Mutuals entice customers with U.S.market.
After experiencing two years of fast-paced growth, mutual funds companies said they are now having to come up with more dynamic products such as funds focused on the U.S. market to lure new clients.
Total assets managed by mutual funds almost doubled in nominal terms from the end of 1998 to 1999, leaping from zl. 1.8 billion ($400 million) to zl. 3.2 billion ($744 billion), according to a report by the Association of Investment Fund Companies. But that dynamic growth doesn't make up for past years' slow growth. "Still, we can't surpass the barrier of zl. 4 billion ($930 million)," said Andrzej Kolatkowski, president of Bank Handlowy's investment fund company.
The reason, they said, is that many Polish investors remain wary of investing their hard-earned savings in stocks, and many are unimpressed by the Warsaw Stock Exchange's (WSE) performance. The WSE's main index, the WIG, is up 0.77% from the beginning of this year.
"Attracting new investors is the only method of getting us out of this stagnation," said Grzegorz Swietlik, president of CA IB's investment fund company.
Only 2.5% of Polish households have money in domestic investment funds, known as mutual funds in other parts of the world, according to the investment fund association. At the end of 1999, net invested assets per capita was about $20. That compares with the United States, where net invested assets per capital surpassed $20,000 at the end of 1998. In Canada, the same figure was $7,047 for 1998, according to the association.
Investment funds take money from clients and put it into a variety of vehicles, such as bonds and stocks. Part of the difficulty funds have in attracting Polish clients is that many people prefer to put their money in safer vehicles, such as a bank account or an insurance policy, executives said. Part of the blame lands squarely on the funds' shoulders, though, they said. The funds have not aggressively marketed their products, relying instead on individuals to seek them out through various sales outlets.
"An investor has to come (to us) with the attitude that he wants to buy a fund unit," Swietlik said.
The meager interest in mutual funds can also be traced back to the WSE's 1994 crash, during which many individual investors were wiped out.
It is that dynamic that has helped to spur the growth of safe funds, so the ones that invest primarily in bonds and debt securities. Total assets at such funds grew 210% from the beginning to the end of 1999, reaching zl. 1.17 billion ($272 million) at the end of December, according to the association. The story this year, however, is funds focused on the United States. Investment companies have created four such funds this year alone, such as CA IB's Open Investment Fund Top America, created in February; Skarbiec-Gwarancja 2002, set up in April; Skarbiec Net, launched in May; and Pioneer's Open Investment Fund of American Shares, created in June. The three funds in existence had total net assets of zl. 120 million ($27.9 million) by May 31, according to the List.
Of this number, Skarbiec-Gwarancja accounted for zl. 77.2 million ($18 million); CA IB's fund had zl. 35 million ($8.1 million); and Skarbiec Net had zl. 8.48 million ($1.97 million). Pioneer had net assets of zl. 12 million ($2.8 million) as of Aug. 1, two months after it began operating.
Three of the four funds invest the majority of their assets in the United States. CA IB has sunk 95-100% of its funds into the United States; Pioneer allocated 94% of its funds to U.S. investments. Skarbiec Net has tagged 40% of its assets for the United States, 30% for Western Europe, 10% for Asia, and the remaining 20% for Poland and the Organization for Economic Cooperation and Development (OECD) countries.
Only Skarbiec-Gwarancja intends to concentrate on Western European companies. That fund will invest primarily in companies listed on the Dow Jones Eurostoxx 50 Index.
The bug of the U.S. boom, or past boom, bit Polish investors and has helped Pioneer attract new clients, said Andrzej Adam Szeworski, board member of Pioneer First Polish Investment Fund Co. The Dow and NASDAQ jumped 23.6% and 87.1% respectively in 1999, fueling interest from international investors.
"The American market is the biggest market in the world. The most important companies are there. This is a place where money can be earned," Szeworski said.
Szeworski is optimistic even with the U.S. boom being over now, as investment funds focus on long-term investments.
Despite their similar U.S. focus, the funds vary widely in the types of companies they choose. While Skarbiec-Gwarancja invests in top European companies, CA IB primarily invests in the top 100 American "blue chips." Pioneer focuses on all types of U.S. companies. Skarbiec Net is the most risky of the four funds as it invests in internet, telecommunications and media companies.
Piotr Kuba, investment director at Skarbiec-Net, said that he expects Skarbiec to see an annual return of 35%. That kind of return comes with significant risk, though. Kuba said that the fund's focus on "new economy" companies will likely result in a lot of volatility. For example, he said, it is normal for the stock prices of old-economy companies to fluctuate 1.5-2% in a day. While new economy companies can see daily movement of 4-5%.
Another inherent risk on almost all the funds is their zloty-based deposits. The zloty has slid steadily against the dollar in recent years, partly due to the crawling-peg devaluation. A push to let the zloty float freely, thus keeping the Central Bank from intervening if the currency shifts quickly, could add increased volatility, fund managers said.
Swietlik pointed out though that the risk of investing in the internationally focused funds is lower than that of the WSE, as the companies invested in are larger and more stable than many Polish enterprises.
Despite the popularity of international funds, not all investment companies are rushing to launch similar products. Kolatkowski of Bank Handlowy's Investment Fund Co. said that his company intends to wait a while to see how the funds perform and the level of interest they garner before committing to such a project.
