All about investment funds

Investing directly in the stock market, whether it be stocks, bonds or even derivatives, requires some experience and the ability to keep a cool head in the face of external events that can destabilize the markets for a certain period of time, more or less long. In an environment where crises are multiplying and when the traditional benchmarks on which investors have calculated their rates for at least 10 years are collapsing – in other words, low interest rates, strong economic growth and no inflation – investment funds have assets to move forward. .

Diversification that spreads risk better

Main? They allow savers to, if not avoid, then at least mitigate stock market shocks by making them obligated—at least for funds subject to Ucits rules—to diversify their holdings. Thus, the diversification policy imposed on traditional fund asset managers allows for a better distribution of risk.

At the same time, a very vast universe opens up before the keeper, in which it can be difficult to make a choice. As long as your banker offers you access to all products, your own and those of competitors… There are about 30,000 funds for sale in Europe.

Some of these funds specialize in asset classes (stocks of companies with different capitalization, government or corporate bonds, etc.), some prefer to play in specific sectors of the economy (industrial, energy, pharmaceuticals or trade), others, finally, prefer through topics such as water or population aging.

So many approaches to divide and cross.

Improved investor protection

The investor is not alone in the face of this multitude.

European rules oblige professionals to provide their clients with full documentation, which must include, in particular, the strategy of the fund, its level of risk, the recommended investment period, costs and its past results. A read that may be off-putting, but nonetheless useful and recommended.

For added protection, fund dealers should divide their clientele into three profiles: cautious, level-headed, and dynamic. The first profile flows naturally. “Balanced” investors want to take advantage of positive market developments without taking on all the risk. Including the fact that their capital is melting. The stock is swept away by “dynamics”.

The performance of the fund, of course, depends on events in the stock markets. And, obviously, the performance remains very different between all existing strategies and even between funds that specialize in one or another of these so-called strategies.

In its latest sector review, the CSSF noted that all equity fund categories performed negatively in May last year. While Japanese and Latin American equities posted positive returns, those returns were wiped out by currency effects against the euro. The conclusion was similar for bond funds.

Good advice

In an environment of sluggish growth and a surge in inflation, some categories are doing better, and we can think of – and this is not an exhaustive list – funds that specialize in long-term macroeconomic trends, such as old age, renewable energy, or even water management. Funds using the so-called “price power” strategy, including investing in companies with sufficient competitive advantages to be able to impose their prices on their clients, are currently very popular due to their ability to resist inflation.

We wouldn’t be complete about investment funds if we didn’t talk about alternative funds.

The latter are not intended to be addressed to “individual” investors. They are aimed at “knowledgeable” or “professional” investors. These funds invest in private equity, real estate, private debt or infrastructure. A great many assets are inherently illiquid and which immobilize the initial rate for a certain number of years.

Thanks to their success, opportunities are opening up for their offer to a retail clientele. For a long time, their attraction was that they outperformed traditional funds in an environment of abundant liquidity and low interest rates. With a reversal of monetary policy, a correction cannot be ruled out.

Next Tuesday: life insurance.