Can funds actually go bust?

DennisTenus

Hmmm it's certainly made me reconsider my portfolio. Even though I only have a few % in Baillie Gifford Greater China (down 9%) and Legg Mason IF Japan (up 11%) I may sell my holding in that Japan fund. Obviously hoping the China fund will recover!

TheShape

Malthusian wrote: »

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.

If you built your own portfolio your US fund would be larger than 5-10% of the total though?

aroominyork

TheShape wrote: »

If you built your own portfolio your US fund would be larger than 5-10% of the total though?

Read the previous para of Malthusian's post: this is talking about single country emerging economy investments. That does not apply to the US (which is closer to retreating into the dark ages).

dunstonh

TheShape wrote: »

If you built your own portfolio your US fund would be larger than 5-10% of the total though?

The US ceased to be an emerging economy in the 20th Century. It also had a period where it's stockmarket lost 90% of its value during the period it was an emerging economy.

System

Malthusian wrote: »

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.

So you invest without any beliefs about future returns? Any rational investor (this probably does include you) would only invest if they believed that the expected return was positive. You have obviously never heard of Bayesian statistics.

dunstonh

So you invest without any beliefs about future returns?

You should have a sufficient understanding of how the fund it can go up and how it can go down. You may well have an "expectation" of a long term average but you never know what and when it will be.

Any rational investor (this probably does include you) would only invest if they believed that the expected return was positive.

Correct. However, it should not blind you to the downside potential.

The OP seems woefully unaware of how much the downside potential of this fund actually is.

No-one is every unhappy when things go up. Issues only occur when things go down and that is when you find out if you have invested within your risk tolerance or not.

Malthusian

Economic wrote: »

So you invest without any beliefs about future returns?

No.

Any rational investor (this probably does include you) would only invest if they believed that the expected return was positive.

We were talking about the probability of a single country emerging markets fund losing 90%. Why are we now talking about whether investment has a positive expected return or not?

You have obviously never heard of Bayesian statistics.

I vaguely recall them wittering about something along those lines during my statistics modules at uni.

Chippy99

Thanks. Some interesting replies.

I have a pretty balanced portfolio I think, with perhaps 50% of my cash on long term deposit, premium bonds, income bonds etc and the other 50% in equities and funds. Of the latter, Jupiter India is about 10% of my portfolio. (i.e. 5% overall) The other 90% are all significantly in the black and the portfolio overall remains strongly in the black. So I am annoyed by Jupiter's performance rather than panicking about it.

If it dropped to 10% of its current value, my portfolio would still be miles in the black. So this isn't throwing myself off Beachy Head territory.

I was merely interested in the techical question as to whether it is realistically possible for the fund to be wiped out altogether? So long as that is not a realistic proposition, then I am happy to sit it out for the long term.

By the way, the "waiting for it to come back" is I think very flawed thinking. Today is the first day of the rest of your life and all you have is what is in front of you: So many units and such and such price. What you paid for them is history and is irrelevant. The only question is *today* does this investment look like one you would like to make / hold on to. If not you should sell it. The loss is already made, whether you sell it or not.

JohnRo

Chippy99 wrote: »

So many units and such and such price. What you paid for them is history and is irrelevant.

Good luck explaining that one to the taxman.

Chippy99

JohnRo wrote: »

Good luck explaining that one to the taxman.

ISA my friend ;-)