd like to point out I've never said anywhere in this thread that past performance is a key factor in selecting a manager; that data is not without value however. I therefore expect zephyro to put their money where their mouth is and next time they interview someone for a job, don't look at their CV; next time you get a builder in to do some work, don;t ask about their track record, what jobs they did, etc- because that's what you're saying yeah? You KNOW past performance has no worth....
Another nice little touch to think about when you're putting money in trackers is to think about who else uses them; they're actually a useful hedging mechanism and stocklending facility which is often used by the very same people to add value which you claim do not exist! Next time you're in London, go and have a walk around Berkeley Square, you'll see plenty of them with your own eyes!
I love sceptics; ask an awkward question and immediately you start getting ' on page 200 of that link it says....' and a load of ducking and diving!
kellyiom said:
The only way to beat the market in a big way is to engage in active management as index tracking, by definition, will only track the market. But that proves nothing. The winners in this case are the exceptions.
It still doesn't mean you can tell in advance which active managers will be the minority of active managers who will outperform next year and the year after and so on.
I do have one issue with passive management as it does base itself on past performance of the economy as a whole. It assumes the global economy will continue to grow. This assumption is really only based on the last century or so - the oil century. The assumption that the economy will continue to grow post peak oil production may prove to be incorrect. And peak oil is likely to arrive before I depart! I need to add an index to my portfolio that isn't affected by oil!
Sarsfield said:
but my point is; these investors can...and do! read their (CalPERS, Harvard, UTIMCO) annual reports for details. It's not easy but is achievable. in just the same way as the managers they select can outperform in their selected assets year after year. But it's not logical for us to say that they can manage unpredictable assets in a superior way, but the way they do it prevents anyone else from predicting who 'they' will be. Proof of the pudding and all that- the details are stated in black and white in those reports like the one we looked at; examine the tenure of their managers; many outperformers, all selected through skill, not chance, over multi-year periods.
....I do agree wholeheartedly tho with your example re: Oil- think that's a very useful situation to illustrate the best 'bits' of trackers if you like. Ironically, I sort of agree there, we need more trackers not less. And be a bit smarter how we use them.
What ? Please read the pdf you are posting.kellyiom said:
56% of international equities are PASSIVELY mangaged. It's there in black and white. Again you are misrepresenting the document.
Bonds may be mentioned, but the assets in the fund are divided into real estate, equities and income. Now income and real estate cannot be passively managed. In any case the whole thread is about equities+bonds not cash and real estatekellyiom said:
Wrong. 24% of $85B is actively managed. That $20B vs $65B passively. I don't know why they are using active mgt but if they are adding significant value why not have 100% actively managed?kellyiom said:
No idea who he is or why he left but if the fund I was managing was increasingly replacing my job with a computer then I would be looking elsewhere for employment too.kellyiom said:
Your analogy doesn't hold up. If I'm looking for a roulette player I don;t look at his pprevious results and pick the player based on that.kellyiom said:
And I love snakeoil salesmen. When they are presented with facts and figures they distort, misquote and misrepresent.kellyiom said: