Feb 27, 2009

The Real Value of Sovereign Funds

So, what's the real value of sovereign funds?

Years ago, I worked for a mutual funds company called Trimark. At the time, it was one of the largest fund company's in Canada. At the time - mutual funds were the primary investment vehicle of choice for many North Americans.

The key selling point? Mutual funds are stable - less volatile than owning individual stocks, and safer too, because you spread the risk across different investment vehicles. I learnt a little about the investment industry and even did a little day trading.

Lately, I've developed an interest in sovereign funds - a friend asked me why and I decided to respond through a series of blog posts.

First - What is a Sovereign fund? A sovereign wealth fund is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other investment products.

Some sovereign wealth funds are held solely by central banks of the country in question. The central banks often accumulate the funds in the course of their management of a nation's banking system; this type of fund is usually of major economic and fiscal importance to the country.

Other sovereign wealth funds are simply the state savings which are invested by various entities for the purposes of investment return, and which may not have significant role in fiscal management.

During my days at Trimark – I learnt the importance of following the money. Any Mutual fund performs only as well as it's key holdings. These Sovereign funds have 100's of Billions of dollars invested - worldwide, and a cursory review of their key holdings can offer interesting insights about global investment trends.

Sovereign funds offer a great window into the global investment strategies of some of the brightest investment managers in the world. Over the next few months – I’ll identify and group a handful of investment products, based on my research into Sovereign funds.

I’ll build a series of portfolio’s – based on my findings, and share monthly performance updates with the rest of you World Changers.

Have a great weekend……….

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