Grzegorz Kaliszuk, of PZU Investment Management, reviews data showing Polish equity investors made 45% over the past year
The Polish population maintains its trust in investment funds. Poles spent nearly PLN 320bn (approximately €82bn) on national and foreign investment fund units from the beginning of 2007 until the end of April 2010. Even in 2008 and 2009, when the rest of the world struggled with the effects of the financial and economic crisis, Poles kept their faith in investment funds, entrusting them with around PLN 150bn during this time. At the end of 2009, investment fund assets accounted for 8% of the PLN 800bn of household savings. Calculations are based on data from Analizy Online.
In October of 2007, assets invested in funds reached a record-breaking PLN 144bn, which stood as a testament of the Polish trust in investment funds. Polish investors left over 15% of their savings under the control of fund managers. However, the wave of euphoria has since abated and after more than six years of continuous growth, the value of fund assets began to deplete. This lasted until February 2009 when there was PLN 67bn investment in funds. The growth in assets under management has since continued to increase and today the total assets under management (AuM) stands at PLN 104bn and continues to grow.
The market in figures
At the end of April 2010, there were more than 520 investment funds operating in Poland of which more than 220 were closed ended. Fund assets in Poland have maintained a stable mix for the last four years. This was: 41% mixed funds, 29% equity funds, 15% bond funds, 11% cash funds and 3% other funds and among them primarily real estate, securitisation, and raw materials funds. However, it should be noted that by January 2006, bond funds dominated the Polish market and then began to lose their market share in favour of equity, mixed and stable-growth funds.
The market structure in terms of number of funds is very similar to that of assets. Most funds belong to the group of mixed foreign funds (138). The second and third groups are foreign equity funds (92) and Polish equity funds (54).
Ranking in terms of value of accumulated assets seems to be a bit different. First place is occupied by Polish equity funds (PLN 24bn), the second belongs to Polish mixed funds (PLN 15bn) and in joint third place are Polish bond and Polish stable growth funds (PLN 13bn each). In October 2007 the value of assets held in equity funds exceeded PLN 48bn, only to fall to PLN 14bn over the next 15 months. At the same time, the value of bond fund assets grew from PLN 8bn to PLN 12bn. This shows that over the course of the global economic downturn, Poles’ preferences shifted to lower-risk investments like bond and cash funds. In fact, cash funds maintained the highest average level of assets per fund, at less than PLN 350m. By comparison, the average value of a bond fund is less than PLN 270m, equity funds averaged PLN 200m in size and mixed asset funds came in at PLN 170m, on average.
Over the past seven years, mixed asset funds and equity funds have been growing the fastest – there were higher levels of share quotations on these funds and a fast pace of new player registrations.
Since the first investment fund was launched in Poland in July 1992, the surplus of contributions over redemptions of fund units amounted to PLN 86.5bn. In the industry’s 19-year history the record, in terms of sales, was set in 2007 when the difference between payments and redemptions reached almost PLN 31bn. The worst year in this respect was 2009, when Polish funds paid out almost PLN 29bn more than the contributions made that year.
Inflows into funds began to gain momentum in 2000 when the surplus amounted to nearly PLN 3.5bn. Historical data shows that over 20 years, the Polish fund industry registered an annual growth rate of almost 30%. This suggests that despite high volatility in capital markets, Polish investors are still willing to invest in funds, while increasing their knowledge of the capital markets themselves.
Polish equity funds are subject to the highest management and distribution fees. Market average is around 3.5% and 4.2%, respectively, according to data to the end of December 2009. Funds that invest in foreign shares charge slightly lower fees of 2.9% for management and 3.5% for distribution, on average. A similar level of fees is charged by Polish mixed funds and raw materials funds, which charge about 3.4% for asset management and 3.8% for distribution. The management fees applied to bond funds varies from 1.3% to 1.7%, while the distribution fees for those funds fluctuates from 1% to 1.6%. Cash funds are the cheapest funds available, charging around 0.1% for distribution and 0.8% for management, per annum.
More and more often, clients in Poland opt for mutual funds with a five-year investment horizon; however, investment in funds is still considered to be a short- or medium-term strategy. Clients who invested a year ago, from April 2010, made the most average profit, of 45.74% from Polish equity funds. Polish bond funds generated the highest profit, of 17.51% for those investors who invested their money two years ago. Over the last three and four years, debt funds returned 21.13% and 23.60%. The highest five-year rate of return of 59.72% was achieved by equity funds. On the other hand, cash funds saw the most stable return growth. Investors who bought into these funds five years ago made around 22.78%.
The investment fund industry in Poland is still developing. There are new products being put to market to provide clients with innovative investment strategies that meet their expectations. The rate of development of the Polish fund industry is highest in the region of Central and Eastern Europe and is therefore worth a closer look.
• Grzegorz Kaliszuk is a sales analysis expert at PZU Investment Management
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