Sunday, October 14, 2012

Unit trust investing cycle turns

Studies show that various asset classes perform best at different times, and these tend to go in cycles: Mining shares may be dogs now, especially given all the strike actions and drop in outputs. But sometime the cycle will turn, and mining shares will recover. On the other hand, retailers are trading in orbits, with PE multiples north of 20. At some point in time they will fall and revert to the mean.

The same applies to unit trust investing. I have kept a copy of the 25 April 2009 Saturday Star Personal Finance. It was at the height of the effect of the 2008 financial crisis. Recently I read with interest that, at that time, the worst performing unit trust sectors over three years were foreign equity, domestic equity small companies and domestic equity financial. Now three years later, these sectors have become probably some of the best performing unit trusts over last 12 months.

This illustrates one point: Don't invest by looking at the rear view mirror. Also the worst performing sectors may become the best performing sectors in the fullness of time. Similarly, today's best performing sectors migh be tomorrow's worst performing sectors.

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