More than 1,400 investors have left equity funds over the last four years, scared away by the unprecedented decline in the fall of 2008 and by the high volatility of the stock market ever since, according to ZF calculations.
In July 2008, more than 16,000 investors were keeping their savings of over 260 million lei (EUR58 million) in equity funds. Four years later, there were only 15,000 investors left with RON190 million in assets, without taking into account the funds registered on other markets. The asset decline was due to the withdrawals of cash by investors and to the stock market decline. BET, the main index of the Bucharest Stock Exchange, has lost 20% over the last four years.
The decline in the number of investors happened at a time when the market provided opportunities for profit: after the slump of 2008, the market soared in 2009 and then progressed slowly in 2010 only to return to sharp decline in 2011 and then resume growth in 2012.
Fund managers, however, say this market roller coaster is precisely what drove investors away.
“The main driver of the capital inflows in equity funds is the past performance, even though the advertising booklets and fund prospectuses state that past performance does not guarantee future performance. Investors generally make a decision based on the past yields of the funds and the last four years have been highly volatile, we’ve seen strong growth on the stock market such as in 2009 followed by decline such as in 2011, which cancelled the progress of 2009,” said Radu Hanga, chief executive of asset manager BT Asset Management.
“We need to see a multi-annual growth trend on the stock market and multi-annual positive yields of equity funds for investors to start developing an appetite for risk and return to equity funds.”
Most investors left Raiffeisen Prosper (948) and Certinvest Dinamic (754) from July 2008 through July 2012. The funds’ yields are -7% and -26% for the last four years. Worst hit, however, were Omnitrust and Omninvest funds, -50% and -60%. The two did not see heavy fluctuations of investor number, which means they are waiting to recoup the losses.
“It’s very difficult to get investors interested in equity funds now. The same goes for the Bucharest Stock Exchange, where there are just a few thousand active accounts despite a population of 19 million people and where daily traded volume stands at EUR1 million,” said Razvan Rusu, chief investment officer of asset manager Certinvest.
Mihail Ion, chairman of Raiffeisen Asset Management agreed, “As long as there are millions of people with deposits in banks and only 15,000 investors in equity funds, the increase or decrease in the number of investors by several hundred is less important. The relevant issue here is that there are much more investors out there and we can expand the investor base by developing financial counseling.”
He expects the interest in equity funds to increase especially from wealthy customers, who are willing to risk and could allocate a significant portion of their investment to equity funds, once the economy and foreign markets rebound.
Some of the equity funds increased while others declined, such as Carpatica Stock, which saw its assets grow by 145% compared with a 15% drop of the market and added 300 investors. Carpatica Stock, an equity fund turned balanced fund, is also the last four years’ top performer, with a 43.7% yield, while the rest of the equity funds posted losses.
The lack of new investors and capital inflows continues to keep equity funds small compared with bond funds (RON3.7 billion in assets), which are active participants in the government paper auctions and negotiate preferential interests for bank deposits. The low asset volume, of less than RON200 million, most of which already invested on the stock market, does not allow Romanian equity funds to make any difference when the Romanian government conducts a public share offering. Moreover, since they hardly get any new cash, the equity funds cannot take advantage of any new opportunity on the market unless they sell some of their stocks. (EUR1=RON4.4898)
(English version by Loredana Fratila-Cristescu)