Pia Nilsson, CEO of the Swedish Investment Fund Association tells us about the extensive experience the swedes have with funds.
How is it that so many people own funds in Sweden? Here is my theory.
In Sweden today, everybody is a fund saver. If one considers the funds that are part of the public premium pension system, then 100% of adults are fund owners. In addition, 65% of all children are fund savers. Could this be a world record?
Between 2008 and 2010, the proportion of adults who hold funds, in addition to those within the premium pension system, increased from 76% to 82%. Large withdrawals were certainly as a result of the financial crisis, but most active savers did this early on, in 2007 and 2008. Thus they succeeded in their timing, contrary to the myth that households often tend to buy or sell funds at the wrong time.
In 2009, net savings in funds in Sweden were at a higher level than ever. At this point many people made deposits at the beginning of the upturn in the stock market. Moreover, it was not just the existing savers who saved more money in funds but a large number of new investors came into the market.
The Swedish have extensive experience in equity funds and have learned about stock market swings. Also, everyone is aware that it is very difficult to know when the stock market is at its peak and the best time to sell, or when it has bottomed out and it is time to buy.
After the extreme downturn in most of the world’s exchanges in 2008, many thought it would be a good time to buy shares in funds and participate in the upturn when it arrived. In the true spirit of Warren Buffett [investor, industrialist and philanthropist] and with a lot of common sense, the active savers were selling at the beginning of the downturn and bought new fund units at the beginning of the upturn. The vast majority of fund investors, however, did nothing. They sat still in the boat with a cool head.
Many people save regularly each month and have learned that in the long run, this is a great way to build up a savings buffer. By getting more shares for the same amount when the shares are undervalued, recovery is facilitated.
And it was with regular monthly savings that the great interest in funds began in the early 1980s. A small amount each month could be saved tax-free and the Swedish people did not want to miss out on this. Today, the tax subsidy has disappeared but the savings continue.
In the beginning it was not as common for women to save by using funds. This has changed. Today the same proportion of men and women save in funds. Traditionally, men have had a slightly larger appetite for risk, but in recent years the risk appetite of women has also increased. This is proven by the fact that the majority of the funds chosen by investors are emerging market funds and Swedish funds. Funds that invest in Swedish companies’ shares have fared well in competition with other markets, but these have also had a relatively high rate of volatility.
The Swedish know that the value of equity funds can be capricious and that funds are savings instruments which should be considered in the long-term. Sure, everyone thought it was a very bleak autumn in 2008, but the disappointment was, in most cases, not directed at the individual managers. In the case of balanced funds, however, where investors expect that the manager ensures adjustment of the level of risk in the portfolio in good time, this might be the case. Hedge funds which failed to deliver absolute returns also received criticism from investors.
I usually say that the funds are the best invention ever in the savings field as they provide an opportunity for everyone to easily participate in placements all over the world. The comment I usually get when I say this is that I only say so because I am head of the Swedish Investment Fund Association. My answer is that it is the exact opposite – I have this job because I am so fond of funds.
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