Investment Funds

Posted By Darren Winters on Mar 25, 2024


Investment Funds

Not all assets perform equally, and the same can be said about investment funds, which are becoming popular amongst retail and professional investors.

The advantage of investment funds is that they enable investors to gain sector exposure and mitigate the risk of investing in an underperformer in that category. The probability of investing in a stock investment fund that achieves alpha, beating the index, is more likely than an investor putting all their chips on what they believe is to be a winning company stock in that sector.

For example, say an investor believes the economic cycle is dipping into a recession, and they decide to invest their hard-earned money in a staple food sector where demand is relatively price-inelastic and unaffected by an economic downturn. 

Food expenses are non-discretionary, bearing in mind on average, women need about 1,600 to 2,400 calories each day, and men need 2,000 to 3,000 calories a day — based on age and activity level. 

There are at least 10 top UK food supermarkets and many more in the US.

Which supermarket stock do you buy?

Investment Funds

You could be unlucky by buying shares in a food supermarket company where the board of directors are squandering profits on private jets, lavish corporate entertainment, and not investing wisely in the business, making improvements to the retail outlet, and improving the quality of the food and keeping prices competitive.  

In the UK, high-flying Tesco executives came down to earth, with its fleet of private jets sold, following shareholder outrage as its stock price crashed.  

The Tesco scandal revealed by a hedge fund company exposed the malinvestments and accounting irregularities. 

Investment funds sector diversification reduces the risk of capital loss  

Sector-related investment funds are good investment vehicles, particularly for retail investors with limited time and resources to make investment decisions. An investment fund’s diversified exposure to assets in a sector mitigates the investor’s risk of losing capital by investing in a lemon. 

Index Investment funds give retail investors the opportunity to grow their wealth in the era of central bank currency creation

Interest on bank deposits does not compensate for inflation.

The benefit of stock Index Investment funds is that the fund managers promote or demote companies from the index every quarter according to their performance. A rising star profitable company would be added to the investment fund, and equally, an underperforming company would be demoted.

In other words, stock Index Investment funds are an efficient way for retail investors to get exposure to the winners and protection from the losing stocks. 

The new cash deposits are sovereign bills with a short maturity date of one year to six months.  

In view of the current bank liquidity crisis, investing in sovereign Bills could be a safer place for cash than a bank.

The probability of another bank going bust is higher than the US government defaulting on its yield payment on a Treasury bill.

Moreover, the yields on those Bills are higher than the interest on a deposit account. 

So, better returns and lower risk of treasury Bills mean that cash deposits are less attractive to investors, which is the crux of the ongoing banking liquidity crisis and 2023 bank runs

For precious metal investors, here are the 16 best precious metals funds.

Investment funds have you covered whether you want broad exposure to stocks through a stock index fund or you want sector-specific companies. Investment funds for corporate and sovereign bond exposure with various maturity dates are available.  

Investment funds for commodities, precious metals and even cryptocurrencies also exist.  

Which investment funds generated the most value for shareholders over the last 10 years?

Funds that created the most wealth are all large, well-established names. Out of the top 15 of the most profitable investment funds, only two were smaller funds with the remaining 13 being among the largest funds in the industry ranked by asset size.

Vanguard and Fidelity dominate the list of top-performing investment funds.

Which one is better?

Vanguard is better for investors with a passive hands-off investment style. Fidelity’s learning centre, real-time trade data and cryptocurrency options make it a better option, for more advanced traders. 

Moreover, its no minimum balance requirements could also be appealing to new investors. 

Few active managers can consistently add value, so 10 of the top 15 investment funds spanning the last decade have been low-cost, passively managed funds that track broad market indexes.

So, to start investing and accumulating wealth without putting capital at huge risk, all that a retail investor needs is to save, open up a broker account, and invest in these large name passively managed funds.

Passive investing funds, an investing strategy that tracks a market-weighted index or portfolio, thereby minimizing transaction costs and spreads, is a more profitable strategy than active investing. 

Here are the facts; 

“Vanguard tops the list, with a stunning $3.8 trillion in estimated value creation, compared with about $1.7 trillion for Fidelity,” according to Morningstar. 

What were the top wealth-creating investment fund sectors?

Again, big is beautiful, with high-flying investment fund sectors being a large blend of corporate titans with moats around their business, scoring a top 69% on the wealth ratio score over 10 years. They are large companies with barriers to entry, dominating market supply, and able to extract monopoly profits, cash cow utility companies.

On the other end of the size spectrum were nimble technology companies, equally wealth generators, coming a close second with a score of 68.6.  

Technology stock investing is highly speculative, where fortunes can be made or lost by investing in a winner or a loser. 

Technology investment fund exposure to technology companies can tame the risks. 

But the investment funds world is no fairy tale, land of milk and honey.  

The top 15 investment funds that destroy wealth were short funds betting on falling prices. 

ARK technology fund also featured high on the list. 

China funds also performed poorly. Pick your investment funds wisely.   

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