November has been the best month so far this year for the mutual fund industry. After a year of redemptions, the funds are now drawing more investment against the backdrop of the interest rate cuts and stronger markets. Investment in mutual funds reached NIS 1.2 billion in November.
Shekel-denominated funds also saw a significant improvement in terms of redemptions. Having previously accounted for more than 50% of the industry, they have shrunk over the last two years with redemptions exceeding NIS 20 billion, bringing their market share down to 30%.
The rate of redemptions from shekel-denominated funds has slowed following the start of interest rate cuts a month ago, a development that has made investment in such funds more attractive. Underlying redemptions totaled NIS 200 million in November, although this figure is low compared with the previous monthly average of NIS 1-2 billion. In addition, a number of funds have managed to raise handsome sums.
Shekel-denominated funds have been undergoing a process of change over the last year, which is set to continue next year too. Originally developed by the banks as an alternative to deposits, many funds yielded fairly lukewarm returns, since many of them maintained a longstanding investment in one short-term deposit, and did not switch investment in accordance with market developments. Now that the banks no longer have in-house funds, but do have alternatives such as deposits and structured products, shekel-denominated funds will have to deliver added value and a better return than that of bank products, so many fund managers are now placing added focus on active management in shekel-denominated funds.
Published by Globes [online], Israel business news - www.globes.co.il - on December 11, 2006
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