Mutual funds surprise
Given all the troubles swirling around mutual funds these days and comments from advisors about what a tough sell they’ve become, you’d think public confidence in the industry would have plunged to an all-time low.
But that’s not the case, says one of Canada’s leading research firms. In a presentation to last month’s annual conference of the Investment Funds Institute of Canada, Bruce MacLennan, the president of Environics Communications, said that investors actually have a slightly more favourable view of mutual funds than they did a year ago.
Those findings, based on a survey that initially contacted 1,500 people, seem counter-intuitive given the scandals that have plagued the U.S. fund industry in the past year and an investigation by the Ontario Securities Commission that has resulted in allegations that four Canadian companies were involved in unethical (but not illegal) market timing practices.
However, when asked about their degree of confidence in the mutual fund industry, 28 per cent of respondents gave it top marks, compared to 25 per cent in November 2003 (the latest survey was done in July). Only 6 per cent fell io the “no confidence” category, compared to 10 per cent last fall.
Asked another question about the integrity of the industry, 34 per cent gave it high marks compared to 30 per cent in the previous study. The percentage in the “no integrity” category fell from 9 per cent down to 7 per cent. To top it off, 78 per cent of those queried saw “some or many” reasons to continue to invest in funds.
It’s all about the money
Frankly, I found these figures surprising, especially in the light of the large net redemptions fund companies experienced until very recently. But other aspects of the survey offer some clues for this apparent improvement in public perception.
When asked for the main reasons why they might stop investing in funds, the overwhelming majority of investors who responded cited poor performance. Not high costs, not negative media stories, not integrity issues – none of these were high on the radar screens. What people really wanted was to make money. Full stop!
The only people who were asked to reply to this question were those who said they would not invest in funds, a sample size of 130 which Mr. MacLellan says was “not high quality” and subject to a high margin of error. Nonetheless, the emphasis on performance was overwhelming, with 54 per cent citing it last November as their primary reason for avoiding funds and 41 per cent in July. The second-place reason was in the mid-teens in percentage terms.
Of course, when you stop and think about it that result should not be so startling. After all, what’s the purpose of investing in the first place? To make a profit! However, you would think that with all the attention being given to such issues as high costs, possible management abuses, and industry regulation, those topics would have drawn more attention.
Instead, the driving force behind the improvement in the July results compared to those of last November appears to have been the fact that improved returns from equity funds after the end of the bear market helped to restore public confidence.
I’d hate to think that people simply don’t care about any other issues if they’re getting richer but if the Environics numbers are anywhere near reflective of broad attitudes, that’s the way it appears. Let’s just hope the industry doesn’t allow itself to get complacent because of this improving trend. There is still a lot that needs fixing.