Equity mutual funds are a popular investment option for those looking to diversify their portfolio and potentially earn higher returns. But equity funds are also known for their higher volatility. Stock prices are impacted by various factors and one among them is global events. Read on to find out how global events can impact equity mutual fund performance.
What is a global event?
Any large event that occurs on a global scale, such as a recession, political instability, or a pandemic, is referred to as a global event. These events can have a knock-on effect on the global economy, affecting the performance of equity mutual funds. Below are some ways it affects the performance of equity funds.
Market volatility
Market volatility is one of the primary ways that global events influence equity mutual fund performance. When the global economy is uncertain, investors become more risk-averse and may withdraw their assets from equities mutual funds. This can reduce the fund’s net asset value (NAV), which is the value of the fund’s assets less its liabilities. As a result, the performance of the fund may suffer.
During the 2008 financial crisis, for example, equities mutual funds suffered huge losses as investors withdrew their investments owing to fear and uncertainty. The stock market indices around the world plummeted, forcing many equity mutual funds to underperform.
Changes in government policies
Changes in government policies are another way that global events affect equity mutual fund performance. Changes in tax rules or regulations, for example, can have a direct influence on the companies in the fund’s portfolio. This may have an impact on the fund’s returns and performance.
Sectoral impact
Global events might have an impact on certain sectors or industries, affecting the performance of equity mutual funds that invest in those sectors. The COVID-19 pandemic, for example, has had a substantial influence on the travel and tourist industry, leading many businesses to lose money. Equity mutual funds that invest heavily in these companies may see their performance suffer as a result.
Do all global events have a negative impact on equity funds?
It is crucial to highlight that not all global events have a negative impact on the performance of equities mutual funds. Indeed, certain global events might have a beneficial impact on specific sectors or industries, resulting in higher returns for equity mutual funds that invest in those sectors.
For example, the expansion of e-commerce during the COVID-19 epidemic has resulted in an increase in demand for online retailers. As a result, equity mutual funds that invest in these companies may see a bump in performance.
Conclusion
Global events can have a substantial impact on equities mutual fund performance. Market volatility, changes in government laws, and sector-specific repercussions are just a few of the events that might have an impact on the fund’s results. While it is impossible to forecast when and how global events will affect the market, investors can reduce risk by diversifying their portfolio by investing in a mix of stock, fixed income, and alternative assets. Working with a financial advisor can also assist investors navigate the market’s ups and downs and make smart investing selections.
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