Mutual fund investors swallow bitter pill

Mutual funds investing on the Bucharest Stock Exchange have experienced their worst period of the last six years, going from profits of 12% to declines that even exceeded 15% in some cases.
Therefore, at least until now, the performance of diversified and equity mutual funds has not confirmed the optimistic forecasts of the analysts, as these funds witnessed a unit value decline of 3 to 16% from the beginning of the year throughout June. The mutual funds had posted gains of 2% to 12% in the first six months of 2005.
The negative trend this year was due to the strong corrections on the Bucharest Stock Exchange, which spread over a period of almost four months and were caused by factors that were hard to foresee early in the year, as they were not connected to the trend of the listed companies’ results or of the economy in general.
“Out of the domestic factors, the most important may have been the scandal around the SIFs, which are among the most significant investments of mutual funds. SIFs posted falls as deep as 40%,” stated Radu Hanga, the general manager of BT Asset Management, Banca Transilvania’s investment management company.
The BET-FI, which gauges the performance of the five financial investment companies, dropped by more than 22% in the first six months of the year. Moreover, the BET-FI index was 33% lower at the end of June compared with the peak reached in mid February. The SIF decline was reflected by the trend of the equity funds, as some of them had over 40% of their total assets invested in SIF shares.
The mutual funds were “betrayed” particularly by the shares that got them the best yields last year, with SIFs averaging a growth of 175% in 2005.
Despite sharp declines, fund managers say that investors have not panicked, and repurchase demands have not exceeded subscriptions.
The statements are substantiated by the statistics of the National Union of Collective Placement Bodies, which indicate positive net inflows for diversified and equity funds.
The net capital inflows registered by mutual funds in the first five months amounted to about 18 million euros, and had a significant contribution to the increase in total assets. Most of these investments were made on the segment of equity funds, which remained attractive to investors, despite the decreases witnessed. Funds investing in shares totalled 2.4 million-euro net subscriptions in May for instance.
“Declines in terms of assets managed have been registered over the last few months, but they were caused by the declines on the Stock Exchange and not by massive capital outflows. Most investors prove that they have reached an investment maturity level and regard investment in mutual funds as a long-term investment. Moreover, maintaining low prices provides a good investment opportunity,” Hanga explained. Most mutual fund managers generally recommend investors a minimum investment duration of several years, precisely because they want to protect investors from short-term fluctuations of the market, which have occurred increasingly more often over the last two years.