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The Cunning Mr Market

Written By: Tiang Chuan on September 23, 2011 No Comment

The past few weeks must have been really fun for Mr Market. Investors have been placed onto Battlestar Galactica and the ride has been going on for a few weeks. Below is a just a few observations of how things have gone wrong for many. Note: I am not trying to say that any investments mentioned below are bad. I am just illustrating how unpredictable the market is.

  1. A big fund house ran a huge advertisement for a new fund by placing the newspaper into a sealed wrapper at the end of July. Imagine a wrapper big enough to hold a set of newspaper! And we know what happened starting in August…
  2. A global bond fund is undergoing a EGM to close the fund. The fund had underperformed relative to other bond funds due to its un-hedged holdings in US Treasuries and other developed nations’ sovereign bonds. Now that it is closing, it has outperformed precisely due to the same reason it underperformed previously.
  3. Not too long ago, many investors were concerned about the interest rate risk due to the high inflation. Expectations were that central banks will hike rates to battle inflation. So short duration funds became popular some bond funds also adjusted the holdings to reduce duration. Now, long duration are outperforming due to the extended low interest rate decision taken by the FED and Operation Twist whereby short dated bonds will be issue and long dated ones bought to keep long term interest rate low. Inflation outlook have also eased with the uncertain economic outlook. Commodities prices are also falling.
  4. USD was a dirty word not too long ago. SGD-hedged became vogue and many fund houses launched SGD-hedged version of their funds. USD has spiked recently and investors who have bought the SGD-hedged funds are suffering a double whammy due to the falling prices but is not benefiting from the depreciating SGD due to the hedging.
  5. Gold, which was called the ‘ultimate bubble’ by George Soros, has been really popular and is also dubbed a safe haven. Now with the appreciating USD, gold prices have been falling. The gold price at the point of writing is around USD1,680+. Coupled with the popular SGD-hedged funds, some investors are just suffering the drop in price without the cushion of the appreciating USD.

I have seen may instances of investors and advisers going after funds with good recent performance. The investments are not considered in a portfolio perspective. Now with the market in turmoil, there may not be allocations that help cushion the impact and offer the dry powder for rebalancing.

Never mess with Mr Market.


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