The Diminishing Experience of Equity Fund Investments

The realm of equity funds has undergone significant challenges that have left many investors disillusionedThe pervasive notion that a recovery from the losses incurred through investing in these funds may take considerable time reflects the gravity of the situationTo paint a clearer picture, let’s delve into some statistical data that uncovers the harsh reality faced by stakeholders.

From the beginning of 2021 to September 20 of the same year, a staggering analysis reveals that within the 507 standard equity funds, only a scant 37 managed to secure positive returns for their investors, which amounts to a mere 7.3%. The average return rate culminated in a disturbing -31.96%, with a median return echoing a disheartening -35.37%. This trend isn't isolatedOf the 1468 equity hybrid funds analyzed, a paltry 48 registered positive returns, constituting just 3.27%. Their average return was equally troublesome at -36.51%, and the median return mirrored a similar fate with -38.72%. Furthermore, the flexible allocation funds fared slightly better, but still disappointing, with only 350 out of 1865 funds recording profitability, accounting for less than 20%, and averaging a return of -22.85%. The median here also displayed a significant loss at -25.76%

High volatility and elevated risks associated with equity funds are widely acknowledgedHowever, it’s been almost four years since these funds have continually accumulated losses, leaving most investors in an intolerable situationMany have reached a point of absolute despair with their investments, opting to redeem their funds as soon as they experience even a slight reduction in lossesThis mass exodus has turned equity funds into a dominant bearish force in the stock market.

So, should investors continue allocating resources into equity funds? The substandard experience associated with such investments is intrinsically linked to the prevailing culture within fund management; many companies exhibit an overwhelming obsession with short-term gains, often at the expense of prudent risk management

Advertisements

This is vividly highlighted by the tendency to heavily invest in specific styles of stocks — a strategy that has often centered around popular sectors such as alcoholic beverages, renewable energy, pharmaceuticals, and semiconductors in recent years.

During times of prosperity for these sectors, the returns can indeed reach impressive highs, elevating fund managers to ‘rock star’ status, with a rush of new investments flooding any newly launched fundsYet, when the market takes a downturn and the performance of these sectors wanes, the managers find themselves in a precarious positionAn over-concentration in these stocks makes it increasingly difficult to pivot away, resulting in a scenario where they helplessly watch their funds’ net values plummet day by day.

As the market matures, fund companies must evolve as well; a critical paradigm shift is necessary where they begin to genuinely contemplate the investment experiences of their clientsThis includes minimizing risk and stabilizing volatility levels, ultimately aiming to yield tangible returns that investors can appreciate and rely upon.

Despite the dismal performances of equity funds in preceding years, from a financial management perspective, maintaining a reasonable allocation to these funds remains crucialConsider the following scenario: envision an individual who five years ago placed 1 million yuan into a bank, collecting interest at a maximum rate of 4.18%, translating to an annual interest income of approximately 41,800 yuanFast forward to today, and that same individual would find that interest rates have dwindled to 2.4%, yielding only about 24,000 yuan per year—over a 40% declineTo achieve the same interest income as before, they'd now need to deposit 1.74 million yuanFaced with such challenges, pursuing investments in higher-risk products becomes the only viable route to recoup lost gains.

This year has seen the advent of declining market interest rates, leading to a rapid ascendancy in bond prices, becoming a favored alternative for diverting savings

Advertisements

Advertisements

Advertisements

Advertisements