What are the shortcomings of active funds?

No investment product can be perfect, and active funds are no exception. As a manager who focuses on the research of active funds, I am very clear about the shortcomings of active funds. If you want to get a good return on investment, you must first thoroughly understand the products. There are not only advantages, but also disadvantages. Today, I will talk about the shortcomings of active funds and how we deal with them and solve them.

active funds

active funds are classified according to the different investment concepts of stock funds: generally, active funds are a kind of funds that seek to achieve performance beyond the market, just corresponding to passive funds. The specific performance of active funds is that investors hand over funds to the selected fund company, and the fund manager allocates assets, and what the fund invests is decided by the fund manager.

Disadvantages of active funds

1. When active funds choose active funds, they give up part of their options and limit their own play. Fund managers can't decide what stocks to buy. Suitable for those investors who lack knowledge and are still in the initial stage of investment.

2. The investment target chosen by the fund manager is not the one he wants to choose, and he may miss some investment opportunities of the fund.

3. The dependence on the fund manager increases the investment risk of the fund, so the choice of professional fund managers and fund managers is extremely important, and any decision of the fund manager will affect the expected return of the fund's net worth.

4. Active funds have higher requirements for investors' professional ability and allocation level, and will bear more risks than passive funds.

The above views on the shortcomings of active funds are only for reference, hoping to help everyone. Warm reminder, financial management is risky and investment needs to be cautious.

There is no doubt that these top bond funds are still almost all convertible bonds.

what are the disadvantages of active funds?

1. information asymmetry and difficulty in fund selection

in my opinion, information asymmetry and difficulty in fund selection are the biggest disadvantages of active funds and the biggest difficulty in investing in active funds.

At present, there are more than 6, funds in the market, which has exceeded the number of stocks. Most of them are active funds, and different categories correspond to different risk/return characteristics. More than a decade ago, the number of public offerings was several hundred, but it was easy to choose. Nowadays, there are not only a large number, but also the characteristics of information explosion under the background of high-speed information broadcast. More information is no different from no information. Therefore, investing in active funds is faced with information asymmetry and difficulties in fund selection.

solution: actively narrow the scope, do something, and don't do something.

1. Give up focusing on funds and focus on fund managers instead. According to the calculation of managing 3 funds per capita, 6, funds will be studied into 2, people.

2. according to the "28 rule" of active funds (2% of fund managers have created 8% of excess returns), focus on the TOP2% of fund managers and give up the remaining 8% of fund managers. Narrow it down to 4 people.

3. Among these 4 people, 6-8 people are selected from fund companies with strong active management ability to conduct key research. Together with alternative fund managers, a dynamic pool with a total number of about 1 people will be established for daily tracking.

There are a lot of active funds, but what is really valuable is actually these 1 people. It is the business of fund rating agencies to study more than 6, funds one by one. What ordinary investors need is not how many stars this fund is rated, but to tell me clearly which funds can be invested for a long time. Grasping these 1 people will basically solve this problem. It is not too difficult to stare at more than 1 people every day.

second, the management process is not completely transparent, and the daily management and decision-making are more difficult, and the evaluation is difficult because of the lack of a scientific evaluation system.

compared with index funds, the holding and operation process of active funds is not completely transparent. Although the information disclosure is perfect, it is not completely transparent and has a certain lag. Investors' attribution of performance is not clear, and it is difficult to make daily management and decision. For the above reasons, investors lack a scientific and reasonable evaluation system for active funds. Many people use performance and ranking to evaluate, which often leads to decision-making mistakes.

solution: change "process management" to "trust management".

The investment logic of active funds and index funds is completely different: index funds are based on "tools" and active funds are based on trust. The active fund itself is not a tool, and it should not be used as a tool because of the rate. Because of the lag and incomplete transparency of information disclosure, it is impossible for you to understand the whole process of its investment, and in fact you don't need to understand it.

Therefore, for active funds, we should give up "process management" and pay attention to "trust management" accordingly. As long as it is trustworthy, I don't care what stock he invests in. The corresponding evaluation standard for active funds is "whether it is trustworthy". Performance and ranking are of course a very important factor, but it is definitely not just about performance and ranking.

In our usual communication, investors often ask me to recommend "excellent active funds with heavy positions in 5G". This is obviously an inaccurate understanding of the nature of active funds. According to this investment logic, he is actually looking for tools. Then you should use index funds to participate in 5G ETFs. The most important thing for us to choose this active fund is based on our trust in him, not because he has a heavy position in 5G.

Third, there is the risk of unstable performance and style drift

This is the most "crime" that friends who are in favor of passive investment spit out active funds. The main contents include: fund manager change, excessive scale, style drift and so on. The above phenomena are manifested in the unstable performance. In addition, some people purchase at a higher level, resulting in a certain floating loss. Even cutting meat caused permanent losses and hurt some investors.

the above situations exist objectively. For a single active fund, this is also inevitable and is the "soft rib" of the active fund. It is really rare that a single fund can achieve "evergreen foundation".

It should be noted that this is only the case of a single fund, and it is not a denial of the group of active funds. As far as investment is concerned, no variety can solve the problem once and for all. Even bond funds with small risks and fluctuations cannot be completely avoided. Few people rely on a fund to win the world for ten years and eight years, whether it is an active fund or a passive fund.

solution: strengthen daily dynamic management

abandoning process management does not mean not managing, but it is still necessary to manage the daily dynamic of active funds. When the above situation occurs in the active fund, or when there are better players in the same type of fund, it should be adjusted in time to maintain the overall combat effectiveness of the portfolio.

Fourth, the rate is higher than that of index funds

Compared with the management fee of index funds (generally .5%/ year), the management fee of active funds (generally 1.5%/ year) is indeed higher. Many people often focus on the rate when talking about the shortcomings of active funds. In my opinion, the question of rate is actually at the bottom.

why do you say that? Because whether it is an active fund or an index fund, the net value announced every day is after the daily rate is accrued, and the management fee has been deducted from the net value. When we choose the active fund, the rate of return is already after deducting the management fee. If you can make a large excess income, it is completely no problem to cover the cost of management fees.

at this point, the logic of active funds and index funds is different. Because index funds are passive tracking indexes, the upper limit of their returns is blocked by indexes. For example, the Shanghai and Shenzhen 3 index rose by 2% in the past year, and the upper limit of the yield of index funds that only passively track the Shanghai and Shenzhen 3 index is 2% (to simplify the understanding, the dividend and ex-dividend factors of constituent stocks are not considered). If the tracking errors are almost the same, then the rate of return of the index fund is the fund's rate. So the rate is very important for index funds.

Active funds are different. Most of the management fees of partial stock funds are 1.5%, and everyone's rates are similar. The difference lies in the level of active management ability, who can make more excess returns. Therefore, for active funds, the rate is the last consideration. The first priority in decision-making should be its active management ability.

solution: choose the fund with strong active management ability.

index funds are the same variety, and the preferred rate is low; Active funds have the same rate, and those with strong active management ability are preferred.

I should still have some say in the rate of active funds. The Five Swords are active funds, which are managed dynamically every year and have a turnover rate of 2-4%. The net value you see is after deducting all the rates (including management fees and transaction rates). From October 2 to now, it has outperformed the Shanghai and Shenzhen 3 Index for four consecutive years, with a leading margin of over 37%. The excess income of our preferred active fund far covers the cost of the rate, and I can tell you that there is no problem.

I have summarized the shortcomings of active funds, which are probably the four. Among them, the first, second and fourth points can be solved. I have solved them in more than three years of actual combat, and there is no problem. What is really challenging is the third point, which is the problem of unstable performance and style drift. I can control those three points, but I can't control them myself, so I can only deal with them. Whether the classmate in charge of money wants to leave his job, whether he is happy or not, and whether he has any new ideas, he won't tell me. I don't know what he is thinking, I can only deal with it afterwards.