The collective investment market has entered the year of 2009 with new opportunities. How the critical 2008 created these new opportunities for the investment funds? 

2008 was marked by a legislation of establishment of new funds – credit funds, commodity funds, hedge-funds.  Whereby the existing funds with the diversification opportunity for depositors now get an alternative. Commodity funds and hedge-funds are composed of investments in precious metals, including requirements to a credit institution to pay its money equivalent; financial instruments with exchange goods as an underlying asset; financial instruments with financial instruments as an underlying asset, which, in turn, have exchange goods as an underlying asset. Hedge-fund assets may additionally include Russian and foreign depository receipts on securities.  Credit funds are composed of monetary claims on credit contracts or loan contracts, as well as property (including property rights), being the subject of a pledge. 

For working and newly founded management funds a wider range of securities has been set to be included in portfolios quoted in the foreign exchanges, the restrictions to the foreign securities ceiling have been changed, the criteria of illiquid securities and their percentage in the fund have been defined.

The legislation has introduced the notion of a sophisticated investor, the ranking of funds for sophisticated investors and other depositors. A bill about compensation payments to unit investment fund depositors has been drawn up, but has not come into effect yet. The new law suggested establishing an organization that would be responsible for the compensation payments to the shareholders and would operate in the stock market as a Deposit Insurance Agency in the banking system. The companies that operate in the stock market with people’s money will have to enter into this insurance system and make payments to a special payment fund depending on the number and the size of deposits of its shareholders. However attractive this initiative can seem, I think no parallels can be drawn in this case between bank deposits that guarantee a fixed rate of return and unit investment funds with no yield guaranteed, so the shareholder bears the whole investment risk. Perhaps, this law can be seen as a sort of insurance provided a shareholder is not a sophisticated investor, and in the case of malicious actions of the management company the shareholder will be repaid. 

The last 2008 year was quite a hard time for the financial sector as a whole and the collective investment market in particular. To sum up, the market was not prepared for such a negative scenario, because all subsequent measures to cushion the fall were taken post factum.    By the year end the equity and investment fund legislation underwent a lot of changes and amendments. The management could not make use of new amendments made to the asset composition and structure order to the full and worked within the investment thesis with requirements for risk limitations and asset composition in general valid at that moment. If we compare investment yield for the year, the most profitable appeared to be investments in currency and gold. Source — Investfunds:

 

last quote yield
US dollar

29.39

+20.27 %

Gold (CB RF data)

817.39

+17.76 %

Euro (EUR/RUR)

41.43

+15.15 %

Bonds (RUX Bonds)

200.24

-8.05 %

Inflation (CPI)  

-13.79 %

Silver (CB RF data)

10.23

-14.18 %

Bond unit investment funds (RUIF-WB)

119.66

-21.04 %

Hybrid unit investment funds (RUIF-WM)

135.52

-38.08 %

General unit investment funds (RUIF-WT)

118.03

-49.81 %

Stock unit investment funds (RUIF-WS)

114.22

-57.18 %

Shares (MICEX)

619.53

-67.51 %

Second tier shares (RTS2)

548.20

-79.17 %

 

 If in previous years management extended the lines of new funds, increased the number of agents in regions, introduced units in the exchanges, in 2008, in contrast, it faced the problem of work optimization regarding expenses reduction. Some funds closed down, and unit distribution moved from exchanges to OTC market.  It should be noted, that fewer open-end funds were compensated by growth in the number of property funds, direct investment funds, money market funds. Source: National League of Management Companies (NLU): 

Working unit investment fund growthfor the period 01.01.2008-01.01.2009
Category

Open

on 01.02.08

Closed

on 01.02.08

On 12.31.08

 

Stock

190

 

193

Bond

73

 

70

Hybrid investments

133

 

129

Index stock

38

 

45

Index bond

0

 

0

 

Of funds

15

 

13

Money market

5

 

7

Property  

267

358

Venture investment

0

58

 

54

 

Direct investment

0

14

15

Mortgage

0

11

11

 Depreciation of net open-end fund assets during the year was caused by the stock market fall, as the structure of these funds implies investments in Russian and foreign shares and bonds, but the depreciation of net assets was mostly followed by net cash outflow. Net open-end fund assets declined by 64% in a year, and the average yield of the open-end funds fell by about 40% at the year end. 

Net funds raised by UIF, mln. rubles for 2008 (NLU data) 

for the period 01.09.2008-01.31.2008   5081.12

for the period 02.01.2008-02.29.2008   –164.99

for the period 03.03.2008-03.31.2008   -2408.44

for the period 04.01.2008-04.30.2008   -4116.97

for the period 05.04.2008-05.30.2008   -7268.59

for the period 06.02.2008-06.30.2008   -1252.03

for the period 07.01.2008-07.31.2008   1692.21

for the period 08.01.2008-08.29.2008   -220.92

for the period 09.01.2008-09.30.2008   -1982.42

for the period 10.01.2008-10.31.2008   -3094.65

for the period 11.01.2008-11.28.2008   -737.45

for the period 12.01.2008-12.26.2008   -1491.32 

Source: Investfunds and CB RF

Net open-end fund asset value (mln. rubles)                                                           

 01.01.2008

135 952,55

12.26.2008

  48 380,71
 Net asset value of all funds (mln. rubles)                                                                       

01.01.2008

  767 012,82

12.26.2008

  698 101,23
Amount of funds raised by open-end funds (mln.rubles per month)                        

06.30.2008

-1 250. 97

                    11.28.2008

  -672,06
Amount of funds raised by open-end and interval funds (mln.rubles per month)

06.30.2008

-1 845,66

                11.28.2008

  -758,06
Amount of funds raised by closed-end funds (mln.rubles per quarter)

 06.30.2008

21 771,10

09.30.2008

  30 941,27
Amount of bank deposits made by businesses and individuals in rubles (mln.rubles)                                           

01.01.2008

6 311 572,40

10.01.2008

8 182 611,90

Amount of bank deposits made by businesses and individuals in foreign currency (mln.rubles)                                        

01.01.2008

2 071 917,70

10.01.2008

1 510 887,10

Total amount of bank deposits (mln.rubles)                                                     

01.01.2008

8 383 490,10

10.01.2008

9 693 499,00

 The range of investment objects narrows in such adverse conditions due to the decline in demand for them. Most people usually prefer conservative instruments — bank deposits, foreign currency, unallocated bullion account. As for UIF, in the current conditions it looks as a good long-term (one year and longer) buying opportunity. There is no doubt, that in the future when the stock market and the commodity market recover, investments in UIF will bring substantial gains, that’s why those who are interested in this type of investment should now look more attentively to the offers on this front.