Can funds actually go bust?

Chippy99

What joy - down another 3.5% today. The fund manager has picked some beauties obviously. I hope he's not getting paid much for this garbage.

londoninvestor

Chippy99 wrote: »

What joy - down another 3.5% today. The fund manager has picked some beauties obviously. I hope he's not getting paid much for this garbage.

An MSCI India tracker would have returned you something like -3.8% today...

(Based on the Lyxor and XTrackers ETF price changes today.)

bowlhead99

Chippy99 wrote: »

I can bear short term ups and downs, but were I to lose my entire investment, that would be a disaster.

Chippy99 wrote: »

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.

So, losing all the value wouldn't really be a disaster after all then

The loss is already made, whether you sell it or not.

You're right that one should consider the current value as 'what you have' right now, whether you historically paid more or less than today's price to buy your shares.

The fund actually only loses money if it sells something for less than it paid for it, otherwise it is only a paper unrealised loss. If none of the investors want to cash out, it will not have to sell any of its holdings at the current prices.

However, as it is an open ended fund, and people are free to redeem their shares at the current price and run for the exit, it seems quite likely that the fund will end up making some actual losses, due to being required to sell shares in company x, company y and company z for less than it paid for them, in order to get cash back into its bank account to deliver to the departing investor who wants out at the current price. You will take a pro-rata share of that x thousand pound loss made by the fund, whether you stay or leave.


Of course, the value of the remaining unsold assets might go up again before you want to leave, in which case you will quite possibly get to leave with more pence per share than you could have left with today.

FWIW, I hold JP Morgan's indian investment trust (a closed-ended fund vehicle) and bought some more today.

Chippy99 wrote: »

What joy - down another 3.5% today. The fund manager has picked some beauties obviously. I hope he's not getting paid much for this garbage.

You know what he is getting paid, because the management fee is a percentage of assets and you choose to accept the pricing when you bought into the fund. You choose to employ him at that price.

Maybe however it is some comfort to you that if the fund value declines (due to people leaving or the underlying assets becoming worth less pounds), he will be presiding over fewer assets so will take a lower fee.

There would perhaps be a greater alignment of interests between the manager and the investors if the manager had a significant amount of his personal wealth tied up in the fund, and/or the manager were able to charge a performance fee linked to the profits he makes for you over the long term, with high watermarks etc. However, some people don't like performance fees.

Chippy99

What I find a bit galling is that when I look at the Nifty 50, it is +4.5% (other thereabouts) up over the last 12 months, even after the recent falls. Versus Jupiter India with is -20.5% down. Underperforming the market by 25 points in one year is pretty freaking awful imo.

Yes, I accept shares can go or down and macro-economic influences affect everything. But even against the macro-economic backdrop, the fund is performing very badly indeed.

I am genuinely torn as to what to do. On the one hand, I am looking at this as a 10 year+ investment, so perhaps should not be watching as closely as I am. On the other other hand, what is the point of holding on to an asset which I full expect to decline in value over the coming weeks and months? Surely better to get rid of it and buy it back later if I expect the avoided loss to be far greater than the fees?

And on the 3rd hand, "buying high and selling low" - which is what I am contemplating, goes against the grain. I should arguably be considering buying more, so why on earth should I consider selling?

I am uncomfortable that this fund represents circa 5% of my overall portfolio. I put more money into it after falls some months back and am now regretting doing that.

aroominyork

I bought Indian Capital Growth (IGC, and like Jupiter India focusing on SMEs) last December just before it rose 10% and then started to fall; it now shows a 22% paper loss. I bought it based on inexperience and exuberance, unfortunately selling ANII to do so. I did not properly consider i) that this is a one trick pony fund house – I know nothing about the quality of its research and it cannot have the oversight of a large fund house to keep an eye on the fund manager and change him if warranted; ii) as Aadhaar and other changes work through the Indian system, there is no reason to think SMEs will be better positioned that large caps to take advantage.

So why am I not selling now? It’s a volatile fund (map it against Jupiter India, ANII, JII) and it is not unreasonable to think it will rise to a level where I will be happy to take a smaller loss. A more speculative investor with a different view on the two concerns in my first para might see the stock as cheap; in fact maybe that is why the discount has shrunk significantly over the last two months and indeed I’d be happier if the current price reflected the discount of two months ago since, if it reverts to that discount, another 10% fall could be on the way. However as things stand I just about see it as a hold.

dunstonh

What I find a bit galling is that when I look at the Nifty 50, it is +4.5% (other thereabouts) up over the last 12 months, even after the recent falls. Versus Jupiter India with is -20.5% down. Underperforming the market by 25 points in one year is pretty freaking awful imo.

The Nifty 50 is down 7.10% over 12 months. Not sure where you are getting a 4.5% rise from.

India is in a financial crisis and the Rupee is sinking. It has been hitting all-time lows Jupiter India is a Sterling fun. As the Rupee falls, the domestic value of companies rises. So, a lot of the drop has been countered by the fall in the Rupee. However, you are not priced in Rupees. You are priced in Sterling. You need to consider the currency fluctuations and not just the market.

It is similar to how Brexit is playing out. As Sterling falls, the value of global assets priced in Sterling has risen. Price them in dollars then its a different matter. i.e. UK investors have done well out of it. Global investors already invested in the UK have done badly.

You are just looking at the market and that is where you are going wrong. You need to look at the impact of Sterling and the Rupee. Whenever you invest in overseas markets, returns are affected by Sterling and the home currency of the market you are investing in and the asset makeup of the market (in whether they assets are priced on the global stage or on the domestic stage).

If all the things work in your favour, then the gains can be significant. If all things work against you then you get the perfect storm with massive losses.

The Brexit referendum result gave this fund a big burst in 2016 (on top of domestic gains) because of the fall in Sterling. Since August 2018 it has seen a reversal as the Rupee falls, Sterling has risen and the Indian stockmarket has fallen.

(caveat - simplifications used on purpose to aid understanding)

Yes, I accept shares can go or down and macro-economic influences affect everything. But even against the macro-economic backdrop, the fund is performing very badly indeed.

No it isnt. It is outperforming its benchmark.

I am genuinely torn as to what to do. On the one hand, I am looking at this as a 10 year+ investment, so perhaps should not be watching as closely as I am.

Perhaps you should never have invested in it in the first place as it appears you don't understand the mechanics of it.

I am uncomfortable that this fund represents circa 5% of my overall portfolio. I put more money into it after falls some months back and am now regretting doing that.

5% is not unreasonable for adventurous/speculative investor. It probably means you hold around 15% overall in emerging markets. So, 5% in India and good chunk in China and a good chunk in the rest.

Of course, it could also mean that you are invested outside of your risk profile on behaviour, knowledge and understanding (we cant say on capacity for loss). You may not be a speculative investor. In which case, 5% is too much.

aroominyork

I have no idea who is behind this data (and have no great interest in finding out) but for what it's worth here is someone's forecasts of a continually falling Rupee against Sterling http://poundf.co.uk/rupee-exchange-rate-forecast-2015-2016-2017-and-beyond

aroominyork

dunstonh wrote: »

5% is not unreasonable for adventurous/speculative investor. It probably means you hold around 15% overall in emerging markets. So, 5% in India and good chunk in China and a good chunk in the rest.

Dunston, that raises an interesting point. I have been mulling whether to add to my general (non-niche) EM funds while I still hold IGC or wait until I sell IGC. I currently have 8.8% of my equities in EM, of which 34% is in IGC. If I bought other EM funds now to the current value of my (to-be-sold sometime IGC holding) my EM allocation would be 12.2%.

Should I take a view on whether I would be overweight in EM by comparing that to the EM allocation of say Vanguard Global All Cap Index, which seems to be c.9.3%, or should I look at it another way?

seacaitch

Repeating something I've posted about before: now nearly 10 years into a stocks bull market, there are a lot of investors (including plenty of professional asset managers) whose entire investing experience to-date will have fallen within a period when markets have been either favourable, or at worst, relatively benign with recoveries swiftly following setbacks. This experience will have conditioned people.

In 1994, Arthur Ziekel, then president of Merrill Lynch sent a memo to his daughter* spelling out some sensible investing bullet points. In a point explaining "There is no free lunch. Risk and return are interrelated" he made the following point, which is relevant here:

"Most investors underestimate the stress of a high-risk portfolio on the way down."

Prolonged bull markets cause people to lose sight of this, only for them to be powerfully reminded again when periods of market stress and sharp volatility return, as they always eventually will...

It is easy to imagine that your risk tolerance is high when your portfolio's rising and any setbacks are quickly reversed; not so easy when you experience the flip-side: rapid, steep and persistent drawdowns that take your positions deeply "underwater".

As much as possible, therefore, investors should try to anticipate in advance, how they might feel should they experience this type of drawdown, to help ensure their portfolio realistically reflects their true appetite for risk and volatility. For newer investors, it may well be that you have to experience events (significant market stress) for yourself to get a proper handle on your risk tolerance, so that you can calibrate your portfolio such that market declines don't cause you undue concern, worry or stress, and perhaps cause you to start baling out of positions that you'd intended to hold for the long term.


* [see: https://www.stableinvestor.com/2017/03/portfolio-management-father-daughter.html ]

Chippy99

dunstonh wrote: »

The Nifty 50 is down 7.10% over 12 months. Not sure where you are getting a 4.5% rise from.

I just looked at the charts. 9,xxx 1 year ago, 10,316 today. I'd say that was up.

Perhaps you should never have invested in it in the first place as it appears you don't understand the mechanics of it.

That's more than a little rude of you, to be honest.