Do funds ever lose money over time?

Steve182

Thrugelmir said:

Steve182 said:

Thrugelmir said:

Steve182 said:

Thrugelmir said:

For the majority of people long term investing isn't a worry about making a positive return but more the fear of missing out. As there'll always be a sector which has performed considerably better.  To take an example Baillie Gifford have recently come to prominence (out of the pack) due to their investment in Tesla over a decade ago. The gain is now baked into the performance history tables. Probability of repeating the feat any time soon, probably zero. Yet BG funds will draw in new funds in expectation of superior returns compared to other fund management groups. The larger a fund becomes the more difficult it is to stand out from the pack. Possibly even end up underperforming. 

Certainly Tesla has been a major factor in BG's success over the past 12 months or so, but SMT outperformed indices like the S & P long before Tesla shares went skyward.

Tesla wasn't allowed to join the S&P 500 until the 21st December 2020 as didn't meet the qualification criteria. Market capitalisation alone doesn't suffice.  

In fact since it's inclusion the price has slipped backwards. Passive funds of course were forced to buy the stock in order to mirror the indexes. As wasn't just the S&P 500 that was impacted. . Making some hedge funds sizable amounts of money in the process. 

I don't dispute those facts, simply pointing out that BG's rise to prominence is not just the result of them backing Tesla.

Correct they backed Amazon as well. 

Fund managers themselves come and go. Charles Plowdon retired last week. The architect of the successful strategy. 

And Illumina too.

James Anderson has announced he is retiring April 2022.....Slater has big shoes to fill....

eskbanker

swleventhal said:

As I research different funds, they all make money over the long term (>5 years).

[...]

Of course, the better I pick my investment funds, the earlier in theory I could retire and build a big pot. But as I'm someone who already has a big pension pot and am 6-7 years from retirement, then there's minimum/no risk - unless the whole world's economy crashed for a number of years (is this even possible?).

Has your research about performance over 5+ years focused on the most recent five years, during a sustained bull run with a brief Covid-inspired interruption?  Have you modelled what investing in, say, 1999 or 2007 would have looked like?  And, perhaps a little more rhetorically, when do you believe the next major crash will happen?

masonic

swleventhal said:

masonic said:

There are plenty of funds that have lost investors a lot of money and never recovered - either they've closed down, been absorbed into another fund, or completely reinvented and relaunched. This is the origin of 'survivorship bias'. People don't tend to remember, or account for, historic failed funds when looking at past performance.

I'm thinking of the current batch of funds which seem to have a decent track record. e.g. HSBC Global Strategy, Baillie Gifford, Vanguard, Fidelity, Blackrock iShares to name a few which are popular and well performing. What's the chances any of these will go belly up? They all seem to have a decent content of index trackers and/or well managed portfolios.

The performance of global and well diversified funds has been back-tested using equivalent historical asset allocations and there is data to suggest these funds can carry losses for >5 years. For example, in the 1973-74 crash a global 100% equities passive fund would have lost something like 70% and taken nearly 10 years to recover (the figures for a 60:40 multi-asset fund are approx. 50% fall and 8 year recovery). So they do not always "make money over the long term (>5 years)". Long term is normally defined as >10 years, and your chances of losing money over that timeframe are extremely low unless your investments aren't sufficiently diversified (e.g. you invest in high conviction funds, single sector investing etc).

Prism

If you had been somewhat unlucky in your timing of buying a nice balanced world equity fund back in 2000 you would have been in the red for almost 12 years and it would have taken 14 years to creep above inflation.

LHW99

Woodford..........?

GeordieGeorge

LHW99 said:

Woodford..........?

Madoff...

eskbanker

Prism said:

If you had been somewhat unlucky in your timing of buying a nice balanced world equity fund back in 2000 you would have been in the red for almost 12 years and it would have taken 14 years to creep above inflation.

This seems like time to wheel out the oft-cited Nutmeg study, which illustrates that (for MSCI World Equity Mid and MSCI Large Cap Total Return in GBP, 1 January 1971-20 May 2020) it was over only periods of 13.5 years or more that such portfolios were always ahead, even though the odds were in the investor's favour pretty much from day one:

Thrugelmir

LHW99 said:

Woodford..........?

Nikkei Index? 

[Deleted User]

Funds certainly can lose money over time. 
In fact, if there is to be another financial crash, it will probably start with a maverick fund manager. 
Conventional wisdom cautions against investing in individual companies on the notion that "they may go bankrupt," but most funds are worth far less than the majority of companies in which they are invested; and your money less safe in funds imo.

coyrls

Most people's individual share holdings are worth far less than the companies in which they are invested.  I can't see how the fact that funds are worth far less than the majority of companies in which they are invested has any relevance to anything and certainly no relevance to the relative risk of holding individual shares versus funds.