Go-Go Fund. MarketCheese

Go-Go Fund — is a mutual fund specializing in high-risk securities to get extra profit. Go-go fund offers to take large positions in the bullish market. They were sought-after in the 1960s but lost popularity in the 1970s because of the stock market crash.

History of Go-Go Funds

A go-go fund is a mutual fund that offers an aggressive strategy with a high level of risks and profit. The strategy was to buy up the assets with the growing prices: securities, stocks, shares, or commodities. Then, they plan to sell these assets at a much higher price and make money.

These were popular because the stock market of the 1960s was booming. Everyone was aiming to buy stocks, especially one-decision stocks. One-decision stock is an asset that is bought and held by the investor to bring him profit in the future. Another popular thing was the Nifty Fifty stocks. Nifty Fifty is a group of fifty large companies whose stocks were in high demand among investors in the 1960s. This list included Coca-Cola. McDonald's, Pfizer, American Express, and many more. Today this list is replaced by a list of blue-chip stocks.

Such demand for stock created the financial bubble. But nothing could last forever. The constant profitability of the Nifty Fifty companies wasn’t proven, and many investors lost their money. Some of them were bankrupt.

In the 1970s, the stock market was highly volatile. The crash of the stock market was caused by the collapse of the Bretton Woods system, the devaluation of the dollar, and the oil crisis. The owners of stocks promoted by go-go funds had lost a lot of money.

Types of Go-Go Funds

There are various types of go-go funds. They have different ways of functioning. For example, there are load funds and no-load funds. Load funds take a commission from the investors. The commission can be charged both during the acquisition of shares and during their sale. No-load funds don't take this fee, so they are called 100% or true no-load funds.

Also, go-go funds are divided into open-ended funds and close-ended funds. Open-ended funds issue and redeem their shares on demand, during the time of investment and redeeming of shares. The assets of the fund are constantly changing in one direction or another according to the inflow or outflow of money. The number of shares depends on the number of investors.

Closed-end funds issue a certain number of shares, which are placed during the IPO and traded on the stock exchange. The value of closed-end fund shares is determined by the demand for them, and not by the total value of the assets.

Profitability of Go-Go Funds

Today the go-go funds still exist, but they are not so popular. Investors had learned that it is unreasonable to buy an asset and hold it for too long. They prefer to diversify their investment portfolio. The strategy of most go-go funds may be classified as speculative investing.

Speculative investments are short-term investments in assets aimed to bring money from the price change after their sale. Usually, the investor waits for a year before reselling the asset. Speculative investment has some principles: absence of regular income, preference for profitability over stability, and receiving the profit from a sale of an asset.

Go-go funds have several characteristics:

short-term investment;
high level of risk;
high earning;
unprofitability of small investments;
investments are done by professionals.

If an individual isn't a professional financial expert, they can give the funds to the trust managers who work with small investors. Also, they can conclude an agreement on the right of independent trading with any brokerage firm on the stock exchange.

The main problem of go-go funds is the constant need to monitor the state of the market and assets to know whether it is time to sell. As some investors own many assets the necessity to monitor them increases. That’s why many individuals prefer passive investing and conservative strategy. However, the go-go funds can bring a lot of money, if an investor chooses the right companies and the right time to sell. They don’t need to wait for too long.

Another issue is the high risk. There is a direct relationship between the level of risk and the expected return on investment. Individuals expect to earn a return on investing in stocks and bonds because they take on some risk. Shares bring dividends from the profits of the issuing company, bonds bring percentages, and real estate leases bring rental payments. However, these income streams aren’t fixed. The higher the uncertainty that some return will be received, the higher the expected return on that investment should be. Investments with less risk of loss have a lower expected return. Investors who aren’t willing to take on some risk can’t receive any income. Objective evidence suggests that higher-risk investments have an average return that is worse than conservative investments in securities of the same category.

But the main problem is the excessive portfolio costs. Portfolio costs include management fees, excessive trading and tax costs. The portfolio turnover is approximately 70% per year. Without proven trading advantages, this is very low.