Recent Commodity sell off and effect on funds

SteveSilva

If my understanding is correct inregards of the recent commodity sell off. A good fund manager would have seen that coming and sell shares in affected companies and any profit would be paid into the funds resulting these funds to increase in value. Or has the recent sell off had a negative impact on these funds???

Reaper

I think you have a little too much faith in fund managers. Timing is notoriously difficult. A few might have felt some time ago the boom was getting overheated and reduced their exposure. Even if they did then there is no reason for an increase in the fund price. They just won't have fallen, or fallen as much (and may have missed out on some growth if they exited too early).

Other managers will take the view the boom isn't over and this is a short term set back and will stay fully invested. So they will have taken the full hit but hope to make it back and more.

There are no absolutes in investing. Only time reveals who was right and who was wrong.

Linton

Three points...

Timing the market is impossible. Imagine what would happen if this were not so. Say you and enough other insightful people knew the market would drop tomorrow, so you sell today. What would happen to the prices today? They would drop: but you didnt predict it.

Funds have a charter specifying the things in which they invest. So if I as a private investor want to invest in commodities, I buy a commodity fund safe in the knowledge that this is where my money was invested. I would be most upset if the fund manager decided to invest in something else (eg cash) because he "knew" (or thought he did) that commodities were not the thing one should invest in.

Finally, to invest in funds sensibly you need to be thinking long term. The recent drop in commodity prices means nothing. You can only judge whether it's a minor blip or something of significance some time in the future, perhaps a year or more.

jimjames

As above timing is virtually impossible. However some managers have believed that sectors have been overvalued for some time. They may not know exactly when the drop will happen but expect it to happen at some point. The sector may carry on rising but eventually will drop and their choice against it will come right.

This has happened in the past and it takes a brave fund manager to make that call as it means they can suffer from poor performance in the meantime as the market continues rising. It happened during the tech boom and crash when some managers thought the valuations were getting crazy so switched but there was a lot of negative comment that they had lost their touch when they didn't perform as well as the market. They were proved right in the end.

Some of the funds I hold have done very well this week as they have moved into less fashionable sectors such as pharmaceuticals and away from mining. So the one of the main drops in the FTSE this week was as a result of miners being sold off, my UK fund has increased this week.

Over last 6 months it has gone up by 14% compared to 5% for FTSE and over 3 months 5% compared to drop of 0.7% for FTSE as it has no mining exposure and very concentrated portfolio. Invesco Perpetual Income has similar figures compared to FTSE.

http://www.fundslibrary.co.uk/fundslibrary.dataretrieval/Documents.aspx?type=packet_fund_class_doc_factsheet_private&user=hl_web_test&sedol=B18B9X7

Reaper

jimjames wrote: »

http://www.fundslibrary.co.uk/fundslibrary.dataretrieval/Documents.aspx?type=packet_fund_class_doc_factsheet_private&user=hl_web_test&sedol=B18B9X7

Thanks for the link. I was looking for a UK Equity Income fund and ay first sight I like the look of that one, particularly the low charges. I'll read up on it.

gadgetmind

Commodities sell offs and rebounds have alternated on a daily basis recently. I'm sticking with the commodities investments that I have but not increasing them.

What is nice is that I bought wads more banks, insurance, and pharmaceuticalsa few weeks ago, and performance to date has been good even though these are long term dividend plays.

Totton

Reaper wrote: »

Thanks for the link. I was looking for a UK Equity Income fund and ay first sight I like the look of that one, particularly the low charges. I'll read up on it.

A good source of info on UK Equity Income is at http://www.whitelist.co.uk/vew_WL.asp

Regards,
Mickey

Reaper

Totton wrote: »

A good source of info on UK Equity Income is at http://www.whitelist.co.uk/vew_WL.asp

Thanks, though they seem to have ommited jimjames's fund, CF LINDSELL TRAIN UK EQUITY

jimjames

Reaper wrote: »

Thanks, though they seem to have ommited jimjames's fund, CF LINDSELL TRAIN UK EQUITY

It may be because it isn't strictly an income fund so may be under the Growth heading.

Loughton_Monkey

SteveSilva wrote: »

If my understanding is correct inregards of the recent commodity sell off. A good fund manager would have seen that coming and sell shares in affected companies and any profit would be paid into the funds resulting these funds to increase in value. Or has the recent sell off had a negative impact on these funds???

Firstly, fund managers do not have crystal balls - or at least not good enough ones to foresee a 20% drop in 2 days.

Secondly, this is a strategy that could be most damaging. Were there to be a 'bounce' back - which often follows such readjustments - he would have lost out on the bounce.

Thirdly, and most importantly, that is not his job. It is for you to foresee it, and sell the fund beforehand and switch it to North Scottish Salmon and Prawn Fund (Accumulation), or whatever.

It may surprise you to learn that a Fund Manager's brief - when appointed to manage UK Smaller Companies Fund is.... er.... to invest the investors' money into ... er... UK Smaller Companies. He would be (rightly) dismissed instantly if he did otherwise. He would be guilty of almost every rule in the FSA book. £900 million invested in a Commodities fund, and the fund manager invested in cash? It would be the fund manager scandal of the century. Investors would be in uproar.

jimjames

Loughton_Monkey wrote: »

It may surprise you to learn that a Fund Manager's brief - when appointed to manage UK Smaller Companies Fund is.... er.... to invest the investors' money into ... er... UK Smaller Companies. He would be (rightly) dismissed instantly if he did otherwise. He would be guilty of almost every rule in the FSA book. £900 million invested in a Commodities fund, and the fund manager invested in cash? It would be the fund manager scandal of the century. Investors would be in uproar.

Thats a good point but for a market like the FTSE-AS where companies range across all sectors the manager does have discretion and can select companies that look good value compared to others. Hence moving out of mining if they felt that was overvalued and into something less highly rated. In this instance the manager should add value compared to a tracker that will hold all companies.