Mutual Fund Question
 

During times of extreme volatility (like now), do mutual fund managers manipulate holdings to safe-haven alternatives as the market tumbles, then re-group to take advantage of recovery period? Or simply stay-the-course?

I often wonder if I shouldn't do so myself, but normally don't based on the thinking that their professional fund managers understand the market far better than I do.

I'd be inclined to move money into more aggressive funds early this week as the market has already taken a pounding. Nice opportunity to capitalize on the rebound.

Thoughts?

If you are sitting on cash, now may be the time to pounce, depending on your time horizon. It could be still on the way down, but it will eventually go back up.

Different fund managers play it differently. I think the best ones sit tight. Timing the market is almost always a loser. If you have some holdings that are still really high after a run up and want to take some off the top it makes sense. Selling in a free fall usually ends badly because you lock in your losses. Think of volatile markets as paper profits, paper losses with long term gains built in. If anything, this week looks like a good time to buy rather than sell.

Yes, many of them will move to a more conservative stance but it should be a subtle transition.
Nothing drastic.

Mutual funds have to stay within the style of investing that they advertise. They may move to more defensive holdings when times are tough, but they can't shift holdings quickly (they have too many shares to move quickly) and they can't change their investment mix beyond certain parameters. So no, mutual fund managers really can't move to safety and then regroup as you were wondering.

Almost no mutual fund beats the S&P 500 index after about 3-5 years. In my experience even professional mutual fund managers do not understand the market and they buy and sell to meet short term goals. You are better off putting your money in an S&P 500 index, a NASDQ index and a DOW ETF. I'm not aware of any true Dow indexes.

But now is certainly a better time to get into the market than last week. Where it goes from here, who knows.

High yeilding mutual funds during boom times are generally higher risk because they invest in small upcoming businesses, or fragile foriegn markets. When there is global financial problems like we currently have (Greece/China) these speculative funds sometimes see the worse returns. From a long term view, I suppose, historically, it makes sense to stay the course, because eventually, they will return higher, but it takes time and patience.

Lynch and Buffett sit tight during a correction.

Inside the Brain of an Investing Genius - GuruFocus.com

Hard to generalize. Too many managers are closet indexers. Bonuses are based on how they perform compared to the index they market toward and their competitors. Additionally most of the bonus comes from just beating it by a little bit and trying to really outperform leaves them open to disappoints. This means the holding don't change by a significant amount. The biggest decision is how much cash to hold and if there were shareholder redemptions.

Friday was option expiration and played a significant role in Friday's close and Monday's open.

why would they move to more conservative investments now? It is basically the same gamble every day weather the investments will go up or down. There is no new information currently to sudgest will continue to head down. Maybe now is a local minima or maybe not, i dont know but neither does anyone else with any statistical certaintly.

Now if they were great managers, they would have moved investments to something more conservative a week or so ago BEFORE things started heading down. you need future data to evaluate any changes.

I have been feeling like things would be going into correction territory or more for some time. The Greek problem wasn't that big of a thing in my mind, but when China started to hit the skids, I decided to do something. We all know the Chinese don't tell the truth and report things as being far better than they are. When the DOW hit 18.2K not too long ago, I decided to get into cash. Then it fluctuated down and worked its way back up to 18.1K, and at that time I pulled the trigger. Now I'm no really smart guy investor & it was probably just a lucky decision, but it seemed to me the writing was on the wall on several fronts. I can get back in at close to the same & come out close to the same if that's the way it works out, but I believe there are some rough times coming. I want to get back in, but I'm thinking it will be a while.

Normally in this environment, mutual fund managers will be looking for bargains and trying to upgrade their holdings. They are typically restricted in how much cash they can hold, like 5%.

Watch the recent Frontline on how Wall Street and mutual fund managers are killing you with hidden fees and compound interest.

"The Retirement Gamble"

FRONTLINE - Documentary films and thought-provoking journalism | PBS

Also:

http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/how-retirement-fees-cost-you/

You pay big $$$ in management fees to the mutual fund co. to manage your investments. There is no point in outguessing them by buying and selling in the short term. If you cannot stand the volatility of riding out the ups and downs over the long term then you should manage your own investments.(ie buy individual stocks and bonds). The mutual fund managers make decisions of when to buy and sell and that is why you pay them the big $$$.

We pay higher fees in Canada than the US. If for instance I sold a Canadian mutual fund to buy say an American one then I would be faced with 1)possible deferred sales charge if I sold it within a short period time of buying and 2) capital gains tax.

Looking at the performance of my individual stocks I have bought versus my mutual funds the latter have way outperformed the former. I don't mind paying management fees/commissions as long as the mutual fund performs well.

It is up to you and your investment personality of what you can handle. Timing of the market in terms of buying and selling is for experts. Most mutual funds I have owned I have kept for 5-15 years.

Cheers, Guy

My manager called today with a recommendation to add to my portfolio. I keep a cash fund in the account for just this purpose. So I added a "growth fund" today.

If you're holding 100 shares of something as an investment and it takes a 20% hit for a time and to be safe you exit out of it while it is 20% down then you have solidified your loss. If you hold it however and it rebounds then the loss was never realized even if you end up in the same place.

It's gonna depend on the fund's plan of course but by and large I would say no. When things are down it's time to buy more.

Remember, sell high, buy low. Unless you have lost confidence in an investment or need the money out for whatever reason selling low is the opposite of what you should do.