Where's the best potential value, old or new?

thrupence

If you're interested in buying into a fund investing in emerging markets obviously there's quite a choice.

Some of these will have been operating for 5 years and more and others will be relative newcomers, operating for less than a year for example.

Take Latin America. There's been massive growth followed by recent falls of maybe 50%

The question is: Are you not paying a premium for investing in the 5 year old fund over the less than 1 year old fund.

I mean, the 1 year old fund is often at 50% less than its launch price whereas the 5 year old fund has already accumulated growth which a new investor will not have benefitted from, and is priced at 3 times launch price.

So, all other things being equal in terms of management quality etc, is it not wiser to go for the cheaper units?

It seems to me that if you go for the 5 year old fund you're paying for previous performance which you haven't benefitted from.

Or is my thinking wrong?

purch

Or is my thinking wrong?

Yes

The Price is the Price

The Fund is worth the value of it's current holdings, therefore it's current unit price reflects that.

The launch price is not a factor. The investor will be buying units at their present value, and anything that happened previous to that purchase is irrelevant.

P.S. This is not totally the same with an Investment Trust as it's current price may be at a premium or discount to it's NAV

thrupence

purch wrote: »

Yes

The Price is the Price

The Fund is worth the value of it's current holdings, therefore it's current unit price reflects that.

The launch price is not a factor. The investor will be buying units at their present value, and anything that happened previous to that purchase is irrelevant.

P.S. This is not totally the same with an Investment Trust as it's current price may be at a premium or discount to it's NAV

OK. Fair enough.

So what are the pros and cons of investing in a big fund with 500 to 1000 million in it as against a fund just starting out with between 50 to 100 million invested in it?

Is there any research on the positive or negative returns on big funds as opposed to smaller funds, all other things being equal (manager, asset, sector etc)?

Blah99

thrupence wrote: »

OK. Fair enough.

So what are the pros and cons of investing in a big fund with 500 to 1000 million in it as against a fund just starting out with between 50 to 100 million invested in it?

Is there any research on the positive or negative returns on big funds as opposed to smaller funds, all other things being equal (manager, asset, sector etc)?

It's not really possible to say "all things being equal". If all things were equal then you'd be looking at 2 funds that hold exactly the same asset allocations and the only difference being the total funds under management. In that scenario both funds would of course perform exactly the same as they hold the same assets and are managed in the same way.

I think you're reading too much into the funds under management aspect. Yes, it gives an indication of seniority and skill of the manager (in that a green manager wouldn't be given the top whack fund), but there's no reason for it to impact your investment decision.

Funds become popular because they do well. High performance, popular funds attract investment. It's logic, but not an investment indicator.