John Husselbee

Chart Of The Month

July 2019

John Husselbee

July Chart of the Month

 

In July’s Chart Of The Month we take a look at liquidity. It has quickly become a trending topic post the suspension of Neil Woodford’s Equity Income fund – but the detail is getting lost and we are rapidly approaching ‘liquidity good, illiquidity bad’ territory.

 

A few years ago, I ran a fund of hedge funds vehicle and explained my selection process as a combination of performancetransparency and pricing/liquidity. The latter was particularly important for hedge funds, many of which were only offering monthly dealing at that point, but what recent events have laid bare very clearly is that liquidity should be part of the selection criteria for any fund, whatever the structure or asset class.

 

I favour funds that sit in the sweet spot of the above Venn diagram, ticking our box when it comes to performance and process but also recognising that transparency and liquidity can have a considerable impact on returns. Illiquidity is not automatically the villain - as long as investors can define and measure it properly and factor that into their risk/reward calculations.

 

Liquidity can be as much of a trade off as any other risk when it comes to investing, and, ultimately, treating funds like ATMs that have to return your money within seconds will lead to diminishing returns.

 

For a comprehensive list of common financial words and terms, see our glossary here.

 

Key Risks & Disclaimer

Please remember that past performance is not a guide to future performance and the value of an investment and any income generated from them can fall as well as rise and is not guaranteed, therefore you may not get back the amount originally invested and potentially risk total loss of capital.

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Monday, July 8, 2019, 1:43 PM