Responding to a crash

Voyager2002

One of my holdings (JP Morgan Brazil Investment Trust) fell by almost ten per cent in a single day yesterday, with further falls this morning. Should I get out while it is still worth anything, or double my holding since the Trust is now at a 15 per discount to the value of the shares that it holds?

(The reason seems to be a corruption scandal involving the current president, whom the markets like. So the reforms that he promised are unlikely to happen: but in any case it is a large economy that includes some extremely profitable companies -- as well as Petrobras, which is a total financial disaster on an enormous scale.)

Linton

IMHO, if you are investing for the long term, and you should be particularly for risky areas like Brazil, then it would be sensible to allocate a relatively small fixed % of your portfolio to that country and maintain that % by rebalancing occasionally, say once a year. Dont buy or sell on short term movements in price. They are irrelevent to the long term investor and you could well get things wrong.

Of course if you have good reason to believe that Brazil is going to collapse, never to rise again, then it may make sense to sell. Investing purely on the basis of an IT discount isnt necessarily a good idea - funds can maintain discounts for years.

Glen_Clark

Share prices are driven by Testosterone fuelled boys in red braces who over react to good or bad news When they realise what happens to Trump won't make a deal of diffrence to world share prospects prices will stabilise again

EdGasketTheSecond

Maybe the middle ground would be best; don't sell or add but hold what you've already got.

economic

i would sell. the capital could be put to better use elsewhere. I am personally staying away from EM for now as I think we will see a huge dollar rise over the coming years annihilating EM.

dunstonh

One of my holdings (JP Morgan Brazil Investment Trust) fell by almost ten per cent in a single day yesterday, with further falls this morning.

A very small movement in a highly volatile area. The fund is capable of 80% losses. In reality, that is all we know. We don't know what is coming next.

So, you either accept the risk and volatility or if you cannot, you pull out. Emerging market corruption is incredibly difficult to predict outcomes on.

ColdIron

If a one day movement is making you consider bailing you are probably invested way above your tolerance for risk

Reaper

To put it in perspective it is still up 35% over the last year despite the recent drop.

As EM are always a roller coaster ride I don't think a 10% movement is anything worth reacting to unless you feel the markets have underestimated the problem.

Morphoton

I have a holding in BRLA (Black Rock Latin America) which is about 65% in Brazil. This IT has performed very similar to JPB over the past few years. It was down ~8% yesterday but that only takes it back down to what it was last month. So I am not too concerned. I have 4% of my SIPP in BRLA and just rebalance when it gets too high/low. I intend to keep this trust for the foreseeable future. I have been investing in BRLA for +10 years and Latin America for +20 years. A trust like this can easily lose 80%+ peak to trough so it may be advisable for you to review your weighting in JPB if moves like this are above your risk tolerance.

bostonerimus

Voyager2002 wrote: »

One of my holdings (JP Morgan Brazil Investment Trust) fell by almost ten per cent in a single day yesterday, with further falls this morning. Should I get out while it is still worth anything, or double my holding since the Trust is now at a 15 per discount to the value of the shares that it holds?

(The reason seems to be a corruption scandal involving the current president, whom the markets like. So the reforms that he promised are unlikely to happen: but in any case it is a large economy that includes some extremely profitable companies -- as well as Petrobras, which is a total financial disaster on an enormous scale.)

Before buying such a risky and expensive fund (OMG I suppose you know the charges) you should have known what you would do in a "crash". Owning highly volatile funds puts a lot of pressure on your trades and rebalancing. IMHO no retail investor should own such funds as they are one step removed from gambling. If this was a developed market tracker I'd probably buy more, but who knows with Brazil.

As I have no idea how this fund fits into your overall portfolio and investment plan I can't really say what to do, But as a strategic matter I would not own volatile actively managed funds and concentrate on a UK and developed markets index trackers.

Linton

bostonerimus wrote: »

Before buying such a risky and expensive fund (OMG I suppose you know the charges) you should have known what you would do in a "crash". Owning highly volatile funds puts a lot of pressure on your trades and rebalancing. IMHO no retail investor should own such funds as they are one step removed from gambling. If this was a developed market tracker I'd probably buy more, but who knows with Brazil.

As I have no idea how this fund fits into your overall portfolio and investment plan I can't really say what to do, But as a strategic matter I would not own volatile actively managed funds and concentrate on a UK and developed markets index trackers.

I see no problem with Brazil as a long term investment, 20 years perhaps. In those circumstances it isnt ganbling but a reasonable punt on the future. It would be an omission to ignore such parts of the world to focus purely on currently developed markets. But it should held as part of an overall asset allocation and an ongoing portfolio managment strategy.

The one question I would raise is the % allocation to Brazil. Anything more than say 2%-3% would be excessive in my view as there are plenty of other emerging market countries around. And any holding of less than £3K is arguably not worth the effort, so this suggests you need a £100K + portfolio to consider this type of focussed investment. For a smaller portfolio just go for more general EM funds.