Funds That Perform Well When Stocks Don't

Have a look at Amundi World Volatility during the bear market between Nov 07 - Mar 09. It achieved 24.1% in USD terms. In SGD terms, the performance was even more fantastic because during the period, USD appreciated from 1.34 to 1.58 : 18%. Total returns in SGD terms is around 24 + 18 = 42%! This is as good as shorting the stock market!

My next post will discuss about why you should hold on to good unit trusts, unless you can find a stock that can outperform the unit trusts. Unit trusts are useful because of the following reasons:

1. Diversification in the fastest moving markets, e.g. Brazil, which shot up by 8X between 2002 - 2007! You can't get that by investing in most blue chip stocks in Singapore!

2. Safer way to achieve capital gains without fear of bankruptcy. With stocks, you worry about whether the company will go bust. But unit trusts are diversified among more than 50 stocks so there is little worry of losing everything.

3. Funds that are well managed can outperform their benchmarks. Often, investors tout ETFs as better investment tools than unit trusts. But there are examples of funds that outperform ETFs: Templeton Asian Growth outperforms consistently the MSCI Asia ex Japan. Aberdeen Global Emerging Market outperforms the MSCI Emerging Market for the last 5 years.

4. ETFs have counter party risks. E.g. if Barclays, which manages iShares, goes bust, so does your ETF. But the assets within unit trusts belong to investors. The fund manager may go bust, but the underlying stocks belong to investors. The trustee ensures that the assets are ring-fenced against any financial loss of the fund manager.