So, why is my Emerging Markets fund tanking compared to other holdings?

mr_fishbulb

sabretoothtigger wrote: »

I have Aberdeen Asia and it has come down a bit. China is down, its not booming like USA

I was actually considering swapping some of my EM for USA. It was a suggestion on the FT Money podcast saying, whilst they don't think EMs will go down this year but the US has some catching up to do in terms of stock recovery.

psychic_teabag

ANGLICANPAT wrote: »

Varying ideas in this thread as to how long to hold funds that may be underperforming or maybe close to hitting a ceiling. Im interested in peoples experiences as to what happens if your investments are through an IFA - do they only review your stuff routinely every year , or do they timely contact you to pull you out of Brazil, tech, or metals, or whatever suddenly looks precarious for any reason ?

It's supposed to be a global EM fund, isn't it - so aren't you paying the manager to pull funds out of Brazil if it in particular looks precarious. Obviously he can't do much if the whole EM arena is tanking, though.

StevieJ

relaxtwotribes wrote: »

Now here is the rub - the intelligent investor is prepared to take this latest 10% fall on the chin and get out out to bank some profits. Whilst the amateur stays with it because he believes that it was once so high, therefore it must be so again one day.

t

But the very intelligent investor expected at least 10% falls in funds as volatile as EM's and may be in or may be out but if he is out he won't be out because of 10% falls

Linton

relaxtwotribes wrote: »

Unfortunately this scenario has one big hole...

You seem to espouse never ever selling a holding as though making an investment is an end in itself. For me, investing is only a means to an end.

My line is that you buy a fund only because it has a long term purpose as part of your overall strategy. The only reason to sell is when the investment is no longer fulfilling that purpose or your overall strategy has changed making the purpose irrelevent.

For example consider an aim of long term growth in the 10 year time frame. A reasonable strategy is to invest in a number of high risk funds you believe have a good chance of performing well in the long term. One such high risk fund could be a broad EM fund.

A 20% (or 60%) drop in value of the fund is irrelevent whilst your strategy remains the same and you continue to believe that investing in the sector contributes to that strategy given the required timeframe.

Dropping a fund solely because its value falls indicates to me that you didnt have a strategic reason for buying the fund in the first place.

rdtrdt

mr_fishbulb wrote: »

I was actually considering swapping some of my EM for USA. It was a suggestion on the FT Money podcast saying, whilst they don't think EMs will go down this year but the US has some catching up to do in terms of stock recovery.

The thematic switch you're considering (EM -> Developed [particularly US]) is something that commenced several months ago, and has been a large factor in the relative performance of each since. The rationale behind the switch would likely have included the negative of sharply rising inflation (esp. food) in EM (necessitating rapid monetary tightening) versus the positive of a liquidity-fuelled momentum rally in the US (arising largely from Federal Reserve QE2 policy).

It's useful to have a firm grasp on why you hold a certain investment. ie. beyond simply, "I think it'll go up". And an idea of your timescale for holding: are your objectives shorter term or longer term. If shorter term, you'll generally need to be acting in advance of the crowd.

The arguments for EM are that they are countries with low (or no debt), rapidly growing economies with burgeoning middle-classes and rapid urbanisation, favourable demographics, etc. So lots of long term positives. But, in addition to the inflationary issues mentioned above, they've also been "crowded trades", in that everyone else sees these positives too, invested accordingly, so valuations are not cheap.

The arguments for developed countries has been one of relative value in comparison to EM (particularly in specific sectors), recovering economies, and (QE2) liquidity-fuelled momentum. But, these are countries (esp US) with very significant fiscal problems, large deficits, large and growing government debt and generally unfavourable demographics (although US much better than other developed markets, such as Europe or Japan). So arguably plenty of long term negatives.

sabretoothtigger

mr_fishbulb wrote: »

I was actually considering swapping some of my EM for USA. It was a suggestion on the FT Money podcast saying, whilst they don't think EMs will go down this year but the US has some catching up to do in terms of stock recovery.

Ive heard it more then once, could be true. Marc Faber said something like -10% for usa and -30% for emerging markets.

Long term Iam more nervous about usa investment then anywhere else. Short term maybe the above is true but usa has the greatest disparity between price and reality then anywhere in the world I think.

If you started to offset the debts against the assets in their credit it leaves them much different to perception.

USA has alot of global companies especially in Tech and so I do hold some but Im trying to hedge against a weakening dollar also

leahciM

Just to toss in my 2c's. My EM fund has lost around 10% since the start of the year, but it only makes up around 8% of my entire investment portfolio (not including cash).

Smugface

Robert_Tycelyn

As I don't already hold EM funds in my porfolio is now a good time to start a modest monthly drip-feed into this area to take advantage of the current slide in value? (... with ,of course, living in the hope that recovery will eventually come along)

masonic

Robert_Tycelyn wrote: »

As I don't already hold EM funds in my porfolio is now a good time to start a modest monthly drip-feed into this area to take advantage of the current slide in value? (... with ,of course, living in the hope that recovery will eventually come along)

If you wanted exposure to EMs, then these sort of setbacks are good opportunities. I wouldn't invest just because you believe what goes down must come back up.

StevieJ

Mubarak steps down, could be an inflection point of EM's.