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

relaxtwotribes

Linton wrote: »

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.

That is incorrect. I did not sell these EM investments solely because they fell in value (although I will do with investments if I have picked a dog). I sold them because they had risen in value quite well over a short timeframe.

There is only one strategic reason for making any investment; to increase my wealth to the maximum given the perceived risk. But I repeat, investment is only a means to an end.

That should bring some interesting replies.

mike88

admin12 wrote: »

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You were expecting a decent response but you got this rubbish. Never mind. For what its worth I agree with you.

edinburgher

Well, this ISA year has been a learning experience for me! Have discussed it with my fiancee and decided that I'll definitely leave our current holdings in the fund as is, but planning to trim back the amount invested in EM for 2011-12 so that it's a lower part of our total holdings. Not diversified enough, which explains my concerns.

juicyjude

I am also in E M. I have a Threadneedle E M Isa and have seen it fall quite rapidly. My F A isnt too concerned and told me to hold onto it as it is bound to rise. I only get income from it twice a year and have decided to see where I am in April. A decision may have to be made then.

Wobblydeb

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)

I am waiting until there's a more clear recovery of prices in progress.

Wobblydeb

Linton wrote: »

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.

This is a very inwardly focussed way of viewing investment, and doesn't seem to account for what happens in the investing world in the meantime.

For instance I have put money recently into a tech fund, as I believe there should be good growth in the medium term. If everyone else agrees with me, and pushes the prices of tech stocks up to ridiculous levels in the next year or so, I will get out earlier than my original time frame would have suggested.

That doesn't mean that tech companies are losing money, or are a bad place to invest, it just means the market has got ahead of itself, and I would take advantage of that.

Happy to be in cash or an alternative market while those 20% drops happen and buy back in afterwards. It is the whole purpose of portfolio theory, but the bit everyone struggles with most (me included) is when to sell.

Linton

Wobblydeb wrote: »

This is a very inwardly focussed way of viewing investment, and doesn't seem to account for what happens in the investing world in the meantime.

For instance I have put money recently into a tech fund, as I believe there should be good growth in the medium term. If everyone else agrees with me, and pushes the prices of tech stocks up to ridiculous levels in the next year or so, I will get out earlier than my original time frame would have suggested.

That doesn't mean that tech companies are losing money, or are a bad place to invest, it just means the market has got ahead of itself, and I would take advantage of that.

Happy to be in cash or an alternative market while those 20% drops happen and buy back in afterwards. It is the whole purpose of portfolio theory, but the bit everyone struggles with most (me included) is when to sell.

If you are able to securely take advantage of fluctuations in the market, great, you would be foolish not to do it.

The problem is that it is very difficult to get right. I would say selling is easy; you can have a stop loss at say -10% and take profits (or sell completely) at +20%. But how do you know when to get back in? Most people I believe would leave it too late as they want to be sure that the change in fortunes is real.

You say you are happy not to be in the market when a 20% drop happens. How do you know that a 20% is going to happen beforehand?

I dont believe I can get it right sufficiently often to make the effort worthwhile, especially if I am invested in funds that I believe have a very good long term future. Unless you are a day trader why would you invest in funds that you believe dont have a long term future?

To take the example of EM - lets say I believe thay they will double in 10 years. So, even if they have a temporary bubble rise of say 20% they still represent an investment worth buying. One doesnt know for certain that such a rise is a temporary bubble; why would one risk the long term gain by leaving the market?

relaxtwotribes

Linton wrote: »

To take the example of EM - lets say I believe thay they will double in 10 years.

If I believed that an investment would only double in 10 years, I wouldn't touch it with a bargepole. Particularly EM.

What would you do if your investment doubled in 5 years? Sell then or keep it.

Whilst wobblydeb mentioned the difficulty of timing when to sell, that only really applies if you have the best possible portfolio. I don't have that, so I am always looking for alternative investments to improve the shape of my portfolio. If I find what I consider to be a great opportunity, I will sell a stock to fund that new investment. I have no emotional attachment to any particlar stock, whether it has made me a profit or a loss.

mike88

There seem to be many Emerging Market investors who believe that their holdings will increase over time. That is probably true. But over what period is the question.

EM shares dropped like a stone in the early 90's and it took some years for investors to get their money back. Many cashed in because there were absolutely no signs of a recovery and lost money in the process.

Japan was a market everybody wanted to be in - a situation not unlike those who get into EMs today. Japan is still well below its peak reached over 20 years ago.

Is it possible that EMs will always continue to rise exponentially?No. What about gradually? Probably. Are there better places to invest money? Possibly. But do not believe that investing in EMs guarantees making a quick buck. Those days are over.

Linton

mike88 wrote: »

There seem to be many Emerging Market investors who believe that their holdings will increase over time. That is probably true. But over what period is the question.

EM shares dropped like a stone in the early 90's and it took some years for investors to get their money back. Many cashed in because there were absolutely no signs of a recovery and lost money in the process.

Japan was a market everybody wanted to be in - a situation not unlike those who get into EMs today. Japan is still well below its peak reached over 20 years ago.

Is it possible that EMs will always continue to rise exponentially?No. What about gradually? Probably. Are there better places to invest money? Possibly. But do not believe that investing in EMs guarantees making a quick buck. Those days are over.

Probably correct. EMs like many other sectors are IMHO are a useful part, but only part, of a broadly based growth portfolio.

Also, EMs cover a very wide range of targets. At one end you have parts of the Far East which have pretty much already emerged. At the other there is Africa which in general has barely started. If you have the cash, there may be a case for investing in the niches rather than a general EM fund.