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Calm after the storm

Is the party over for the Italian mutual funds industry? Maybe, it is too early to say. But it is already apparent that 1999 won’t be another record year. In 1997 and 1998 cash flows in Italian mutual funds grew at an extraordinary rate of 86% and 95% respectively. At the beginning of this year, assets under management were up to E372bn. But new inflows from January on have been less impressive. They decreased from E16.6bn (net inflows) in January to E15bn in February, E10.3bn in March and E11.4bn in April.
According to Prometeia, a research institute specialising in banking issues, over the current year Italian mutual funds are only expected to grow at the rate of 20%. This is first of all because the massive transfer of the Italian government bonds stock- held by Italian families - into mutual funds, is coming to an end . This transfer has been the fuel of the growth so far. The Italian banks have led the switch, satisfying both their clients wishes for better returns and their own needs to improve their balance sheets with higher commissions.
Secondly, the Italian rate of savings is decreasing which means Italians are not accumulating the same levels of new assets to invest in financial markets as they used to.
The industry is still growing quite fast though, thanks to some banks that have started late in encouraging their clients to switch into mutual funds. Examples of such banks are BNL (Banca Nazionale del Lavoro), Banca Popolare di Milano or Banca Popolare di Novara.
What is not really changing however is the attitude of private investors toward financial markets.
And you could not say that the euro is influencing any new trend. It's just, as always, past performances continue to influence investors' choices. An example of this lies in the arena of equity funds - Italian products have been loosing clients since last December, while the Italian stock market has not been able to maintain its strong performance. But these clients have not turned to the more diversified European stock funds.
Apart from a very fleeting enthusiasm in January, when the eurofunds collected E451m in assets (net of redemptions), in the following months investors have preferred Pacific equity funds. These have raised E868m in March and E1.6bn (net) in April.
The reason being is that from the beginning of 1999 until the end of April the average performance of this category of funds was 26.2%, the highest among all stock funds.
But if looking at the overall scene, investors’ asset allocations have not changed significantly and have remained very conservative. In fact 1999 has yet to see any shifts in the asset allocations of Italian mutual funds which still remain: 19% equity funds; 8% balanced funds; 0.5% in the new ‘flexible’ funds; and the vast majority, 72.5% in bond and money-market funds. At least within the bond sector, the most popular funds, previously domestic, have now become the euro bonds.
It is the money managers who, having to invest this huge amount of bond funds’ assets and being free to choose any euro denominated bond, are increasing the portion of their portfolios actually invested in euro-bonds.
In January, for example, mutual funds invested 49% of their portfolios in Italian government bonds and 19.4% in foreign bonds. At the end of April the two figures were 44.5% and 22.3% in the favour of euro-bonds.
In the meantime Bot - which used to be the most popular investment among Italians, has fallen to a record low annual gross yield of 2.7% and represents only 2.6% of mutual funds' assets. Maria Teresa Cometto

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