Sherine Abdel-Razek reports on the growing appeal of mutual funds for small retail investors, many of whom were badly burned during last month's stock market correction The recent market correction, goes the common wisdom, led to a major panic among retail investors who exited the market en masse, thus forcing prices to even lower levels. Small retail investors, say many experts, lack the necessary background to successfully operate in the market. They do not understand its cycles and at the first signs of a slowdown push the market fell further into the doldrums. It would be far better, believe many financial analysts, for such investors to adopt a far less hands-on approach and invest what sums they want via expertly managed mutual funds. Currently Egypt has 27 investment funds, which manage assets of more than LE5 billion and which fall into three basic categories. There are growth funds, which invest in high risk, but potentially high yielding, shares. Income funds adopt a more conservative approach and distribute investments across fixed income instruments such as bonds, treasury bills, agreements and deposits. Balanced funds mix the two approaches. Overall economic growth, and the remarkable surge witnessed by the stock market in recent years, has been mirrored in the performance of the funds. Average yield during 2005 came over 40 per cent. Taking a six-year view most of the funds have realised three-digit growth, reaching up to 436 per cent in the case of Banque Misr's Third Investment Fund. "Professionals always beat non professionals," said Hamdy Rashad, head of Al-Rashad Asset Management. "After the unprecedented 25 per cent increase in the market during January fund managers anticipated a fall in prices and adopted the necessary defensive positions. On the other hand small investors lacking experience were badly burned by plunging prices." The number of mutual funds, says Rashad, is less than the market can take. Recent press reports put the value of ownership in mutual funds in Egypt at $25 per capita, compared to $120 in India and $27,000 in the US. "Egyptians like to invest their money by themselves, not give it to someone else to invest. And investment funds receive very little publicity," said Omar Radwan, head of regional asset management at HC Securities. The capital market law of 1992 also limits the number of funds in operation. It stipulates that only banks and insurance companies can operate such funds. Yet, says Radwan, the value of funds under management, when compared to the size of the market, is relatively good. But how can small investors choose the fund in which they should invest? "It all depends on the aims of the investor," explains Radwan. "A young investor willing to take risks should consider a growth fund which can deliver a high yield over time. On the other hand a widow with kids might prefer a fixed income fund that provides steady returns." In selecting which fund most analysts argue that the investor should look at long-term performance. Rasha Hassan, executive director of the Egyptian Investment Management Association, an umbrella organisation covering most of the companies working in asset management, notes that return figures for up to six years are available to investors who want to examine the track record of funds. "It is the long-term performance of the fund that shows how good the fund manager really is and that differentiates one fund from another." Interested investors should also examine the prospectuses of competing funds, which will include details of capitalisation and investment policy, the number of certificates issued and the price of each and the fees charged by the issuing bank and management firm. The latter are significant in that they can impact heavily on returns. The capital market authority also obliges fund mangers to publish audited financial results on a quarterly basis. Fund managers must reveal the allocation of the resources at their disposal, report the "top 10" list of stocks bought on a quarterly basis and are prevented by regulations from investing more than 10 per cent of the fund's total capital in any one company. Such regulations are designed to protect the investors in mutual funds. "We are," says Radwan, "very well regulated and resourceful." And being heavy weight investors, with millions of pounds under management, fund managers have better access to brokerages, custodians and even listed companies. "We can meet senior officials of listed companies and question their decisions if we feel they are not in the interest of our investors."
