Most broad based mutual funds and exchange traded funds are closet indexers. That is they allocate the portfolios to various market sectors (financials, energy, materials, etc) with the same percentage weightings as the broad TSX index sector weightings.
Currently the financials sector (banks, insurance companies, etc) comprise roughly 38% of the TSX index.
So for example if your mutual fund has 38% of holdings in financial sector stocks and the financials fall by 50% from current levels. Right off the bat this one sector will have decreased the unit price of your mutual fund by 19%. And the other TSX sector stocks will not be standing still. They will be dropping in price as well.
And based on the experience of 2008-09 perhaps one should not have too much faith in the safety of investing in the financial sector.
Chart from Danielle Park's web site.
Click image to enlarge.
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