Saturday, September 20, 2008
Weather Funds
| All-weather Funds Quite simply, all-weather funds are those that do well in both bear and bull markets. They are the best for those investors seeking stability and reasonably high returns. Mutual Shares is one of the most famous all-weather funds. You may be wondering how certain funds can do well in both types of markets. Many all-weather funds invest in undervalued securities, or companies who are currently going through tough times. Generally, these funds have low price to earning (P/E) ratios. These companies' prices usually don't sink because they are already fairly low. Another way that all-weather funds maintain balance is investing in stocks with high dividends. These companies' prices also do not fall that much when the market goes sour. Yet another way that all-weather funds are successful is that they diversify beyond just stocks. These types of funds are called balanced funds. As a result, all-weather funds have the lowest beta values of all mutual funds. This is how diversity provides stability. Fair-weather Funds It may seem strange why anyone would want to invest in anything other than all-weather funds. One of the reasons is that all-weather funds do not yield the highest returns. If you have the courage to hold onto fair-weather funds, you could make more money. This is again a classic case of risk vs. reward. Many fair-weather funds tend to stay fully invested in stocks and invest in small-company stocks, which are more volatile than blue-chip stocks. Fair-weather funds have higher beta values than all-weather funds, as well. Foul-weather Funds Foul-weather funds are similar to all-weather funds in that they both tend not to sink very low during bear markets. There are basically two types of foul-weather funds: very conservative funds and very risky funds. The conservative funds, as you would expect, do not rise far during bull markets. A prime example of a foul-weather mutual fund is Dreyfus Strategic Aggressive. Unseasonable Funds Unseasonable funds can basically be summed up in one word: losers. These funds perform horribly year after year. The reason? The causes are quite complex and intertwined, but one of the most important of these reasons is poor management. Unseasonable funds, however, do serve one very useful purpose for investors: their track records show that past performance is a very real and reliable indication of how a fund will do. |
posted by hearthy at 8:13 PM
