Can funds actually go bust?

FatherAbraham

atush wrote: »

.Perhaps if the entire countrys economic system collapsed, or the govt of the day nationalised everything etc.

It would have to be uncompensated nationalisation, not simply nationalisation.

aroominyork

Rheumatoid wrote: »

But how can it be doing so badly? It is on HL's Wealth 150+ list :rotfl:

I hold some by the way

Yup, and HL's 'research' could more clearly warn investors of the fund's volatility: "Long-term investors with Avinash Vazirani have been rewarded with handsome returns. However, focusing on one particular country is not without risk and returns have been volatile over time. The Indian stock market fell heavily during the 2008 global financial crisis and in 2011; however, the manager has offered an element of shelter during falling markets. The fund's bias towards small and medium-sized companies means the fund has tended to outperform when this area of the market is performing well." As you can see, my scientific highlighting method shows more upsides than downsides.

dunstonh

Rheumatoid wrote: »

But how can it be doing so badly? It is on HL's Wealth 150+ list :rotfl:

I hold some by the way

HL's marketing 150 list is does not measure volatility as a reason to be or not be on it.

This is one of the highest risk UT/OEIC funds available.

it isn't doing badly. It has 90% loss potential in 12 months. It is only down a quarter of its loss potential.

aroominyork

Dunston, I'm sure you mean what you say about 90% loss potential (you do not do hyperbole) so can you point to some data about comparable funds that have experienced that kind of loss? I would find it helpful.

dunstonh

aroominyork wrote: »

Dunston, I'm sure you mean what you say about 90% loss potential (you do not do hyperbole) so can you point to some data about comparable funds that have experienced that kind of loss? I would find it helpful.

China has had a number of 55-70% drops. Tech funds amongst others. US stocks during the great depression.

All you need is a stockmarket crash and a currency fluctuation at the same time and you get the perfect storm.

DennisTenus

Where does it say "It has 90% loss potential in 12 months" ?

dunstonh

DennisTenus wrote: »

Where does it say "It has 90% loss potential in 12 months" ?

Standard risk analysis. Pretty much something every investor who uses single sector funds and high risk niche/specialist funds should be able to work out for themselves.

if they cannot work it out for themselves, they should not be investing in it.

System

dunstonh wrote: »

Standard risk analysis. Pretty much something every investor who uses single sector funds and high risk niche/specialist funds should be able to work out for themselves.

if they cannot work it out for themselves, they should not be investing in it.

This is meaningless unless we know the associated probability. Is there a 1%, 5%, 10%, 50% probability of a 90% loss in the next year?

C_Mababejive

Thrugelmir wrote: »

The mantra normally is run your winners and cut your losses. Hanging on in quiet desperation is the English way.

But if the losers are still paying a dividend and you reinvest the divi it will surely pay benefits when the boat refloats as long as it isnt holed below the waterline?

Malthusian

Economic wrote: »

This is meaningless unless we know the associated probability. Is there a 1%, 5%, 10%, 50% probability of a 90% loss in the next year?

Statistics and probability does not apply to future investment returns and anyone who tells you otherwise just because you can make past performance look like a normal distribution is a charlatan.

The chance is 100% if India has a hidden unmanageable debt problem which is about to result in a government collapse and Marxist takeover, and 0% if someone is on the verge of inventing a perpetual motion machine that requires a rare earth metal that can only be found under Indian soil.

A fund investing in a single emerging market whose assets are largely denominated in the local currency can lose 90% of its value in 12 months. Dunstonh said nothing about whether that was going to be the next 12 months. There is a 100% likelihood that it will happen at some point, even if it isn't within your lifetime. Investors therefore need to be prepared for the possibility and not think "well it only has a 10% chance so it won't happen".

Any fund investing in a single country also has Japan-style lost decade risk. The risk is not just that the fund loses 90% and then bounces back for those investors who were game enough to hold on, the risk is that it never makes any money. E.g. because the economy takes over a decade to recover and by the time it does, the companies the fund holds have virtually all gone bust or been dumped from ridiculous bubble valuation points or been taken over by overseas companies taking advantage of rock-bottom prices. This is why investing more than 5% - 10% max is the action of a gambler rather than an investor.