"Mirror Funds" eating a piece of YOUR cake (without you knowing it).

It is incredibly fun to ride the "bull" out of its barn, right up there to the highest reaches of the new market (all you need is a solid exit strategy, which will be the subject of a future post).
When the market goes up everybody should be in profit, but by analyzing the performances of many portfolios (coming from new clients in need for help) I noticed that an overwhelming amount of people has been receiving very low growth (3% or less per year, and by extension, something on the line of 6% in two years or 9% in 3 years, and so on, ) on their savings.

I know what you may be thinking, 9% is not that bad, but it is in the bright days that performance has to be accumulated to make up for the rainy ones and quite frankly, 9% in 3 years during a Bull market is nothing short of depressing (not to mention dangerous).
If a market correction takes place it will eat out that 9% and get something else for sports, leaving you with a 4 year period at zero growth or (gasp) with losses.

The reasons are varied, but in this post I want to concentrate on the ill effects of Mirror Funds.

So what in the world is a Mirror Fund you may ask? A mirror Fund is a type of Mutual Fund run by an Insurance Company that aims to replicate the performance of established investment funds, and the worst part is, you may be having some (or all as it happens with the portfolio I am examining right now) in your portfolio without knowing anything about it (!).

Aside from the additional administration costs of running a copycat version of a fund (and possible additional charges which stay with the company issuing the copycat) mirror funds generally hold a portion of their value in cash to aid liquidity which leads to severe performance penalties (as the cash element in the mirror fund doesn't produce any growth).

What Kind of difference are we talking about?

Here are a couple of Examples: JP Morgan pacific Securities 3 years performance: 6%
                                            JP Morgan Pacific S. Mirror 3 years performance: 1.89%

                                           Templeton Global Total Return Bond, 1 year performance: 4.97%
                                           Templeton Global Total Return Bond 1year perform. Mirror:   0%

As a part of a varied portfolio where high runners can contribute up to 60% in growth, the two funds above did no harm at all, contributing a modest (for a Bull market) but still solid performance to the overall average, BUT (big but there) imagine a portfolio only made of Mirror funds, and you can see where I'm getting (or better, what unsuspecting investors are getting out of their savings all the time).

What about your portfolio? Are you getting everything you should? Better find out as soon as possible...

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