Why Half of Bulgarian Mutual Funds Provided Negative Return in the Last Year?

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Why Half of Bulgarian Mutual Funds Provided Negative Return in the Last Year?

Profit.bg's article “Just Seven Bulgarian Funds Bring Return Higher Than 10% in The Past 12 Months”, published yesterday, reveals that half of the mutual funds that have been operating in Bulgaria for over a year provided negative return in the last 12 months. The results provoked Profit.bg's team to find the reason for this negative trend.

The unfavorable global market environment has affected negatively the Bulgarian capital market. The collective investment schemes were in an unfavorable condition, which required a restructuring of the portfolios and shifting the financial resources to fixed-income assets, Angel Hadjiyski, broker at Capman, said.

When the market undergoes a correction not all stocks move in the same direction, according to Hadjiyski. As a result there is a difference in the return of the funds provided since the beginning of the year, Hadjiyski said. It should be taken into consideration that the recommended term for investments in collective investment schemes stands at 3 to 5 years, depending on their profile, according to Hadjiyski.

Each mutual fund should have a base for comparison, which should enable its performance to be analyzed, according to Razvigor Hristov, investment consultant at KD Securities.

In the case of high-risk funds investing in Bulgarian stocks this could be the SOFIX blue-chip index. The index has shed more than 15% over the last 12 months, Hristov said.

Mutual funds in Bulgaria still have a short history as most of the funds have been operating for a year or two, Hristov added. A mutual fund should have a history of 5-6 years in order to be determined whether its management was good, Hristov summed up.

The trend on the Bulgarian Stock Exchange was negative in nine of the 12 months covered by the statistical data used in the article, Dimitar Georgiev, broker at Elana Trading, said. We are witnessing an unknown longer downward trend on BSE and it is normal for part of the funds to provide negative return or their return to be far worse that the results booked for a previous period, according to Georgiev.

Against the backdrop of the overall financial crisis, Bulgarian fund managers did good and provided descent return, according to Georgiev. In such an unfavorable situation a return above 0% is praiseworthy, Georgiev added.

Mutual funds' risk tolerance was unreasonably high in the fall of 2007, when the Bulgarian capital market peaked. This led to the fact that there was a boom of new capital entering the market in the beginning of the downward trend, Georgiev said.

We are witnessing exactly the opposite thing at present as the risk tolerance is at a very low level and the willingness for investments in mutual fund is limited. The return of the mutual funds will not depend only on the market conditions in the future but on the diversification of their portfolios as well, Georgiev was adamant.

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