There is a saying in the fund circle that the maximum retracement record is to be broken, and it will be broken sooner or later . This kind of thing happens every year, and this year is particularly violent. No matter whether it is public offering or private placement, no matter the scale, it may not escape this fate.
Under the circumstances, both professional investors and retail investors have suffered a drawdown of dozens of points. When faced with this phenomenon, investors really can’t do it anymore. Isn’t buying a fund just like a professional doing professional things and saving snacks? It’s not that the manager’s retracement control ability and earning ability are valued. But the reality is that many fund investors bought a loneliness this year, not only could not make money, but also lost to the knee.
So is the maximum drawdown of a core indicator that can never be avoided by buying funds useful? In the end how to look at the decision-making value of the actual fund selection?
What are the ways to control the drawdown in private equity?
The maximum drawdown is a very good indicator of the risk control ability, and the feedback is the fund manager’s ability to grasp the risk. However, it is not comprehensive to measure the pros and cons of a product only by the maximum drawdown of a fund. The maximum drawdown of a fund is affected by the experienced market environment and the investment philosophy of the fund manager.
Secondly, the ways in which private equity controls the drawdown are very limited. There are some extreme private placements that do not even control the drawdown, relying on stock selection and long-term transitional drawdowns. There are mainly three traditional private equity drawdowns.
1. Decrease the position ; for example, when the net value of the product is withdrawn by more than X%, it will give an early warning and adjust the position according to market conditions; if the withdrawal of the product’s net value exceeds X%, the position will be fully controlled. This is the method used by many value-oriented or growth-oriented private equity to control risks, and it is also the most direct and effective method.
2. Timing; when it comes to timing, many people think of “buy low and sell high”, “buy the bottom and escape the top”, which can also be understood in this way, but from the rearview mirror: the bottom is cut from the meat, not the bottom. copied out. Many investment experts focus on the target itself rather than the market itself. For some of the more successful private placements in the market, such as Danshuiquan, Jinglin chooses not to choose the timing, whether it is a contrarian investment, a good company or a good business, they all focus on the cost-effectiveness of the target and make long-term investments.
3. Hedging; the common hedging is the hedging of stock index futures. Build a long portfolio and short the stock index when things go bad. Continued hedging of stock index futures becomes market neutral, while selective hedging is somewhat similar to timing. After the market neutrally hedges the beta, the gains are lost. And beta returns may even account for the bulk of equity investments. So hedging operation is not so simple.
Another way of hedging is long and short positions. It means to go long on some stocks and short on some stocks. The performance is to be neutral to the market, but in fact it is to enlarge the stock selection ability. The annual rate of return of the Barclays Multi-Short Fund Index varies between -15% and 50%, which is much larger than other types of funds. Furthermore, due to the current shortage of derivatives, these hedging methods are quite constrained. Even if they are fully released, it is difficult to operate hedging to reduce risks while maintaining returns.
What does it make sense to do when the fund you invest in has the biggest drawdown?
First of all, let’s see whether the drawdown is a fund style drift. As mentioned earlier, the large drawdown in the net value of private equity funds cannot be entirely attributed to problems with the risk control system. It should be viewed in combination with the market environment at that time and the investment philosophy of fund managers. . When encountering extreme market conditions, foundations that select individual stocks are at a disadvantage. They are not as keenly aware of market sentiment as trend-oriented fund managers and carry out corresponding operations, so that their net worth will temporarily drop sharply.
But aside from the beta factor of the market, we need to analyze whether the fund managers who advertise the selected stocks have drifted in style under extreme market conditions and retracement pressure, and their words and deeds are inconsistent, thus causing the fund to further retreat or miss the originally selected stocks. recovery after the rally. Take a fund as an example: Take RB as an example, their investment logic is a combination of top-down and bottom-up, and at the same time, the entire industry is balanced in allocation, and they do not do single-segment pressure, which is reflected in their positions in chips and new energy. , consumption, Internet, etc.
If investors recognize their investment style, then see if the 15% retracement is in line with his position distribution. For example, Q1 positions are mainly in electric vehicles, chips, chemicals, and military industries. Take the chip ETF as an example, which has fallen by about 30% this year. Looking at the fund’s retracement range is within the expected range, or even relatively small, it is correct, that is, the style and philosophy have not drifted, and it is indeed mainly the result of market factors.
On the contrary, if it is not right, you need to carefully look at whether the selected fund finds style drift, or the fund manager’s knowledge and actions are inconsistent, then you need to consider whether to redeem.
Secondly, look at the rebound ability; after the oversold, whether the stock selected by the fund manager is killed by mistake or the fundamentals is poor determines the future fate of the fund. Although for private equity funds that select individual stocks, a large net worth retracement is a flaw, but it is not a fatal injury. The real fatal injury is to bear the big drawdown of the selected stocks, but not enjoy the big gains of the selected stocks. Volatility is not a risk, picking the wrong stock is the real risk.
If the fund held has fallen sharply for a period of time, the market has returned, but the net value of the fund remains unchanged. After observing for a period of time, it is found that there is still no improvement. It missed a wave of rebounding market, and it is also necessary to examine whether the fund’s stock selection ability is reliable. For funds that select individual stocks, stock picking ability is everything.
Risk warning: This article is only a personal opinion and does not constitute any investment advice.
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