Buying Unloved Funds Could Prove Lucrative

Much like finding a perfect partner, there are hidden investment gems everywhere: you just need to know where to look

Valerio Baselli 14 February, 2019 | 2:27PM
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Valentine's Day Roses

Valentine’s Day is the day to celebrate love, but what about the unloved? Much like finding a perfect partner, there are hidden gems everywhere: you just need to know where to look. The same logic can be applied to investments, specifically to those funds that have not been “loved” by investors for a while.

On the surface, "unloved" funds may seem to be unloved for a reason: a period of underperformance, an out-of-favour investment strategy, challenges to the broader sector, or more appealing options elsewhere. But taking a contrarian approach to fund selection can also yield dividends. Fund flow patterns over the past 25 years tell us that investors tend to buy funds that have performed well recently and sell what hasn't. This pattern can become self-reinforcing. Strong flows drive up stock prices, attracting more return-chasing investors and bidding up prices further.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
M&G Global Dividend GBP R Acc267.57 GBP1.07Rating
MFS Meridian European Research W1 EUR20.48 EUR0.35Rating
Threadneedle UK Eq Inc Z Acc GBP2.12 GBP-0.07Rating
Uni-Global Equities Europe AA-EUR107.76 EUR0.37Rating
Veritas Global Equity Income C GBP Acc311.63 GBP0.24Rating

About Author

Valerio Baselli

Valerio Baselli  is an Editor at Morningstar Italy.