Active vs. Passive managed International Small cap

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Active vs. Passive managed International Small cap

Postby boggler » Sat Jun 29, 2013 12:51 pm

GICAX has recently outperformed the Vanguard International Small Cap fund by quite a bit. Typically, I believe in market efficiency and that low cost, passive indexing will beat active management. However, for less frequently traded, potentially inefficient international markets, I'm not sure that this works as well, and this perhaps explains the outperformance of the active fund. Do you think this valid?
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Re: Active vs. Passive managed International Small cap

Postby vencat » Sat Jun 29, 2013 1:08 pm

Not valid comparison. GICAX has minimal, <1 % emerging markets exposure and is a value fund. The Vanguard fund has 15 % and is a true international small cap blend fund. You know how emerging markets have sunk so far.Also a 5.5 % load and and 1.3 % ER for GICAX??!!
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Re: Active vs. Passive managed International Small cap

Postby ogd » Sat Jun 29, 2013 1:22 pm

Reposting from another thread:

What you did is the equivalent of walking into a casino, noticing a table where there has been a lot of black recently, and concluding that black is a most excellent bet. A much more opaque equivalent, admittedly. There will almost always be such a table, but it doesn't prove anything. To eliminate the selection bias you need to look at all the active funds:

Code: Select all
          2010     2011     2012    YTD
VSS       25.60    -19.63   20.73   3.82
Category  21.20    -17.42   16.99   5.46

So at the other casino tables, red and black alternate as expected.

The load & fees on this fund are scandalous, btw.
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Re: Active vs. Passive managed International Small cap

Postby Rick Ferri » Sat Jun 29, 2013 1:30 pm

boggler wrote:GICAX has recently outperformed the Vanguard International Small Cap fund by quite a bit. Typically, I believe in market efficiency and that low cost, passive indexing will beat active management. However, for less frequently traded, potentially inefficient international markets, I'm not sure that this works as well, and this perhaps explains the outperformance of the active fund. Do you think this valid?


There will always be actively managed funds that outperform in every category. Trying to select the winners in advance is the problem. Using past performance is relatively useless because future performance is not contingent on the past. Only about half of the prior top performing funds during one 5-year period stay in the top half over then next 5-years. Several go out of business.

Also, the sellers of active management like to say that international markets are inefficient. There is no academic evidence showing this to be true. In the long-term, actively managed international funds underperform with the same frequency as US equity funds.

Rick Ferri
Last edited by Rick Ferri on Sat Jun 29, 2013 1:46 pm, edited 1 time in total.
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Re: Active vs. Passive managed International Small cap

Postby sometimesinvestor » Sat Jun 29, 2013 1:34 pm

Different asset classes have different proportions of active mangers outperforming the index.My understanding of the literature is that one such area is emerging market bond funds. Similarly some active managers believe that bonds in indices are often overpriced because they in in demand in order to create etfs. A number of active mangers believe you should underweight certain Russian and Chinese stocks relative to the emerging market index because large caps in those countries are often heavily influenced by the State.
Bottom line not indexing international small cap will probably not work out very badly but you may underperform. If possible go for e relatively low fees and small more manuverable. funds.

A pro indexing advisor (Larry S. perhaps ) has written that if many/most active mangers outperform the relevant index it means that the index does not reflect what active managers are buying.
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Re: Active vs. Passive managed International Small cap

Postby baw703916 » Sat Jun 29, 2013 2:04 pm

Since GICAX is categorized as a developed markets small/mid value fund, here's a chart comparing its three year performance to two passive funds in that category (DLS and DISVX), as well as to VSS.

GICAX has outperformed over the three-year period, but not by nearly as much. Over the last year GICAX has underperformed both DLS and DISVX. In comparison, VSS has suffered compared to the developed small/mid value funds by including EM, and by not having a value tilt. That won't always be the case going forward...

Brad
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Re: Active vs. Passive managed International Small cap

Postby boggler » Sat Jun 29, 2013 2:50 pm

baw703916 wrote:Since GICAX is categorized as a developed markets small/mid value fund, here's a chart comparing its three year performance to two passive funds in that category (DLS and DISVX), as well as to VSS.

GICAX has outperformed over the three-year period, but not by nearly as much. Over the last year GICAX has underperformed both DLS and DISVX. In comparison, VSS has suffered compared to the developed small/mid value funds by including EM, and by not having a value tilt. That won't always be the case going forward...

Brad


Do these charts show performance net or gross of fees?
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Re: Active vs. Passive managed International Small cap

Postby baw703916 » Sat Jun 29, 2013 2:56 pm

boggler wrote:Do these charts show performance net or gross of fees?


They're net of expense ratio, but don't include the load (or what the advisor costs in the case of DFA).
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