August 2007 was a bad month for Israel’s mutual funds industry. Mutual funds lost an aggregate NIS 14.1 billion in assets managed, 10% of their total assets at the beginning of the month. NIS 10.3 billion of the decline was due to withdrawals, and the rest resulted from the negative return for the month by 97% of mutual funds, costing an aggregate near NIS 4 billion.
Although the trigger for the slump was the bear market, the heavy withdrawals follow the unprecedented fundraising that preceded them. In recent months, billions of shekels were deposited into mutual funds that specialize in bonds, on the basis of the past performance of these aggressively marketed funds. The deposits relied on the erroneous belief that past performance is indicative of future returns.
The risk-averse hot money that once flowed to short-term loans, short-term deposits, and bonds, went into stocks, and when they slumped, this money was promptly and brutally withdrawn.
Mutual funds that specialize in bonds have suffered the heaviest withdrawals, at an aggregate NIS 7.2 billion. These funds have, however, raised NIS 19 billion since January.
Mutual funds managed by Psagot Ofek Investment House Ltd. lost NIS 2.1 billion in assets managed in August. Psagot had earlier raised the largest amount of money for its mutual funds, but lost heavily in August. Two-thirds of the drop was due to withdrawals, and one-third to negative returns. However, because of its size, it lost 9.6% of assets managed, less than the industry average of 9.9%.
Migdal Capital Markets Ltd. also went through hard times in August. The company, which is used to raising capital for its mutual funds, saw heavy withdrawals. Its funds lost an aggregate NIS 1.7 billion in assets managed, 11.6% of total assets.
Prisma Capital Markets Ltd. had NIS 1.4 billion withdrawn from its mutual funds. However, the investment house’s mix of funds played in its favor in August, and losses from negative returns were fairly low. Its mutual funds lost 8.8% of assets managed, below the industry average.
Mutual funds of Clal Finance Batucha Ltd. (TASE:CLFN) and Ilanit Batucha Ltd. lost an aggregate NIS 2.4 billion in August. Their mutual funds lost 12% of assets managed, above the industry average.
A breakdown of losses shows that small investment houses often lost more, as proportion of assets managed, than the large investment houses, because of the mix of funds at the small houses. Large investment houses, which are based on former bank mutual funds, are oriented towards bonds, whereas the mutual funds of small investment houses usually lean towards stocks, which have suffered in the latest bull market.
In terms of proportion of assets managed, the mutual funds of Africa-Israel Investment House Ltd. suffered the most, losing almost NIS 500 million, or 20.8% of assets. The company’s mutual funds have nevertheless posted a positive return of 65% since January. The mutual funds of Yashir Investment House Ltd. lost NIS 470 million, 18.7% of assets managed. Mutual funds of IBI Investment House Ltd. (TASE:IBI) survived largely intact, losing only 3.7% of assets managed.
Mutual funds of DS Securities & Investments Ltd. (TASE:DSIN) raised NIS 90 million in August, making it the only investment house that did not lose money during the month, and even raised it.
Published by Globes [online], Israel business news - www.globes.co.il - on September 6, 2007
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