The Hidden Dangers of Unitised Funds

When you look at the chart of the FTSE 100 index you have to question the wisdom of the ‘Buy and Hold’ philosophy espoused by the banks and insurance companies.

There really is no advantage to having bought shares or invested into insurance company equity funds or unit trusts and watch their value go up and down like the big dipper only to end up, when you need the money, at the same or lower value than when you went in.

Oh yes, we know all about the supposed virtues of pound cost averaging and of dividend income but they tend to be put about by those organisations which stand to benefit from you being persuaded to keep your money invested in their funds.

In our view – and in our experience – there is NO alternative to active management. Identifying the dominant trend in the stock market and of an individual share and buying or selling in sympathy with it is a far superior way to accumulate wealth than simply paying an insurance or unit trust company to hold your money for you.

And, using the ShareHunter Alerts service, to build increasing wealth only requires 15 to 20 minutes a day (and, even then, not even every day) and, importantly, it puts you in full control of your own money.

Listed below are three common practices that, in our view, are specifically loaded in favour of the supplier and against the best interests of you, the investor. They are best avoided -

1 – ASSET ALLOCATION - This is practised by virtually the whole of the investment community. In reality it is poor advice because, when severe bear markets are experienced, virtually all areas collapse. There are very few exceptions to this so simply spreading risk across different sectors is a futile exercise. A decision to exit from a severe bear stock market is vital in order to protect capital. So why do so many investment managements and advisors recommend asset allocation claiming that it reduces risk? The fact is they have little or no choice as the size of their funds excludes the ditching of assets to any significant degree so it doesn’t work.

2 – LARGE PENSION, INSURANCE and UNIT TRUST FUNDS – As soon as an investor arranges to put money into one of these funds it is, to all intents and purposes, ensnared and trapped in whatever investment cycle then follows. It therefore falls to the investor to personally extract himself from such holdings if he can. Most investors need assistance to make such difficult decisions. This will not be available from the investment managers themselves whose aim is to grow the funds under their management and not to give advice which would prejudice their lucrative management fees.

3 – MORATORIUMS - It is far from unusual for fund managers to hold back funds for fairly lengthy periods when there is a run, or even just a danger of a run, on their fund. This is always at the time when it is best to exit that particular market. By the time the moratorium expires the damage to the value of the holding will have been done. And, of course, the investor has been refused his request for the return of his money

As evidence increases of a growing weakness materializing in the stock market the best action has always been to withdraw from funds being managed by institutions (banks, insurance companies, unit trusts etc) in large funds. With the current growing evidence of a stock markets’ crash in the offing the likelihood of an extreme reaction grows bigger with every day as does the danger of moratoriums being placed on withdrawal of one’s money.