Hi Fellow Fools - After reading with great interest the 13 Foolish Steps and Fool School I would be interested in opinions on the viability of investing in Index Funds as applies to OZ considering that there fees + maintenance costs involved please
G'day Linda, welcome to the boardIf investing in Index Funds, I recommend Vanguard Australia's All Ords Fund. However i think active management can beat the Index in Australia as the market is not efficient compared to the US. One suspects just buying News Corp would have been sufficient in beatint the Index.
I agree with lance2210 but for different reasons.Personally I feel you could be better off with a portfolio of actively managed funds.Index funds are forced to sell perfectly good stocks if the are temporarily out of favour with the market and then buy them back at higher prices when they come back into favour. Doesn't make sense to me.A lot of Australia's blue chips are undervalued at the moment and the index managers would have had to sell these down even though they are approaching bargain basement levels.If index funds became too big a part of the market they could end up becoming market makers instead of the market followers that they are meant to be.I think it is doubtful that their investment philosophy would work under these circumstances.Depends on their timeframe I suppose, but as you increase the timeframe you also increase the risk.I know a lot of people will disagree with me, its just my opinion, but personally I feel a top down,bottom up approach is a lot better.Check out Colonial First State new Global Tech and Communications Fund. 70%+ since November 1st.
Barcoo wrote;Personally I feel you could be better off with a portfolio of actively managed funds.Do 90% of active fund managers under-perform the index in Australia, like they do in the UK and US?Sure, there's some funds which beat the index, but I'm guessing there's not too many of them.Regards,Bruce
I am not talking about 90% of fund managers or funds.I am suggesting that there are some funds which consistently beat the index and which have beaten the index over a 5 or 10 year period. eg Colonial First State Imputation Fund (Rated ***** by Morningstar.) I was also suggesting that the very nature of index funds could cause certain shares to become overbought or oversold.I just can't see the point in selling down BHP when it dropped from $12 to $10.40. Any fool could see that was when you should be buying. And vice versa BHP from $18 to $20. There are a million examples out there, recent performance of NCP and TLS for instance.In the extreme case that index funds become too large, they will cause wild whipsaws in the market and even possibly a recession/correction.TMFGoogly please feel free to address the other points I raise in this post and my original post instead of addressing one statement. I would have been disappointed and surprised if no-one disagreed with me.
Thanks for the comment Lance - I suspect the more I learn and increase my knowledge base "efficiency" will be a key factor
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