Let's face the facts. Who out there is really eager to invest money these days? Let's review 2002 and you'll start to understand why.
Precious metals wins the race
Gold and precious metals have gained a lot of media publicity and interest from investors. All you have to do is look at the performance figures and you will see why.
|1 yr||2 yr||3 yr||5 yr|
|Average Precious Metals Fund||78.8%||48.6%||24.3%||7.8%|
|TSX Gold & Precious Metals Index||27.2%||22.6%||10.6%||1.0%|
Who wouldn't be interested in these returns especially when the average mutual fund lost 11.5% in 2002? After precious metals you will find global bonds with a 15.6% return last year. The rest of the winners were Income Trusts at 7.4%, Canadian Bonds (6.0%), Real Estate (3.2%) and finally money markets (1.5%). Pretty much everything else lost money last year. In fact, if you look 4191 mutual funds to choose from, only 925 funds made money. That is a dismal 22.1% of all funds with positive returns. If we look back at the mutual fund industry over the last 15 years, you will find that there were more losers than winners in only three calendar years (2002, 2001, and 1994).
|# of funds with positive returns||925||1277||1728||1612||1107||1191||1076||940||356||714||542||550||218||476||358|
|# of funds with negative returns||3266||2011||873||360||447||129||30||53||457||7||100||24||314||6||30|
The year 2002 was a record year for the mutual fund industry with 3266 mutual funds that lost money.
Record setting year
Last year was quite a momentous year but not for reasons we like to hear.
- Of the 23 world markets measured by the MSCI, every single company was negative for 2002. Globalization has removed borders and no market in the world was immune to the bear.
- Thirteen of these countries experienced three negative years consecutively. This is a pretty rare phenomenon. In fact, from 1950 to 2002, only two countries could say they went through three consecutive negative years – Belgium and Japan. Now an astounding 13 markets will be added to the list (Austria, Belgium, Finland, Germany, Greece, Hong Kong, Japan, Portugal, Singapore, Spain, Sweden, UK and USA).
- We experienced the worst three-month period since the 1930s and September was the worst September since 1937.
- We are now experiencing the worst bear market in post war history and the second worst bear market in all time history. The worst bear market happened in 1929.
“Investors do the wrong things at the wrong time”
Amidst all this bad news, Nick Murray, author of Simple Wealth Inevitable Wealth, said it best when he said, “Investors do the wrong things at the wrong time”The year 2002 was the third year of consecutive loss for the markets. In turn, it was also the third winning year for bonds. Interestingly, the most popular class of mutual funds (according to IFIC) next to Dividend and Income Trust Funds were Bond Funds. On the other hand, the only category in net redemptions for the 2002-year was Global Equities.
Yet three years ago, instead of buying bonds, investors were pouring money into equity mutual funds to the tune of over $34 billion. Most of this was investing onto the hottest sector at the time – technology.
While most investors will chase performance and believe that bonds will continue to outperform markets, the reality is that everything goes in cycles and this downward cycle has gone too far from both a fundamental perspective as well as a statistical perspective.
Focus on the long term
There is no question that there are lots of concerns from the media regarding the short-term issues in the world. War, terrorism and pessimism continue to lower investor confidence. However, remember that everything does go in cycles and while the short-term is really random, fundamentals, statistics and cycles point to a great future for investors who can step up and find the courage to invest into the markets.