Managed vs Self-Directed Portfolio results

This is basically the whole discussion between active and passive management. I'm sure there will be those that will chime in and say that you got lucky and your active performance can't be repeated for any length of time. Or that you are cherry-picking results...

A couple of things we can say:

1. Most managed accounts aren't optimal for the investor's current situation as most investors won't fit perfectly into the small number of 'set' model portfolios - ie some have a higher risk tolerance, some are older than average for those risk tolerances or some are younger, with some having longer or shorter time frames.... As such, there should be some drag on the portfolio either in the level of risk or the level of performance or both. Now, whether that drag is quantifiable is a different question.

2. There will be some better-performing years and worse ones compared to a model portfolio as some picks may work out wildly well while others may not.

3. There is more time required to be invested in actively managed portfolios as one has to actively manage them and understand what you have invested in. One can argue that some time should be invested into passive portfolios as well since people should understand what they are invested in as well but many skip over this point.

4. Questrade's portfolios are their version of what they think you should be invested in. Other passive accounts will have their own version with different asset mixes which will change the return numbers for the current situation. Those return numbers can and do change with the economic situation - ie one may be invested more in long bonds and the other short bonds or one may have more in tech indexes while others may not.

Questwealth portfolios use low-cost ETFs in a balanced portfolio with some level of active management. They are going to get roughly the market return for the asset allocation and risk, less costs. With your WS portfolio you are trying to beat the market by buying individual stocks, with some complex strategies like split shares and covered calls.

If you want to beat the market, you have to be different than the market, but that means you may also trail the market. What drove your success? One or two years is really not much time to test your true investing skill, especially when the market is doing well and growth stocks are getting especially good returns. Why do YOU think you did better?

• Do you have more experience than the Qwestwealth portfolio managers?
• Do you have access to better data?
• Do you have better market research?
• Are you better at analyzing investment opportunities?
• Do you have superior skill when it comes to evaluating the companies in which you are investing?
• Do you have inside information?
• Did you take more risk with your investment choices?
• Did you get lucky?

It is likely that your better results came from the last two points above. Risk can get better results when the market is going up, but can bite hard when the market crashes or goes through a long bear market. Luck tends to run out.

Consider carefully the possible reasons for your good results to assist in deciding if they are sustainable.

Just to be clear, this thread is not meant to brag about my results. I'm not pro at investing by any means and started this whole thing couple years ago. I'm just sharing with you guys as I'm trying to understand myself.

rfd911 wrote: ↑ Just to be clear, this thread is not meant to brag about my results. I'm not pro at investing by any means and started this whole thing couple years ago. I'm just sharing with you guys as I'm trying to understand myself.

This one isn't too difficult to figure out... Simply put, the US exposure (YTD) has been a drag on any portfolio because of the exposure to Tech (works in non-inflationary periods but not now). S&P -6.5% / Nasdaq -11%

A quick look at QT 80/20 "Growth" only has 13% exposure to the TSX (which does generally outperform during inflationary periods), 18% fixed income (which would be negative), negative YTD exposure to US indexes and Flat on Europe.

QT ETF Growth Portfolio_80/20

By what you have described as "self directed" appears to have little (less) exposure to US indices (unless you share differently) and a higher allocation to Financials? (which typically do better during inflation). You need to look at the underlying Sector performances to get the full picture.

DealRNothing wrote: ↑ This one isn't too difficult to figure out... Simply put, the US exposure (YTD) has been a drag on any portfolio because of the exposure to Tech (works in non-inflationary periods but not now). S&P -6.5% / Nasdaq -11%

A quick look at QT 80/20 "Growth" only has 13% exposure to the TSX (which does generally outperform during inflationary periods), 18% fixed income (which would be negative), negative YTD exposure to US indexes and Flat on Europe.

QT ETF Growth Portfolio_80/20

By what you have described as "self directed" appears to have little (less) exposure to US indices (unless you share differently). You need to look at the underlying Sector performances.

That is correct. The US exposure was much less in self-dircted as compared to the managed. What you described is pretty much what I was thinking that it's mainly because of US exposure.

Here is what I've mostly held in my self directed account. About equally weighted.

ENS, GDV, DFN, FTN, LBS, EIT, DS, ZWC, ZWU, ZWG, HDIV

Some problems here.

Very difficult to compare. When you deposited, bought and what price you bought changes this calculation completely. This is the difficulty of trying to compare such things.

The best I can recommend is try inputting your portfolio Into something like this
https://www.portfoliovisualizer.com/backtest-portfolio
then keeping time frames, it can help to standardize this.

Or alternatively, just assess over time. While over or underperformance may occur, you are still investing and more likely coming out ahead. Assess your performance over time.

Just one comment, I havent been impressed with Questwealth performance seeing it over the last bit. Seems to underperform equivalent funds, roboadvisors etc. You may want to compate your self directed and Questwealth to other rOboadvisor portfolios as well.

craftsman wrote: ↑ This is basically the whole discussion between active and passive management. I'm sure there will be those that will chime in and say that you got lucky and your active performance can't be repeated for any length of time.

Do you think that the OP can actively outperform the market over a length of time?

Or why not just buy xeqt or xgro and call it a day, have a robo service actually beat the index? I guess the only benefit I recalled was tax loss harvesting.

ElBorak wrote: ↑ Do you think that the OP can actively outperform the market over a length of time?

Why not? I have.

But to add colour to the discussion, I would add the following points:

1. Which market are we really talking about here? The Canadian market returns? The US market returns? The world's returns? A combination? If a combination, what percentages? Depeneding 'what market' you are comparing the returns to, I would say that the answers can be widely different.
2. The above assumes only equity markets in general and completely ignores risk tolerances in those choices. If you add more risk, you generally get more return so even a 'passive' portfolio with a higher risk tolerance may consistently outperform a lower risk or generic passive portfolio.
3. A complete portfolio generally includes fixed income. The question then becomes how much? An aggressive passive portfolio is supposed to outperform a conservative one. So by selecting one type of passive portfolio, you can outperform the market over long periods of time.

Further, I would even say that you don't need or want to outperform the market throughout your life all of the time. What the &%&^&* do I mean? You really want outsized returns when you can afford to take more risk. Once the need for outsized returns ends, the need to have big risk drops as well. So, when the 9*^*& is that? Well, after you have reached your net worth goal (ie how much money you think you will need to live comfortably for the rest of your life), you can and should dial down your risk and therefore reduce your returns. In theory, you should trade possible market returns and market risk for below market returns and market risk at that point in time. After all, if you don't have to take on more risk to live comfortably, why do it?

zzricezz wrote: ↑ Or why not just buy xeqt or xgro and call it a day, have a robo service actually beat the index? I guess the only benefit I recalled was tax loss harvesting.

The point is of these robo services is that they are supposed to better tailor your investors to your situation - ie age, risk tolerance, etc... Set products like XEQT and XGRO have set percentages of allocation and they don't vary from those percentages regardless of your situation or if that situation changes - ie they don't get more conservative as you age or adjust for your risk tolerance. You have to do it yourself so you really shouldn't not just buy one of these set products unless you are willing to review the fact that you have these products regularly and adjust your allocations (ie equity vs fixed income) according to any changes in your life.

rfd911 wrote: ↑ Just to be clear, this thread is not meant to brag about my results. I'm not pro at investing by any means and started this whole thing couple years ago. I'm just sharing with you guys as I'm trying to understand myself.

I get it. But a 9-month time-frame is too short. You won't know if you can continue to beat the markets until you've been doing it for 5+ years, but keep up the good work.

Do you enjoy actively managing your portfolio? An average 100% equities return is over 10% per year. Would a 10% return on average allow you to meet your goals? If so, buy VEQT. If not then good luck (I don't advocate for active investing, even though I fully realize that there are many folks here who have consistently beaten the broad market over the years).

TuxedoBlack wrote: ↑ I get it. But a 9-month time-frame is too short. You won't know if you can continue to beat the markets until you've been doing it for 5+ years, but keep up the good work.

Do you enjoy actively managing your portfolio? An average 100% equities return is over 10% per year. Would a 10% return on average allow you to meet your goals? If so, buy VEQT. If not then good luck (I don't advocate for active investing, even though I fully realize that there are many folks here who have consistently beaten the broad market over the years).

The only issue with something like VEQT is the current asset mix of the various market-cap-weighted indexes that comprise VEQT. I suspect that the US indexes such as the S&P500 to underperform this year as the largest caps in the US are mostly in a handful of sectors which has been in favour but are now out of favour while many of the smaller cap plays which make up much smaller sectors are now in favour but due to their small size, they won't move the needle much. A better play may be individual indexes in order to use a S&P500 equal-weighted index so that sectors like energy and healthcare will have a greater effect on returns. OR one can use a larger weight in a TSX index fund which will increase weighting in energy and finance leaving only healthcare underweighted.

craftsman wrote: ↑ Why not? I have.

But to add colour to the discussion, I would add the following points:

1. Which market are we really talking about here? The Canadian market returns? The US market returns? The world's returns? A combination? If a combination, what percentages? Depeneding 'what market' you are comparing the returns to, I would say that the answers can be widely different.
2. The above assumes only equity markets in general and completely ignores risk tolerances in those choices. If you add more risk, you generally get more return so even a 'passive' portfolio with a higher risk tolerance may consistently outperform a lower risk or generic passive portfolio.
3. A complete portfolio generally includes fixed income. The question then becomes how much? An aggressive passive portfolio is supposed to outperform a conservative one. So by selecting one type of passive portfolio, you can outperform the market over long periods of time.

Further, I would even say that you don't need or want to outperform the market throughout your life all of the time. What the &%&^&* do I mean? You really want outsized returns when you can afford to take more risk. Once the need for outsized returns ends, the need to have big risk drops as well. So, when the 9*^*& is that? Well, after you have reached your net worth goal (ie how much money you think you will need to live comfortably for the rest of your life), you can and should dial down your risk and therefore reduce your returns. In theory, you should trade possible market returns and market risk for below market returns and market risk at that point in time. After all, if you don't have to take on more risk to live comfortably, why do it?

Its just that there is a lot of evidence out there that it is difficult to outperform the market (however you want to define it) over the long term. Anyway, as @TuxedoBlack has already mentioned above, the OP has not been investing long enough to make any meaningful conclusions.

craftsman wrote: ↑ The only issue with something like VEQT is the current asset mix of the various market-cap-weighted indexes that comprise VEQT. I suspect that the US indexes such as the S&P500 to underperform this year as the largest caps in the US are mostly in a handful of sectors which has been in favour but are now out of favour while many of the smaller cap plays which make up much smaller sectors are now in favour but due to their small size, they won't move the needle much. A better play may be individual indexes in order to use a S&P500 equal-weighted index so that sectors like energy and healthcare will have a greater effect on returns. OR one can use a larger weight in a TSX index fund which will increase weighting in energy and finance leaving only healthcare underweighted.

Well said.

VEQT is simple and easy, but obviously not optimal. Still, it's pros outweigh the cons in that you don't have to worry about the markets and it's perfect for those that are just starting out. Keep DCA'ing in to VEQT and that's pretty much it.

I saw people referred to VEQT quite often, so I have to ask this:

I always feel world market ETFs are just marketing tactics and it's very delusion.

Just look at past week, when US market was down, stock market down everywhere in the world, just look at Chinese stocks market.when US market was up, it was up everywhere. World market ETFs don't seem provide better diversification. Diversity between US and TSX makes sense due to tax efficiency and home bias, but does those VEQT,XEQT type of ETFs actually work better? I have been doubt about it.

smartie wrote: ↑ I saw people referred to VEQT quite often, so I have to ask this:

I always feel world market ETFs are just marketing tactics and it's very delusion.

Just look at past week, when US market was down, stock market down everywhere in the world, just look at Chinese stocks market.when US market was up, it was up everywhere. World market ETFs don't seem provide better diversification. Diversity between US and TSX makes sense due to tax efficiency and home bias, but does those VEQT,XEQT type of ETFs actually work better? I have been doubt about it.

I believe it does marginally in the absence of any actual evidence, it is a strategy of being as diversified as much as possible but keeping domestic/safe currency exposure the majority of the portfolio. Having exposures to all markets allows you to bounce off crises, take advantage of growth in specific markets and be exposed proportionately to the world economy. In terms of performance though, you don't necessarily require that level of diversification to be safe, but I think the model that all-in-ones follow is full world diversification with full market cap exposure is as diversified as possible. Part of the problem as you elude to is the fact that the world economy is so interconnected that markets in different economies tend to move in tandem with world events. That being said, being exposed in Canada, US, EAFE and EM essentially covers all the corporations that affect us in daily life and that this is the exposure we are getting in the end.

Yes, you could argue that just S&P500 is enough exposure (that being said, you can say that S&P500 is underperforming of late, possibly because too many people believe in just S&P500(?)). Heck, my portfolio is >95% Canadian equity, I'm barely diversified. I think ultimately, all these products do is to give you as diversified equity exposure as much as possible in an easy to buy package. Canadian Couch Potato took that to then build a well bought strategy by individual investors that is easy to understand and cheap from a management perspective. Individual investors however have taken this to mean this is the best strategy for them, without necessarily reading anything further into it. It isn't a terrible strategy to be fair, but we are then seeing some of the effects of this such as people believing Vanguard is the best because Vanguard was essentially the pioneer of this or people believing you can't beat index performance ever etc.

smartie wrote: ↑ I saw people referred to VEQT quite often, so I have to ask this:

I always feel world market ETFs are just marketing tactics and it's very delusion.

Just look at past week, when US market was down, stock market down everywhere in the world, just look at Chinese stocks market.when US market was up, it was up everywhere. World market ETFs don't seem provide better diversification. Diversity between US and TSX makes sense due to tax efficiency and home bias, but does those VEQT,XEQT type of ETFs actually work better? I have been doubt about it.

I would take @xgbsSS backhanded complement with a grain of salt. Diversifying your investments around the world over the long term is a prudent strategy for most investors. You don't know which countries, which economies, which regions of the world are going to be a good investment 10, 20, 30 years from now (There are always unpredictable things happening in the world, like Covid or the war in Ukraine), so it makes sense to me to spread your bets around the world. And VEQT is a good, simple, low cost way to do this. Not saying that Vanguard products are always the best, but can't really go far wrong sticking with them.

ElBorak wrote: ↑ I would take @xgbsSS backhanded complement with a grain of salt. Diversifying your investments around the world over the long term is a prudent strategy for most investors. You don't know which countries, which economies, which regions of the world are going to be a good investment 10, 20, 30 years from now (There are always unpredictable things happening in the world, like Covid or the war in Ukraine), so it makes sense to me to spread your bets around the world. And VEQT is a good, simple, low cost way to do this. Not saying that Vanguard products are always the best, but can't really go far wrong sticking with them.

I don't personally diversify geographically because I utilize a completely different strategy. As you are aware, I am not a passive investor. I purposely concentrate my investments in specific names and industries as I see fit. This means my investments are concentrated. Hence why my positioning is >95% Canadian. This does mean that I change my positions a lot more than a passive investor and requires more work on that end. Not sure how you think it is a backhanded complement? I support investors taking passive strategies too you know?

Ultimately what you have to do is adjust your portfolio accordingly to what you need. And whether you include more foreign or keep your investments mostly domestic, ultimately as long as you achieve some form of investment and growth, that is pretty much all you need.

Besides are we then going to ask whether one should purposely weight their exposure to the exact equity weighting in the world? Does XEQT and VEQT have too much Canadian content? Maybe it isn't enough. For example, perhaps someone can't invest in RRSP and TFSAs? In those cases it might be prudent to invest in more Canadian content when it is non-registered.

Also watch your sodium intake