Another yearend question: why are we paying a management fee?

It became obvious last year that the golden era of mutual investment funds had ended. However, virtually no one expected so many investment funds to go to the other extreme in 2002, when the yield was even outstripped by the banking rates.
Any investor who last December put some money into a twelve-month banking deposit is now reaping a 28-30% gain, without making big intellectual efforts and without devising sophisticated investment strategies.
Under the circumstances, what could investors expect from the money they entrusted to a mutual investment fund by paying a 2-3% management fee? They must be hoping for a much better yield than the one provided by banking deposits. However, an assessment of the 2002 performance of investment funds shows investors did not get what they expected.
Most funds offered gains ranging between 20%-27% this year, while some of them even slumped to 10-15%.
Then comes the natural question: why would anyone want to invest in these funds, under the circumstances?
“Liquidity. Those who invest in mutual funds want to be sure they can get their money back anytime, the respective gains included. If you break up a banking deposit, you gain nothing. The gap between yields is precisely the cost of this liquidity,” says Iulian Panait, general manager of Certinvest, the company administrating the Capital Plus, Tezaur and Intercapital funds.
Daniel Marinescu, general manager of Vanguard Asset Management (administrating the National Opportunities Fund and Vanguard Protector) can think of other explanations.
“It’s easy to say now, at yearend, that the funds’ yield is below the banking rates. But just how many people were bold enough, back in December 2001, to put their money in annual banking deposits for 32-33% interest rates, given the history of fluctuating rates and the inflation that had never gone below 30%? Now, the rates for deposits revolve around 18-19%. I wonder who would be willing to tie down their money for 12 months, for this gain,” Daniel Marinescu says.
Banking rates plunged this year, from 40% to 20%, the sharpest drop since 1990. The main reason was the policy enforced by the Finance Ministry and the National Bank, which pushed for lower rates for T-bills.
The state would pay 36-38% rates for T-bills at the beginning of the year, but the banks only got 17.64% this week. The mutual investment funds had invested heavily in T-bills, which practically halved their yields.
“Considering the rate cuts, I believe that a 20-25% yield is good. I can’t say anything about the levels below 20%,” Marinescu says.
The market of mutual funds is worth about 26.5 million dollars, mainly invested in T-bills and banking deposits.
The largest fund is Simfonia, belonging to Banca RomA„sna pentru Dezvoltare (Romanian Development Bank – BRD), with assets of $13 million. Fortuna Classic has the most investors – 20,042.