They take on more and more risk because they seem to be rewarded with higher performance, for a while. As with any fund category, you'll always have at least one high flier that seems to smoke their competition, in a raging bull market. This tells all you need to know about what went wrong. If you don't remember anything else, remember this graph. Now let's look at the Third Avenue Fund compared to that Category Average in several key metrics: At one point in its life, Third Avenue's Focused Credit Fund fit into that group. Utilizing Morningstar data (as of December 14th for current data, for portfolio composition), we've created a "Category Average" of the 25 High Yield Bond funds with over $2.5 billion in assets. One of the most important mantras to remember in investing is "what's under the hood?" In other words, what makes this fund tick, what does it invest in, and how does the fund try to reach its investment goals? To know what really happened at Third Avenue and how to avoid investing in any toxic funds in the future, let's take a look at some key facts about the soon to be liquidated fund. How did a well-respected firm blow-up their high yield fund so badly that they had to shut it down? How can you avoid these landmines in the future? Their Focused Credit Fund is closed to redemptions and is on a path to full liquidation. By now, I'm sure you are familiar with the Third Avenue Fund debacle.
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