Good negative returns funds

It is with warmth and sincere gratitude from all the BFM team, that we thank you for your ongoing support and we wish you a Happy and Fulfilling New Year with plenty of success for 2016.
 
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To help you make better financial decisions this year, you can also find more than 500 educational charts/articles/videos in our new blog and our social media sites:
 
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The BFM Team


Why Investing in a Fund with Negative Performance and Higher Volatility/Risk Could Be a Good Idea!



At BFM, we not only add value to our clients by helping them choose better funds with lower expenses and tax treatment, but also by improving their portfolio construction.
 
Sometimes, when we build portfolios for our clients, we recommend adding a new fund for diversification purposes. In the two examples below, we show that investing in a fund with a negative performance and higher risk/volatility could benefit the portfolio by increasing the performance and reducing the risk/volatility!
 

Example 1
 
Let's assume an old portfolio with Fund A (60% of the portfolio) and Fund B (40% of the portfolio) that have a 0.2% and 3.7% performance respectively over a 3-year period.
 
As you can see, by adding Fund C (10% of the portfolio) with a negative performance (-3.5%), the new portfolio has now a 0.9% better performance (from 1.6% to 2.5%)!







Example 2
 

When adding a new (more volatile / riskier) Fund B in a portfolio, the new portfolio volatility is now 8.9%... lower than the volatility of each Fund A and Fund B of 10% and 20%.
 



The volatility is lower because the new Fund B returns are uncorrelated.
 
 

Here are more details about the calculation.   

Conclusion: Remember to Check the Correlations of the Assets in Your Portfolios

This newsletter was first published in January of 2016

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