I haven't posted here in a while, but in the last few days I have caught up on some of the past threads in this sub-forum.
I have some questions for the ETF/index fund investors here for discussion...
Is there any difference between individual stock picking and sector picking (within the broader asset class of shares) using focussed ETF's/index funds?
If for the most part we accept that most of us won't be great stock pickers in the long-term, on what basis do we think that this will be any different when picking sectors?
When an ETF/index fund manager creates a fund with a ''tilt'' towards yield, value, growth, large cap, small cap etc... or some other criteria... what makes this fund any different from any other ''active'' fund manager?
What is the point of ''asset allocation'' and ''diversification''?
Is it capital preservation, and/or volatility/risk reduction?
What if your objective is the accumulation of a growing long-term income stream?
Are "asset allocation" and ''diversification'' really relevant?
Which asset class should you put your cash into to best achieve this outcome?
Do you really need exposure to multiple asset classes and multiple sectors within those asset classes via multiple ETF's/index funds?
How will doing this help in achieving this particular objective?
Thanks for your comments.
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
My name is Johny and I am interested in index funds/ as apposed to ETFs. Thanks for coming up with some great questions to debate over. I'll pick a question at a time to respond.
'Is there any difference between stock picking and sector picking'
No! Both are trying to predict the future. One is razor sharp, the other soft and blunt. "experts" say, that your asset allocation is what determines your best returns. So you must pick an allocation to get results.
I see it as a continous journey; choosing the right percentages until you become happy and have strength to hold in a downturn. But thats just me.
"When an ETF/index fund manager creates a fund with a ''tilt'' towards yield, value, growth, large cap, small cap etc... or some other criteria... what makes this fund any different from any other ''active'' fund manager?"
I have a small percentage of fundamental index funds. Their tilt is on cash flow, book value and dividends. They are slightly more expensive than Cap weighted index funds. I imagine, there is some human input to the computer program.
I think the only difference between these funds and a active fund are, an active fund is trying to beat a benchmark. Passive funds are just trying to match a benchmark. Less risk needs to be taken and there is less turnover. Also an active fund may hold cash whilst a passive fund has to hold the market.
The end result of the fundamental 'tilt' is ownership of value shares. Whether or not this will benefit me remains to be seen.