Recently, the market has been volatile. The new energy industry has begun to recover. The adjustment of liquor and medicine has been on the rise for a long time. How should we deal with frequent market turns? Today, let’s talk about how to invest in industry themed funds .
What is an industry-themed fund? In short, funds that focus on investing in a certain industry or theme are called thematic funds. For example, chip theme, medicine theme, consumption theme, military theme, liquor theme, etc.
Due to the relatively concentrated investment direction of themed funds, once on the right track, the corresponding industry themed funds can show strong explosive power in a short period of time and achieve high excess returns.
1) Choose a track
The first thing to do is to make a rough classification of the industry. An industry can also be divided into four stages at the time point of analysis (ie, industry life cycle model), but the names of these four stages are different. They are import stage – growth stage – maturity stage – decline stage.
High growth and high certainty, no better, but different revenue performance in different environments. When choosing industry-themed funds, you should try to avoid entry and recession periods.
In addition, industries that are highly cyclical should be avoided as much as possible. What industry is a strong cycle? For example, the development trend of coal, steel, agriculture and other industries will fluctuate in strength and weakness. For example, like coal, stocks have performed exceptionally poorly in previous years and have performed exceptionally well this year, and these industries can only make money in the short term. They are not suitable for novice configuration in the long run. Once you miss a strong cycle and buy at the highs, you are likely to be in for a long-term loss.
2) Active funds or passive index funds
There has always been a debate about choosing an active or passive fund. In fact, both active funds and passive funds have their own more suitable industries.
The income of industry-themed active funds mainly includes two parts: one is the growth of the industry itself, and the other is the active management ability of the fund manager . Fund managers use investment research and information channels to explore outstanding assets that are “undervalued or high-growth” in the short term, and achieve excess returns during market corrections.
Passive funds choose specific index constituents to invest in, try to replicate the performance of the index, and strive to achieve an investment return that is consistent with the performance of the underlying index, i.e., minimizing tracking error.
Therefore, if you choose an active fund, you expect more outsized returns. Which industries are more likely to generate excess returns.
If an industry has low concentration, individual stocks are scattered, and the industry structure is unstable, then a company can grow at any time. In this case, the greater the variance in the returns of individual stocks within the industry, the more excess returns are created through stock picking.
If an industry is highly concentrated, but its leaders are not stable enough, it can gain excess returns by capturing opportunities in the orbital segment; stock picking is also relatively applicable.
However, in an industry with high concentration, stable leadership, and strong performance (high monopoly position), it is difficult to obtain excess returns through stock picking, so yields are often mediocre.
Therefore, in growth industries, active funds are more likely to generate excess returns; in mature industries, the income gap between active funds and passive funds is relatively small.
3) When choosing an industry fund, in addition to paying attention to the performance of the fund, you should also pay attention to the turnover rate and redemption rate of the fund. The turnover rate and redemption rate are also very important.
A fund with a high turnover rate is not necessarily a bad fund, but a fund with frequent short-term transactions and chasing up and down must have a high turnover rate.
The drawdown rate can well reflect the risk control ability of the fund . If fund managers don’t pay attention to the control of withdrawals, they can easily get caught when you buy. It is worth noting that the industry-themed funds themselves fluctuate greatly, and it is normal for the highest withdrawal rate to be around 20%, but beyond this range, we should be careful.