According to the latest issue of The Cerulli Edge – Global Edition, fund houses view Germany and Switzerland as the key distribution targets in Europe, given their powerful institutional investor base; followed by Italy and Spain (viewed on a par with the US), and France (ranked alongside Australia).
However, the report notes, “raising assets and retaining assets do not go hand in hand”. Since 2005, for example, the annual redemption rate for cross-border funds in Europe has ranged between 48% and 97%, compared with rates of between 24% and 36% in the US.
The problem is particularly acute in Asia, where Cerulli says investors typically hold funds for periods of less than a year. In Taiwan, retail investors hold funds for just six to nine months, it adds, while in China holding periods can be as short as one month.
“China is widely seen as the retail fund market with the biggest potential in Asia, but all fund types launched in 2012, with the exception of exchange-traded funds, showed a fall in assets by end-June this year,” the report notes. Asset retention rates are worst for equity and balanced funds.
Japan income contest
Even Japan, a developed fund market, displays signs of short-termism, owing to investors “shopping around” for the products which offer the most attractive regular income.
“In Japan monthly dividend-paying funds represent close to 70% of locally domiciled mutual fund assets, with AUM of ¥36.4trn [€260bn] as of July this year,” writes Cerulli associate director Yoon Ng.
“Competition between asset managers to offer the highest monthly dividend payments possible has become intense, and dividend-seeking investors will often chase the highest dividends without understanding how they are sourced.”
Poor communication ‘costly’
According to director Barbara Wall, better education of end investors is key.
“[A Cerulli survey] found that asset managers are failing to communicate their investment philosophy to buyers, an omission that is especially costly during short-term underperformance when a deep understanding of the managers’ process can help retain the client,” she adds.