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Retail assets rise by 17 per cent in 2003 Back  
Retail assets of IAIM members grew to €19 billion or by 17 per cent in 2003, boosted by renewed level of confidence by investors in equity related products, and continued flows into SSIA products writes Gary Connolly.
The Irish Association of Investment Managers (IAIM) recently published its seventh Annual Survey of Investment Trends in the Irish retail funds market. The survey includes the net cash flows into retail investment products, and therefore excludes assets invested in corporate and individual pension plans. Total assets under management by IAIM members on behalf of domestic and international clients amounted to €188 billion at the end of December 2003 (of which E76 billion were assets managed on behalf of domestic clients).
Retail assets of IAIM members rose 17p.c. to €19 billion in 2003. Solid investment returns together with a strong increase in net cash flows contributed to the growth in assets. Net cash flows of E1.9 billion were invested in retail products during 2003, an increase of 34p.c. on the volume of assets invested in 2002. The comparison is not flattered by using 2002 as a base year; of significance, net flows into unit-linked funds in 2003, was 14p.c. higher than in 2000, when stock markets peaked. Other highlights of the survey include:
• Flows into unit linked funds accounted for 60p.c. of all net inflows
• Investor demand for managed fund offerings confirms a renewed level of confidence by investors in equity related products
• 45p.c. increase in flows into tracker bonds points to a continued strong demand for secure and guaranteed products also
• 75p.c. decline in net flows into with profit funds largely as a result of the change in the structure of guarantees on many product offerings
• Net inflow of E32 million in to PRSAs (appearing on the survey for the first time)
• Flows in to SSIAs continued to be strong accounting for almost a quarter of the total invested in retail products in 2003.

Financial markets and retail fund flows
Against a backdrop of generally improving economic fundamentals and a stock market recovery, retail demand for investment products was rekindled. Interest rates at generational lows of 2p.c. provided strong support as investors continued to seek out better than deposit rate returns.

The positive trend in domestic retail product flows in 2003 was mirrored in the US, where mutual fund ownership rates are among the highest. Equity mutual funds in the US received a net inflow of $152 billion, the largest inflow of new cash since 2000 according to the Investment Company Institute.

The survey results were a welcome positive after a three-year bear market in equities which had a very damaging impact on investor confidence. In a world which appeared full of uncertainty 12 months ago, clouded in mistrust of corporate governance structures, investor reticence was generally expected. IAIM members adapted to the challenge of both retaining and winning new business with some innovative product developments.

A sizeable portion of the net inflow into retail products was accounted for by SSIAs. Since SSIAs were launched in May 2001 and up to the end of February 2004, the average managed fund is showing a loss of just over 11p.c. Notwithstanding this, the value of the average managed fund SSIA is less than 2p.c. behind that of a deposit based product paying 3.5p.c. For the majority that waited until the end of the scheme (May 2002) the average managed fund is showing a decline of just over 2p.c. Euro-cost averaging has worked well, as the average fund value is 1p.c. ahead of the same deposit product paying 3.5p.c.

There has been a reasonably positive trend established so far this year in terms of investor confidence. Although, the trend of diminished risk aversion on the part of the retail investor is at odds with the continued insatiable demand for guaranteed products. In the minds of some investors ‘fear’ is still the driving factor overwhelming the ‘greed’ factor that was pervasive during the 1990s. As we look ahead to the remainder of 2004 the sense is that demand for guarantees is likely to be strong for some time.

The Irish love affair with property continues unabated with places as far flung as Christchurch, New Zealand drawing investor interest. The challenge as always is to adapt to changing investor demands. A continuation of a more stable stock market environment will help unwind the damage to investor confidence caused by the ‘bear’ market. And the push into investment product prompted by the shrivelling returns available on deposit looks set to continue, with the next move on interest rates by the ECB likely to be downward.

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