In 2022, a significant number of investment funds recorded losses, marking one of the worst starts to the century for the sector. According to research by Trustnet, 90% of funds experienced declines in value, with some registering losses close to a third of their assets. This negative trend was influenced by a mix of rising inflation, geopolitical tensions, and pressures on central banks to raise interest rates, which damaged the growth stocks that had supported the markets in previous years.
Furthermore, a study published on Advisor Perspectives highlights how mutual funds tend to fail in outperforming their benchmarks over the long term. Analyzing nearly 8,000 U.S. equity funds over the period from 1991 to 2020, it emerged that the percentage of funds that outperformed market benchmarks decreases as the considered time horizon increases. In particular, over 20% of the funds failed to surpass the one-month Treasury Bill yield during the sampling period, highlighting the importance of survivorship bias in the data. Only a small minority of funds managed to generate significantly higher compounded returns compared to those of the SPY benchmark (SPDR S&P 500 ETF Trust).
Dialogue on Failed Investment Funds and Contemporary Art
Dialogue on Failed Investment Funds: Is There an Alternative?
Roberto: Hi Adam, I've heard about some investment funds that have failed in recent years. Can you tell me which ones they are and why they failed?
Adam Smith: Of course, Roberto. Here are a few examples of mutual investment funds that have failed:
Lehman Brothers Aggregate Bond Fund: This fund failed in 2008 due to the global financial crisis. The fund had heavily invested in bond securities that lost value during the crisis.
The Reserve Primary Fund: This fund failed in 2008 due to the bond market collapse. The fund had invested in short-term bond securities that became illiquid during the crisis.
Third Avenue Focused Credit Fund: This fund failed in 2015 due to a high concentration of investments in high-yield bonds that became insolvent.
Newton Absolute Return Fund: This fund failed in 2016 due to a series of poor investment decisions.
Neuberger Berman Absolute Return Fund: This fund failed in 2019 due to fraud by some of the fund managers.
Roberto: Wow, that's incredible! What are the consequences of a mutual investment fund's failure?
Adam Smith: The failure of a mutual investment fund can be a costly event for investors. They may lose all or part of their investment and might have to pay high fees and expenses.
Roberto: Is there anything investors can do to protect themselves from the failure of a mutual investment fund?
Adam Smith: Of course, Roberto. Here are some tips:
Diversify your portfolio. Don't invest all your money in a single mutual investment fund.
Invest for the long term. Financial markets can be volatile in the short term, but they tend to rise in the long term.
Regularly check your investments. Make sure your investments are still aligned with your goals and risk profile.
Read the fund prospectus carefully. The prospectus provides important information about the fund, such as its investment objectives, its risks, and its expenses.
Roberto: Thanks for the advice! I think I will talk to a financial advisor for personalized advice on my investments.
Adam Smith: That's a great idea! A financial advisor can help you choose the right mutual investment funds for you and develop an investment plan that meets your needs.
Roberto: Speaking of diversification, I read that investing in contemporary art by masters is a way to protect against stock market crashes. Is that true?
Adam Smith: Yes, it's true that contemporary art by masters has historically performed well and has never seen a market downturn. This is because art is a safe haven asset that tends to increase in value over time, especially in times of economic turbulence.
Roberto: That's interesting! How can I start diversifying my portfolio with contemporary art?
Adam Smith: There are several ways. You could:
Purchase artwork: You can buy artwork from galleries, auctions, or online.
Invest in an art fund: There are several art funds that invest in contemporary artwork.
Open an account with an art advisor: An art advisor can help you find the right artworks for your investment.
Roberto: Thanks for all this information! I will definitely do some research to learn more about this type of investment.
Adam Smith: You're welcome! I'm glad I could help.
Roberto: By the way, do you have any recommendations for a reliable art advisor?
Adam Smith: Sure. You might try Art Capital Invest. They are an art consulting company with extensive experience in the contemporary art market.
Roberto: Thank you so much, Adam! I'll take a look at their website.
Adam Smith: You're welcome! Don't hesitate to contact me if you have more questions.