When a Fund Loses Its Star By Aaron Pressman - Essay Example

When a Fund Loses Its Star By Aaron Pressman The article “When a Fund Loses Its Star” written by Aaron Pressman highlights the fact that one of the major problems that the finance industry is facing today is that most of the fund managers are nearing their retirement age and it is expected to double in the next ten years or so. With due respect to the skills of the incoming managers, still the funds which are already in transition suffers from some common problems-Hedge funds and other traders try to guess what positions might be sold. Sometimes investors in a fund jump ship en masse, forcing ill-timed asset sales. In many cases, it is seen there has been a change in investing styles. Suppose, suddenly a fund manager leaves a company and joins another company and two new fund managers takes his place. It is quite obvious they would change some things or make some moves to make the working pattern according to their style. It can be quite possible that some of their initial moves may backfire. Many companies keep bench strength by keeping upcoming managers as trainees so that they can tackle emergency situations. At the Pioneer (TAHYX) High Yield fund, the managers are hopeful. Outflows have slowed, and when no manager expects a quick turnaround to the credit crisis, they also note that junk bond investors are being paid for taking on risk. Fund manager transitions can often be a little shaky or rough, especially if the previous manager had achieved great results. The main lesson for investors must be that they should not flee when a star manager moves on but they must make a more informed decision by being aware of challenges a new manager might face. The firms can bench strength of upcoming managers to avoid the transition phase problem, or create terms of managers. Even a planned transition can go wrong but that must not mean that the companies would stop planning about the transition phase well in advance. Equities In Disguise? By Greg Miller The article “Equities In Disguise?” by Greg Miller says that the main component of convertible security is coverable bonds. Other components may include preferred stocks and other hybrid convertible securities. The word “bond” mainly refers to safety, security, stability, and income. Most of today`s bonds are not true bond funds neither are they return focused. The term “absolute return” refers to positive returns through both bull and bear markets. Similarly, many convertible funds are not bond funds either. There are many examples that can be cited to prove the validity of this statement. For example, one can take a look at the top five securities that are being offered by Fidelity Convertible Securities Fund (FCVSX), to see how a convertible fund can really be an equity fund in disguise. Statistics tell that an investment in that fund on March 10, 2000, incurred a loss of 32.88% by October 2002. And, it took the investors almost 5 years to get their money back that they invested in the fund. Most of the firms like FCVSX have good past record over the years but still they may be “high risk”. Convertible bond funds are a great way for investors and their advisors to access these securities such as safety, security, stability, and income. But investors and their advisors who seek to have convertible bond funds would be better off if they try to find out first what are the underlying strategies of the firm who offer these funds. They must realize that “Things may not be as they appear”. So its is only up to the investors and their advisors to find out the reality of any offer and then proceed to avoid any future losses. Ivy Asset Strategy Rakes in Cash, Stays “Ivy Asset Strategy Rakes in Cash, Stays” says that raking in cash is one of the rare funds these days. Ivy Asset Strategy, a "go anywhere" fund owned by Waddell & Reed is one of them. Infact, Ivy has become one of the top ten gainers of cash in the first half of the year. Last year i.e in 2007 it had a great achievement it having the fund`s 41.3% return. Naturally, this achievement has made this strategy an easy sell for the brokers who distribute it. Another important reason for this achievement is Ivy`s flexible attitude. Ivy racked up huge profits in 2007 just by participating in the emerging markets of China, India, Russia, and Brazil. And now they are playing defensive and making use of the profit they made last year. Still their profit is nearly 45% of assets i.e $6.8 billion at the end of June. Avery used to invest greatly in bonds until 2002 and it also used to operate only in the U.S. But then in 2003 it started to invest in overseas also like China, India, Brazil and other emerging economies. Attracting so much money has surprised Avery itself. The most important feature behind Avery`s growth is its ability to change according to the time`s needs. And they are also pretty clear in their mind about what and how they want. They know their main job at this time of global weakness is not to loose their investors. They are also clear about the names of the sectors and industries that we want to invest in. And they have no problems waiting for the prices to come to them. And now they are looking forward in spreading their business to further areas like Vietnam, Egypt, or other countries in Africa and the Middle East. Avery had figured out that money can be made at economic turning points and they are making full use of it. U.S. Vulture Funds Head to Europe By Emily Thornton The article, “U.S. Vulture Funds Head to Europe” written by Emily Thornton highlights that it has been a known fact for a while now that European economy is slowing or in other words, it has become an area for distressed debt investing. Taking this chance, some of the rich U.S persons like Wilbur L. Ross Jr. of New York and Lone Star Funds of Dallas have started to capture the European market. There is also Oaktree Capital Management and Avenue Capital Group who are raising billions to invest in European companies in coming months. The U.S investors are getting attracted due to a number of factors- about 65 percent of the corporate credit rating actions in Europe through July were downgrades, there is also lack of competition as there is rarely a few investors available from Europe ready to invest. More importantly, some of the European companies who have gone private have received loans with less favorable terms than those in the U.S. According to researcher Dealogic, Europes market for junk bonds and so-called leveraged loans has almost quadrupled since 2003, to a total of $616 billion issued last year. The Europeans have only to blame themselves for this situation. Statistics show that there were only about 13 distressed funds which had been launched in Europe since 2003 and it adds up to a mere $400 million in assets. The U.S investors needed a distressed debt market to invest and when they got it they made full use of it by re-innovating the companies and taking charge of them. For many companies, like WPC now half of the companys business comes from financing European companies. A investor don`t care whether he is investing in his own country, his own continent or any other country or continent. The U.S investors got the opportunity to make profit of the debt distressed European market and they did it. Go East, Young Man! By Beth Piskora The article, “Go East, Young Man!” written by Piskora points out that the best advise that can be given to the investors who want to invest their money is to invest it in the emerging markets of eastern Europe. A study of the best-performing European equity funds over the last one, three, and five year periods will show a list dominated by funds in Russia and Eastern Europe. ING Russia, U.S. Global Accolade Eastern Europe, Metzler/Payden European Emerging Markets, and Third Millennium Russia- these are the names of the topmost four funds that appear each and everytime during this period. As per reports ING Russia has only 36 holdings but unlike many U.S. equity fund firms who have been upping cash positions to ride out market volatility, ING Russia puts all of its assets to work. The top three holdings of ING Russia till mid year of 2008 were- Sberbank, OAO Gazprom and Lukoil. It is also worth mentioning that Sberbank is the largest bank in Russia. All these stocks are also among the top ten holdings of Third Millenium Russia. It is common fact known to all that the Western Europe economy is all well developed. So investors can look for more profit but investing their money in the Eastern European market. Rising incomes and credit growth are fuelling Russian household consumptions, which in turn is supporting manufacturing and service growth. Moreover the fact that those companies who are putting all its assets to work without worring about the market volatility are getting more funds and are capturing the market as seen from the last five,three,one year study. Focused Funds Can Offer Wild Rides or Safe Bets By Lewis Braham Recent studies have showed that focused funds holding fewer than 40 stocks found their managers usually are not able to cope with the downside risk of their portfolios. Reliable study statistics show that focused funds have not been able to match their benchmark indexes and more diversified peers by more than 1% a year. Focused fund expenses as compared with average equity fund are 1.5% as compared to 1.27%. The focused-fund strategy is to hold a small amount of stocks so that a managers ideas can beat the market. There’s always a good and a bad side to it. As it can attract a lot of assets, in the same way it can suffer huge losses. For example, between the years 1984-2002, 38% of focused funds were either liquidated or acquired and merged out of existence for Legg Mason Value, who has been around for nearly 26 years. So the best way is to manage the risk a company is taking. A statistic named `beta` must always be closely watched when it comes to focused funds. A beta of 1.0 would mean a blue chip stock fund would be just as volatile as the S&P 500. Similarly, if it were 0.91 it would mean 9% less volatile than S&P. There’s no scheme or idea in the world that would involve no risk of losing. So there’s no point in avoiding focused funds. But the exposure must be limited. Suppose if one fund gets in trouble the other fund must be safe. No company wants to be in a position where its investors want to redeem their share but the company don`t have cash to pay them back. So every company must analyze their position before risking its money and they must risk only that amount that they thick they will be able to recover even if they lose it. More than making profit, a company’s main aim must be not to loose money. Read More