Buy or sell more? Strategies for investment funds in losses by Ukraine

The war in Ukraine dyes the returns of investment funds red, especially those of European equities. Given this situation, it is not surprising that the participant wonders what he can do. And it is that no one is prepared to suffer heavy losses on their investments or lose capital, even in the short term.

It is advisable to act patiently and analyze the portfolio that the investor has. These are the two recommendations given by José María Luna, partner and founder of Luna and Sevilla Property Advisors. Why? Because it is not the same that the fund falls by 20 percent if it represents 1 percent of the portfolio, that it falls by 10 percent, but has more weight “because the impact will be greater,” explains the expert.

For his part, Carlos Farrás, managing partner and CIO of DPM Finanzas, also adds that the time horizon of the portfolio must be taken into account and not be influenced by these events because “geopolitical events are usually short-lived and tend to normalize.”

Victoria Torre, head of investment fund selection at Singular Bank, is of the same opinion.

“If the investor has a risky profile, this implies that his portfolio has been prepared with a long-term time horizon and with a starting budget for assuming possible losses. And, therefore, that portfolio should not, a priori, be disposed of when the losses arrive, but respect the time horizon”.

Once the portfolio has been analyzed, if the fund has exposure to the Russian stock market “the best thing to do is sell it” (when possible) because there is a lot of uncertainty about Russia’s position at the international level after the conflict.

Liquidity? Yes and no

At the beginning of the year, the European stock market was the most attractive for experts, as a result of the still attractive valuations and the potential to rise. However, the fact that the war is taking place on the continent and Russia’s high energy dependence makes experts more favorable to reducing weight.

How would it be done? Luna believes that it is necessary to take advantage of rebounds, such as the one that led the IBEX 35 to record a rise of almost 5 percent to undo positions.

The next question would be, where to go? Luna believes that part of that liquidity could be put in US equities, less affected and with a totally different macro scenario: a stronger economy, with a low unemployment rate, and with a scenario of monetary normalization with hardly any changes.

On the other hand, increasing the weight of liquidity in the portfolio as a result of this uncertainty would allow taking advantage of the opportunities that arise. Where can they come from? For example, in raw materials, where inventories of coffee and aluminum are at a minimum.

However, Farrás believes that liquidity can be a trap “because the forecast is for inflation in Europe to exceed 7 percent and in the United States, 9 percent”, which means that staying in liquidity would ultimately cause a fall of available savings.

Buy or hold in investment funds

When asked if it is possible to increase exposures, Farrás does see it as an option. “You have to buy when the first shots are fired,” explains Farrás because this is the time to buy securities at a good price and sell them when an agreement has already been reached.

In this sense, he gives us an example of the investment in gold, which was added to the portfolio in 2017 and has begun to be sold now, when it is already close to $2,000 an ounce driven by the search for safe-haven values.

In this sense, Torre insists that “selling in moments of panic is not advisable.”

“Market falls are often concentrated in a few sessions, and when we want to get out, our investment has already suffered that depreciation. Unforeseen events cannot be dealt with, which are also the ones that generally cause the greatest falls. in the markets”.

In that sense, Luna believes that the investment fund portfolio must be reconsidered in the sense of what securities can do so at the present time and if I have them. “For example, even if technology is still expensive, I think it will still be an option because it will do very well in the future.”

Farrás, on the other hand, believes that it is better to make a change in strategy, betting less on growth stocks that can make it worse in an environment of rising interest rates.

On the other hand, Torre does see it as possible “to increase positions at times of sudden falls, but always keeping in mind that it is a strategy that has its risks.”

He also adds that “another alternative could be to make periodic contributions to our investment because in this way we enter at different moments in time and avoid suddenly entering at a time that may not be optimal”.

Don’t Forget Mutual Fund Tax Planning

Although investment funds can be transferred free of charge, on this occasion, if the investor decides to change the category, the best thing to do is sell it. And it is that the losses obtained will be compensated with the capital gains in the following four years.

With the only caveat, reminds Farrás, that you will not be able to buy the same fund or share until a minimum of two months have passed.