Markets do not go up in a straight line. By following a few strategies, managed funds investors can profit not only in good times, but also in tougher times.
Low Correlation Funds
One could be forgiven for thinking that falling stock markets mean falling values for managed funds. This may be the case for many managed funds that have all or most of their assets invested in equities, but there are many managed funds out there that invest in other asset classes. These could include currencies, commodities or bonds.
For example, gold, and other precious metals such as platinum are seen as a safe store of wealth in trying times. In the post global financial crisis world, many national governments are saddled with huge debts, leading to constrained growth through lower spending, and potential reductions in the value of the national currency. Increases in the money supply also lead to risks of inflation. It is no wonder to therefore see gold trading close to multi year highs. An investor in a gold or precious metal linked managed fund can seek to profit from such a situation.
All currencies cannot fall at once, as their values are relative (i.e. as compared to the value of another currency). Canny investors can therefore seek to profit from currency movements irrespective of how equity markets are performing. Specialised currency linked managed funds aim to do just this.
Other managed funds invest in government bonds. As economies falter, interest rates are often reduced to try and stimulate economies. This is precisely the time that higher yielding government bonds will increase in value.
Keep Spare Cash Aside
Investing in tough times, when (equity linked) managed fund unit prices are down will yield better long term returns (provided your investments are sound enough to weather the tough times and recover). This is known as dollar cost averaging. If adding in extra funds at these times, obviously ensure that you yourself have a sufficient buffer for any difficulties that may arise from the tough times others are facing.
Vulture / Takeover Funds
Good companies can become vulnerable in trying times. Many companies found their access to capital severely impinged during the recent credit crisis, for example. Vulture / Takeover funds seek to buy stakes in companies at knock down prices, and then benefit from an eventual recovery. Support such funds, and you too can benefit.
Keep Up to Date With Changing Market Conditions
Good fund managers will adjust to changing market conditions – look for those seeking to exploit such changes for profit (for example, some astute investors invested in credit default swaps, correctly predicting that many companies would default on their debts, and profited when they did). Be sure to clearly understand the fund you plan to invest in, before allocating capital.
Share Trading can actually be beneficial to the investor in tough times, by allowing the investor to buy good quality companies at lower share prices. Managed funds that focus on investments not correlated to equity markets can also be beneficial.
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