September 2016

ASSOCIATION COLUMN: More people sign up for monthly savings in equity funds

The Norwegian fund industry has experienced a significant increase in the number of monthly savings contracts or agreements signed between retail investors and local fund management companies. More than 60,000 additional agreements were established during 2015, which is an increase of 8.7% from the year before. Currently 773,000 Norwegians have entered into agreements, representing a total inflow of NOK680 million (€76.7 million) into investment funds every month. A savings agreement means that you sign up for a fixed amount to be invested every month in one or several investment funds, usually equity or balanced funds. The agreed amount will be automatically debited directly from your bank account. The Norwegian Fund and Asset Management Association (VFF) has conducted and published annual surveys on fund subscriptions through savings agreements for the past decade. Since the first survey in 2006, the yearly inflow in investment funds through such savings agreements has nearly doubled from NOK4.4 billion to NOK8 billion last year. VFF are pleased to observe this development among retail investors. We believe that savings agreements are a proven and simple investment strategy for retail investors to achieve a good risk-adjusted long-term return in equity funds. Since the establishment of VFF in 1995, this has been our mantra, as it is our conviction it is the best advice we can give the retail investor. A monthly savings agreement offers you the possibility to spread the investments in the equity market over time, and that way the risks are lower than if you try to find the ‘right’ time points. Hence, over time a savings agreement will probably also give you a higher average return than if you try to bet whether the stock market will go up or down in the short term. In Norway, as in most European countries since the financial crisis, interest rates on bank deposits have plunged. But even with the almost historically low interest rates we have observed, investment funds have not been the preferred investment alternative to Norwegians. More than 80% of Norwegians own the house they live in, which is among the highest levels in Europe. This may be a result of several factors, such as culture and history, but it is also a result of a tax system that favours property investments. Norwegians also have a rather short tradition when it comes to investing in investment funds, compared to our Scandinavian neighbours. Since a pension reform was introduced in 2006, most private sector employees now have assets placed in investment funds through their retirement plan. We believe this will contribute to more Norwegians get a better understanding of the benefit of long-term savings in investment funds. REAPING THE BENEFITS
The increase in the number of savings agreements coincides with a 10% increase in the average amount saved every month. Men are still saving more than women. They not only account for a larger portion of the agreements, they also have higher average monthly savings. The 40-59 age group accounts for the highest number of agreements. On the other hand, the youngest age group (0-14) has the largest increase in average amount to be saved per month (31%). This suggests parents or grandparents are saving more for their children in investment funds. By starting a savings agreement early, you will reap the benefits of compound interest and deferred tax for a longer period. The start of 2016 has shown great volatility in the equity markets globally. Despite this, we are happy to have observed that the Norwegian retail market has had a net inflow in equity funds in Q1 and that the number of savings agreements is still soaring. Bernt S Zakariassen is chief executive officer at the Norwegian Fund and Asset Management Association (VFF) ©2016 funds europe

Sponsored Profiles

SPONSORED FEATURE: Alternative thinking

Mar 16, 2017

Portfolio Manager Davide Cataldo discusses the results of the Pioneer Investments’ survey on liquid alternatives and how investors can be encouraged to increase their allocation.

SPONSORED FEATURE: Interest rate risk hedging: Swapping to other options

Mar 16, 2017

Heightened margin requirements for cleared and uncleared OTC derivatives pose a challenge for legitimate hedging activities and are driving financial institutions to explore alternative hedging...

SPONSORED FEATURE: Why blockchain could be the fund industry’s next Ford Model T

Mar 16, 2017

Blockchain aims to radically change the way investors can access funds, says Olivier Portenseigne, Managing Director and Chief Commercial Officer of Fundsquare.

SPONSORED FEATURE: Open architecture: In need of protection

Mar 16, 2017

Greater efficiency must be embraced to ensure regulatory changes do not destroy choice for fund buyers, says Bernard Tancré of Clearstream.

Executive Interviews

INTERVIEW: Finding managers that can (and do)

Apr 18, 2017

Fabrice Kremer, a fund selector at Banque de Luxembourg Investments, has berated fundamental managers for failing to beat indices, but he remains committed to active funds. He speaks to Nick...

JERSEY INTERVIEW: ‘A steady sort of place’

Mar 21, 2017

The chief executive of Jersey Finance is keen to portray the island as a stable, trustworthy jurisdiction. He talks to George Mitton.

Roundtables

ROUNDTABLE: The issue is perception

Mar 21, 2017

Our panel discuss tax transparency, the elegance of private placement and why Jersey could do more to promote itself. Chaired by Tom Cowsill in Saint Helier.

ASSET SERVICING ROUNDTABLE: Under pressure

Mar 07, 2017

Funds Europe speaks to leading Luxembourg industry figures about the growing regulatory demands on asset servicers and how to remain profitable in spite of major investments in technology.