|
|
Post by chang on Feb 18, 2024 13:32:36 GMT
I found this analysis to be very interesting.
Morningstar U.S. Active-Passive Barometer.pdf (949.32 KB)
Executive Summary
The Morningstar Active/Passive Barometer is a semiannual report that measures the performance of active funds against passive peers in their respective Morningstar Categories. The U.S. Active/Passive Barometer spans nearly 8,212 unique funds that accounted for approximately $17 trillion in assets, or about 55.9% of the U.S. fund market, at 2023’s midpoint.
Key Takeaways
Actively managed mutual funds and exchange-traded funds roared back to life in the first half of 2023. Fifty-seven percent of active strategies survived and beat their average passive counterpart over the 12 months through June 2023, well above their 43% success rate in calendar-year 2022.
U.S. stock-pickers notched a 57% success rate over the 12 months through June, up from 48% in 2022. Over 65% of active small-cap managers beat their average passive peer. Active mid-cap (56%) and large-cap managers (53%) measured up well, too.
Active strategies that invest in stocks outside the United States saw the starkest turnaround. More than 63% of them beat their average passive peer, a startling increase of 30 percentage points over calendar-year 2022. Active funds in all six foreign-equity Morningstar Categories maintained or improved their success rate, led by active foreign large-value managers’ gaudy 75% clip—a 48-percentage-point boost from 2022.More than 55% of active bond managers survived and beat the passive average, a feat only 30% of them managed in 2022. All three fixed-income Morningstar Categories we examined boosted their active success rates by at least 15 percentage points. Active corporate-bond managers led the cohort, with a 60% success rate, up from 34% in 2022.
Actively managed funds’ recent surge did little to change their long-term track record against their passive peers. Just one out of every four active strategies survived and beat their average passive counterpart over the 10 years through June 2023. Long-term success rates were generally higher among foreign-stock, real estate, and bond funds and lowest among U.S. large-cap strategies.
The distribution of 10-year excess returns for surviving active funds versus the average of their passive peers varies widely across categories. In the case of U.S. large-cap funds, it skews negative, indicating that the likelihood and performance penalty for picking an underperforming manager tends to be greater than the probability and reward for finding a winner. The inverse tends to be true of the fixed-income and certain foreign-stock categories we examined, where excess returns among surviving active managers skewed positive over the past decade.
Investors have chosen active funds wisely. Over the past 10 years, the average dollar invested in active funds outperformed the average active fund in 19 of the 20 categories examined. That implies investors favor cheaper, higher-quality strategies.
The cheapest active funds succeeded more often than the priciest ones. Over the 10 years through June 2023, nearly 31% of active funds in the cheapest quintile beat their average passive peer, compared with 19% for those in the priciest quintile.
|
|
|
|
Post by mnfish on Feb 18, 2024 14:28:27 GMT
Rekenthaler has an article titled "Index Funds Have Officially Won" and he uses 1996 as a period 20 years after Vanguard introduced the first one and states that indexing "had by the mid-’90s become the rage among institutional investors." I don't own many funds. I still like to pick stocks and always look at PE's as I imagine a lot of active managers do also. One site I found shows that since 1990 the average trailing PE of the SP500 is 23.33. From 1950 to 1996 PEs rose above 20 only three times. Briefly in 1962 and 1987 and a longer stint in 1992-94 and peaked at 22.5 in 1962. Since 1996, PEs rose above 20 from June 1997 thru June 2004, Nov 2007 thru Feb 2010 and Feb 2015 until today. Peaks above 40 have occurred 3 times. If "dumb" stock index funds continue to buy, not based on price or earnings but merely on market capitalization, how are you going to beat them? |
|
|
|
Post by retiredat48 on Feb 18, 2024 15:18:45 GMT
chang ,...Hi. Good info. Here are some things M* and especially some Boglehead types who relish index funds, don't tell you. --That the top 10% of active funds consistently beat the index fund (who are generally around 60+ percentile) for at least the next year. But they may not beat over ten years. --Yes, active bond funds beat index funds. Partly because the index is really choosing bonds as well--it is active. As one cannot own the total bond market...or any segment. Would be thousands of bonds. --Active small cap fund managers usually do quite well as shown. Difficult for an index to hold "all the small cap stocks available. --If you actively manage your portfolio to any degree, it is not very difficult to stay within the top 10% (or 20%)of performers, which will beat the index fund. --If any of your active managed funds is losing to an index fund, immediately shift into the index fund. Do not pay mgmt fees for poor performance. Then move to top performer if desired. BTW in next thread I will post an interesting score-keeping of owning just the top 10% of funds. R48
|
|
|
|
Post by retiredat48 on Feb 18, 2024 15:36:19 GMT
chang , mnfish , retiredat48 ,...Here is another tabulation of returns, active versus passive, kept for years by a Boglehead individual called Madsinger. Madsinger kept track of several well known portfolios such as Coffeehouse Portfolio, Wellesley standalone...and monthly published results. An illustration is this link: www.bogleheads.org/forum/viewtopic.php?f=10&t=115678&newpost=1684314Note in particular the winning portfolio by far is called HOT HANDS. It had a great historical CAGR of 11.63% annual return in this post back then. Hot hands was kept by Madsinger, consisting of buying ONE FUND ONLY, every 31 December, the hottest performing mutual fund of that current year...holding for a year, then rinse and repeating next 31 December. This way, he forced himself to always be in the top 10% of performers. (Like I discussed above). Performed far better than the indexes. IMO it was a great, real-time demonstration of the principals of fairly assessing active versus passive. Such as, I think it is still true but every active Vanguard Fund has bettered its passive index, since fund inception. Low cost being the key variable versus other funds. Like Norbert would post: Sure, in the tennis world the pro tennis player ranking in 66 percentile can beat 99% of all the world's tennis players. But we are not picking from these others (like discard funds with an ER above 1%). Pick from the top five tennis players. Pick from the current top performing mutual funds/ETFs. If performance begins to lag (and you will know it) switch to another. R48
|
|
|
|
Post by liftlock on Feb 18, 2024 15:42:43 GMT
Rekenthaler has an article titled "Index Funds Have Officially Won" and he uses 1996 as a period 20 years after Vanguard introduced the first one and states that indexing "had by the mid-’90s become the rage among institutional investors." I don't own many funds. I still like to pick stocks and always look at PE's as I imagine a lot of active managers do also. One site I found shows that since 1990 the average trailing PE of the SP500 is 23.33. From 1950 to 1996 PEs rose above 20 only three times. Briefly in 1962 and 1987 and a longer stint in 1992-94 and peaked at 22.5 in 1962. Since 1996, PEs rose above 20 from June 1997 thru June 2004, Nov 2007 thru Feb 2010 and Feb 2015 until today. Peaks above 40 have occurred 3 times. If "dumb" stock index funds continue to buy, not based on price or earnings but merely on market capitalization, how are you going to beat them? Market capitalization index funds may stop outperforming if they become too expensive. Money is likely to flow to non-cap weighted index funds if they start to outperform the market cap weighted index funds. Investor psychology makes much of the market a trend following machine. |
|
|
|
Post by yogibearbull on Feb 18, 2024 15:52:23 GMT
Many years ago, I suggested to M* that it separate low-cost active funds.
I don't mind paying ERs for active funds up to 0.75% even if they lag index funds - at least they tried. I have both - active and passive funds. Exceptions are CEFs that have other stuff in their ERs.
|
|
|
|
Post by retiredat48 on Feb 18, 2024 15:54:58 GMT
Rekenthaler has an article titled "Index Funds Have Officially Won" and he uses 1996 as a period 20 years after Vanguard introduced the first one and states that indexing "had by the mid-’90s become the rage among institutional investors." I don't own many funds. I still like to pick stocks and always look at PE's as I imagine a lot of active managers do also. One site I found shows that since 1990 the average trailing PE of the SP500 is 23.33. From 1950 to 1996 PEs rose above 20 only three times. Briefly in 1962 and 1987 and a longer stint in 1992-94 and peaked at 22.5 in 1962. Since 1996, PEs rose above 20 from June 1997 thru June 2004, Nov 2007 thru Feb 2010 and Feb 2015 until today. Peaks above 40 have occurred 3 times. If "dumb" stock index funds continue to buy, not based on price or earnings but merely on market capitalization, how are you going to beat them? Market capitalization index funds may stop outperforming if they become too expensive. Money is likely to flow to non-cap weighted index funds if they start to outperform the market cap weighted index funds. Investor psychology makes much of the market a trend following machine. Agree. We are seeing the potential flaw of index funds/ETFs. That is, as new money flows in, most are cap weighted and have to buy mostly the top performing stocks like Mag 7. This compounds daily, driving prices up very high. The ETFs must buy within a day the underlying stocks. Like if AAPL doubles this year, the funds must allocate 2X money into AAPL. But the reverse is also true. Start a downturn and the money must mostly flow out of the mag 7. We will test this thesis someday, big time. Like what will happen with Bitcoin ETFs if downtrend ensues, and money starts leaving the ETF! Will be fun to watch, as bitcoin must be sold immediately with fund departures/outflows. R48 |
|
|
|
Post by yogibearbull on Feb 18, 2024 16:02:53 GMT
retiredat48 , oh NO! Bitcoin just went through Winter, then Ice Age, so let them thaw a little. Let me make some money on COIN  .
|
|
|
|
Post by chang on Feb 18, 2024 17:24:18 GMT
retiredat48: how exactly do you define “performance is beginning to lag”?
|
|
|
|
Post by liftlock on Feb 18, 2024 21:21:15 GMT
|
|
|
|
Post by gman57 on Feb 18, 2024 21:44:53 GMT
Yes, active may at times win, but can you reliably pick them year after year? "Berkshire Hathaway (BRK.A) (BRK.B) stock over the past 20 years has almost precisely equaled the return of the S&P 500 SPX. Let that sink in for a minute. Berkshire Hathaway's CEO, Warren Buffett, widely considered to be the most successful investor alive today, has merely matched the market's return over the past two decades." see: www.morningstar.com/news/marketwatch/20240217240/even-warren-buffett-is-no-match-for-the-sp-500 |
|
|
|
Post by chang on Feb 18, 2024 22:36:51 GMT
It’s likely that asset allocation - choosing where to be - is far more important than choosing specific funds.
|
|
|
|
Post by retiredat48 on Feb 18, 2024 23:23:53 GMT
Yes, active may at times win, but can you reliably pick them year after year? "Berkshire Hathaway (BRK.A) (BRK.B) stock over the past 20 years has almost precisely equaled the return of the S&P 500 SPX. Let that sink in for a minute. Berkshire Hathaway's CEO, Warren Buffett, widely considered to be the most successful investor alive today, has merely matched the market's return over the past two decades." see: www.morningstar.com/news/marketwatch/20240217240/even-warren-buffett-is-no-match-for-the-sp-500Been posted about often. It is why very few posters have been buying BRK in last decade. Performance nothing to write home about. R48 |
|
|
|
Post by retiredat48 on Feb 18, 2024 23:25:50 GMT
It’s likely that asset allocation - choosing where to be - is far more important than choosing specific funds. That's where my emphasis lies. Not in the stock/bond ratio, but what spaces, sectors if any and types of stock and bond funds to own. R48 |
|
|
|
Post by retiredat48 on Feb 18, 2024 23:36:22 GMT
retiredat48 : how exactly do you define “performance is beginning to lag”? I posted in parenthesis: (and you will know it)!That's the first test. When you start asking yourself "what's wrong with XYZ Fund" that you own? It could be any year. But usually refers to performance relative to like funds. If you own a high tech fund and high tech declines 20%, as does your fund, you likely will not fret. I like to use upside performance off of a recent market bottom or turning point...the upside. Severe lagging on the upside is a red flag. Volatility performance can be excused...it usually come with high performing spaces. Second, this is perhaps an entire new thread that can be discussed. Prefer not to get too bogged down here. R48 |
|
|
|
Post by retiredat48 on Feb 18, 2024 23:39:57 GMT
retiredat48 , oh NO! Bitcoin just went through Winter, then Ice Age, so let them thaw a little. Let me make some money on COIN . COIN....!#$%&(*+  ...Pretty speculative stuff for you, Mr. Yogi! R48 |
|
|
|
Post by retiredat48 on Feb 18, 2024 23:47:34 GMT
It’s likely that asset allocation - choosing where to be - is far more important than choosing specific funds. That's where my emphasis lies. Not in the stock/bond ratio, but what spaces, sectors if any and types of stock and bond funds to own. Like, my biggest decision now is whether or not to keep holding FSPTX Fidelity Select Technology Fund, owned since inception decades ago/my largest holding. Daughter has an IRA where FSPTX has become 85% of a large portfolio. Parabolic type increases suggest taking some off the table. OTOH we have ridden this winner for a long time. The decision maker is Artificial Intelligence. We have decided to try to capture AI with this fund, and to keep for next five to ten years. But we revisit this decision monthly--a good problem to have. 75% of fund is in top 10 holdings (like Microsoft and NVIDIA). If FSPTX begins to lag, our interest will peak. R48 |
|
|
|
Post by Mustang on Feb 19, 2024 1:05:59 GMT
chang , mnfish , retiredat48 ,...Here is another tabulation of returns, active versus passive, kept for years by a Boglehead individual called Madsinger. Madsinger kept track of several well known portfolios such as Coffeehouse Portfolio, Wellesley standalone...and monthly published results. An illustration is this link: www.bogleheads.org/forum/viewtopic.php?f=10&t=115678&newpost=1684314Note in particular the winning portfolio by far is called HOT HANDS. It had a great historical CAGR of 11.63% annual return in this post back then. Hot hands was kept by Madsinger, consisting of buying ONE FUND ONLY, every 31 December, the hottest performing mutual fund of that current year...holding for a year, then rinse and repeating next 31 December. This way, he forced himself to always be in the top 10% of performers. (Like I discussed above). Performed far better than the indexes. R48 That link goes to a 2013 report. But I noticed Vanguard Wellington on the list. From Morningstar's data here is a comparison between Vanguard Balanced Index (VBINX) and Vanguard Wellington (VWENX).
VBINX: A four star fund. It has been in the top Quartile 7 of the last 10 years, in the second Quartile two times, and the bottom Quartile once. It's three best percentile ranks were: top 10% (2014), 13% (2018), and 14% (2015). It's worst performance was down to the 81% (2022). It's average returns are: 14.33% (1 year), 3.27% (3 years), 8.63% (5 years), and 7.76% (10 years). www.morningstar.com/funds/xnas/vbinx/performance
VWENX: A four star fund. It has been int he top Quartile 6 of the last 10 years, in the second Quartile three times, and the third Quartile once. It's three best percentile ranks were: top 6% (2021), 10% (2014), and 10% (2016). It's worst performance was down to 62% (2020). It's average returns are: 13.43% (1 year), 5.13% (3 years), 8.66% (5 years) and 8.13% (10 years). www.morningstar.com/funds/xnas/vwenx/performance
It would be too much to expect an actively managed fund to beat an index fund every year. But a well manage fund can beat it over the long run. I think I'll stick with Wellington.
|
|
|
|
Post by retiredat48 on Feb 19, 2024 6:07:53 GMT
Mustang,...yes the report I had was 2013. I do not know if Madsinger still posts on Boglehead. My point was to illustrate the "hot hands" fund. Every Dec 31 moving into that year's top performing fund (no 2X or 3X or leveraged funds). Quite simple...quite good on results. I think I posted Vanguards actively managed funds have bested their indexes. R48
|
|
|
|
Post by bigseal on Feb 19, 2024 16:56:51 GMT
Yes, active may at times win, but can you reliably pick them year after year? "Berkshire Hathaway (BRK.A) (BRK.B) stock over the past 20 years has almost precisely equaled the return of the S&P 500 SPX. Let that sink in for a minute. Berkshire Hathaway's CEO, Warren Buffett, widely considered to be the most successful investor alive today, has merely matched the market's return over the past two decades." see: www.morningstar.com/news/marketwatch/20240217240/even-warren-buffett-is-no-match-for-the-sp-500Been posted about often. It is why very few posters have been buying BRK Funds in last decade. Performance nothing to write home about. R48 “BRK Funds”? Berkshire is not a fund, but rather a company with two different share classes. Most people don’t understand Berkshire. They think Berkshire is essentially a stock portfolio managed by Warren Buffett. The largest portion of Berkshire is a collection of wholly-owned businesses that are managed in a very decentralized manner. The stock portfolio portion is significant, but not the largest portion of the company. They also have approximately $160B in cash. Warren has said that Berkshire is built to be a fortress and could be a sole holding in an investor’s portfolio. He also said at a shareholder meeting that 90+% of people who own Berkshire, have Berkshire as their largest holding. I’ve owned the stock since 1978, and have continued to add shares over many decades. It is a huge part of our net worth. We gift B-class shares to various charities every year and buy shares for our grandkids. I don’t understand why people buy bonds or actively managed funds with fees. |
|
|
|
Post by mozart522 on Feb 19, 2024 17:41:49 GMT
chang , mnfish , retiredat48 ,...Here is another tabulation of returns, active versus passive, kept for years by a Boglehead individual called Madsinger. Madsinger kept track of several well known portfolios such as Coffeehouse Portfolio, Wellesley standalone...and monthly published results. An illustration is this link: www.bogleheads.org/forum/viewtopic.php?f=10&t=115678&newpost=1684314Note in particular the winning portfolio by far is called HOT HANDS. It had a great historical CAGR of 11.63% annual return in this post back then. Hot hands was kept by Madsinger, consisting of buying ONE FUND ONLY, every 31 December, the hottest performing mutual fund of that current year...holding for a year, then rinse and repeating next 31 December. This way, he forced himself to always be in the top 10% of performers. (Like I discussed above). Performed far better than the indexes. R48 That link goes to a 2013 report. But I noticed Vanguard Wellington on the list. From Morningstar's data here is a comparison between Vanguard Balanced Index (VBINX) and Vanguard Wellington (VWENX).
VBINX: A four star fund. It has been in the top Quartile 7 of the last 10 years, in the second Quartile two times, and the bottom Quartile once. It's three best percentile ranks were: top 10% (2014), 13% (2018), and 14% (2015). It's worst performance was down to the 81% (2022). It's average returns are: 14.33% (1 year), 3.27% (3 years), 8.63% (5 years), and 7.76% (10 years). www.morningstar.com/funds/xnas/vbinx/performance
VWENX: A four star fund. It has been int he top Quartile 6 of the last 10 years, in the second Quartile three times, and the third Quartile once. It's three best percentile ranks were: top 6% (2021), 10% (2014), and 10% (2016). It's worst performance was down to 62% (2020). It's average returns are: 13.43% (1 year), 5.13% (3 years), 8.66% (5 years) and 8.13% (10 years). www.morningstar.com/funds/xnas/vwenx/performance
It would be too much to expect an actively managed fund to beat an index fund every year. But a well manage fund can beat it over the long run. I think I'll stick with Wellington.
While Wellington is a great fund, the fact that it beat the balanced index over any period is not surprising or proof of the superiority of active funds. The two funds are not really comparable. Wellington holds 65% equity and sometimes higher. Balanced index is always around 60%. Therefor Balance index holds about 40% bonds while Wellington holds only 34. Worse for comparison, Wellington holds 63% corporate bonds while Balanced holds only25.5%. Balanced holds far more government bonds which have lower returns compared to corp. A much fairer comparison would be 65% S&P 500 index and 63% intermediate corporate bond index +37% intermediate treasury bond index. I have found over the years that often these discussion come down to comparisons between two unlike funds and amount to confirmation bias. Indexes stick to their knitting, as 48 would say, while active funds move wherever their manager takes them within the confines of the prospectus. They are two different animals. Some prefer to rely on a manager and others prefer to rely on the market. Some want to beat the market and other want to just get the market. Nothing wrong with either choice. |
|
|
|
Post by retiredat48 on Feb 19, 2024 18:48:36 GMT
bigseal ,...who replied to me: " “BRK Funds”? Berkshire is not a fund, but rather a company with two different share classes. " OK, BRK is not a fund...knew this. What's the big deal. I corrected it. I didn't disparage BRK holders; just that holding other things either matched or beat BRK last decade. R48
|
|
|
|
Post by Mustang on Feb 19, 2024 20:48:56 GMT
While Wellington is a great fund, the fact that it beat the balanced index over any period is not surprising or proof of the superiority of active funds. The two funds are not really comparable. Wellington holds 65% equity and sometimes higher. Balanced index is always around 60%. Therefor Balance index holds about 40% bonds while Wellington holds only 34. Worse for comparison, Wellington holds 63% corporate bonds while Balanced holds only25.5%. Balanced holds far more government bonds which have lower returns compared to corp. A much fairer comparison would be 65% S&P 500 index and 63% intermediate corporate bond index +37% intermediate treasury bond index. I have found over the years that often these discussion come down to comparisons between two unlike funds and amount to confirmation bias. Indexes stick to their knitting, as 48 would say, while active funds move wherever their manager takes them within the confines of the prospectus. They are two different animals. Some prefer to rely on a manager and others prefer to rely on the market. Some want to beat the market and other want to just get the market. Nothing wrong with either choice. I have heard this many times. It just isn't important to me. At my age, my interest is in the withdrawal phase of investing. My goals are a portfolio that provides a stable income and is easy to manage. Vanguard has a Balanced Index Fund and it has Wellington. I want a moderate-allocation fund to pair with a conservative-allocation fund. Which do I chose?
I do not find the flexibility of Wellington to be a disadvantage but rather an advantage. Within reason, I want an actively managed fund to take advantage of changes in the market. I want it to be able to move from value to blend. I want it to increase the stock portion when necessary. A few years ago value and 60% stock was a good position. Right now blend and 65% stock is the place to be. Index funds are fixed and cannot adapt to market conditions.
Thanks to the backtests we have done (especially the stress tests starting with the year 2000), I changed my succession plan a little with these comments. 1. No 100% stock or 100% bond portfolios. 2. No stock index funds or bond index funds. 3. No balanced index funds. 4. No Roll-Your-Own balanced portfolios using index funds.
Results might be different without withdrawals. But without some ability to adapt to market conditions index funds don't perform well in a stress test focused on sequence-of-returns.
Edit:
That was with withdrawals. Let's look at the accumulation phase of investing without withdrawals. Again, moderate-allocation Balanced Index just beats out Wellesley but it clearly loses to the other two moderate-allocation funds, Wellington and Fidelity Balanced Fund (which is a very good alternative to Wellington). www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=nmhUODDJ5XZyqeC2K5TNS |
|
|
|
Post by FD1000 on Feb 19, 2024 23:50:20 GMT
I have read many articles about this. The fact is that most look for decades of history while market behave differently and many time there are 1-3 categories that do well LT.
1995-2000 + 2010-2024 = US LC, tilting growth. This is 20+ years
2000-2010 = value, SC, international (US LC (SPY) lost money during this time for 10 years. QQQ lost even more).
If your portfolio was concentrated in these categories you have done well.
I used to discuss the above a lot while using my system, I mostly don't anymore. Just like timing.
The only way to do it is to come up with ideas and test them over the years and get better. I don't know any easy system that can accomplish it.
My generic system looks for the best 5 wide range funds with good risk-adjusted performance, keeps changing them using momentum, and each fund must perform well. You do that 2-3 times annually. The idea is to be mostly in the right category + achieve better risk-adjusted performance by looking at performance first and then selecting the best SD + Sharpe ratio funds.
|
|
|
|
Post by mozart522 on Feb 20, 2024 1:37:50 GMT
While Wellington is a great fund, the fact that it beat the balanced index over any period is not surprising or proof of the superiority of active funds. The two funds are not really comparable. Wellington holds 65% equity and sometimes higher. Balanced index is always around 60%. Therefor Balance index holds about 40% bonds while Wellington holds only 34. Worse for comparison, Wellington holds 63% corporate bonds while Balanced holds only25.5%. Balanced holds far more government bonds which have lower returns compared to corp. A much fairer comparison would be 65% S&P 500 index and 63% intermediate corporate bond index +37% intermediate treasury bond index. I have found over the years that often these discussion come down to comparisons between two unlike funds and amount to confirmation bias. Indexes stick to their knitting, as 48 would say, while active funds move wherever their manager takes them within the confines of the prospectus. They are two different animals. Some prefer to rely on a manager and others prefer to rely on the market. Some want to beat the market and other want to just get the market. Nothing wrong with either choice. I have heard this many times. It just isn't important to me. At my age, my interest is in the withdrawal phase of investing. My goals are a portfolio that provides a stable income and is easy to manage. Vanguard has a Balanced Index Fund and it has Wellington. I want a moderate-allocation fund to pair with a conservative-allocation fund. Which do I chose?
I do not find the flexibility of Wellington to be a disadvantage but rather an advantage. Within reason, I want an actively managed fund to take advantage of changes in the market. I want it to be able to move from value to blend. I want it to increase the stock portion when necessary. A few years ago value and 60% stock was a good position. Right now blend and 65% stock is the place to be. Index funds are fixed and cannot adapt to market conditions.
Thanks to the backtests we have done (especially the stress tests starting with the year 2000), I changed my succession plan a little with these comments. 1. No 100% stock or 100% bond portfolios. 2. No stock index funds or bond index funds. 3. No balanced index funds. 4. No Roll-Your-Own balanced portfolios using index funds.
Results might be different without withdrawals. But without some ability to adapt to market conditions index funds don't perform well in a stress test focused on sequence-of-returns.
Edit:
That was with withdrawals. Let's look at the accumulation phase of investing without withdrawals. Again, moderate-allocation Balanced Index just beats out Wellesley but it clearly loses to the other two moderate-allocation funds, Wellington and Fidelity Balanced Fund (which is a very good alternative to Wellington). www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=nmhUODDJ5XZyqeC2K5TNSI'm not questioning the way you invest or what is important to you. You made a comparison and I'm just pointing out, for others perhaps, that the smallish difference in the results you showed are understandable due to the difference in allocation between the two funds. It isn't about index vs active. That horse has been beaten to death. |
|
|
|
Post by Mustang on Feb 20, 2024 14:10:13 GMT
I'm not questioning the way you invest or what is important to you. You made a comparison and I'm just pointing out, for others perhaps, that the smallish difference in the results you showed are understandable due to the difference in allocation between the two funds. It isn't about index vs active. That horse has been beaten to death. I agree that it has to do with the slight difference in allocation (65 to 60). But better returns also are a result of the selection of funds and the ability to adapt to market conditions. A good actively managed fund can consistently beat an index fund. I have provided hard data that shows it can. |
|
|
|
Post by mozart522 on Feb 20, 2024 15:08:13 GMT
I'm not questioning the way you invest or what is important to you. You made a comparison and I'm just pointing out, for others perhaps, that the smallish difference in the results you showed are understandable due to the difference in allocation between the two funds. It isn't about index vs active. That horse has been beaten to death. I agree that it has to do with the slight difference in allocation (65 to 60). But better returns also are a result of the selection of funds and the ability to adapt to market conditions. A good actively managed fund can consistently beat an index fund. I have provided hard data that shows it can. It maybe can consistently beat AN index fund, but not necessarily a proper combination of index funds. For the last 14 years 65% VFINX, 22% VICSX (Int corp), and 13% VSIGX (int Treasury) which mirrors Wellington's asset allocation beat wellington by much more than Wellington beat the balanced index. If I had the tickers before VG went to admiral on all their index fund, we could go even further back. So believe what you want and there may be good reasons for investing in a balanced fund, when you compare apples to apples the answer isn't so clear |
|
|
|
Post by chang on Feb 20, 2024 15:30:19 GMT
Up until a few years ago Wellington’s stock sleeve was very much LV (like Wellesley). Then they did a major makeover and moved into FAANGs. No point comparing to S&P 500 funds or balanced funds based on the S&P 500.
|
|
|
|
Post by mozart522 on Feb 20, 2024 16:20:23 GMT
Up until a few years ago Wellington’s stock sleeve was very much LV (like Wellesley). Then they did a major makeover and moved into FAANGs. No point comparing to S&P 500 funds or balanced funds based on the S&P 500. True, but currently the S&P 500 is part of their benchmark I believe. Besides, the a good part of the argument about about active is how the manager can change allocations to improve returns. But let's chose since 2018 approx. a 5 year period when Wellington was growthy. The combo index above still wins by more than 1.2% per year. |
|
|
|
Post by fishingrod on Feb 20, 2024 16:26:29 GMT
If you can't beat'em, you gotta join'em.
Active funds will be out of favor sometime. They don't turn on a dime.
|
|
. 
...Pretty speculative stuff for you, Mr. Yogi!
