Mutual funds suffer biggest-ever outflow losses

Once in great demand, Russia's mutual funds have been experiencing a record capital outflow in the last few months, with October alone seeing an outflow of $US 250 million.

Some analysts say investors have become used to the high profits of shared funds, and that when the market falls, managing companies struggle to keep their clients.

In September mutual funds losses totalled more than $US 70 million. This figure climbed to almost $US 250 million in October. The biggest losses were sustained by Uralsib funds, which saw more than $US 140 million withdrawn, while Troika Dialog lost about $US 60 million.

Analysts say investors are expressing disappointment with the lack of market growth. The RTS has grown 18% in rouble terms since the start of this year, while the previous two years saw it return more than 80%.

The other side of the coin may be in the very returns of those years, with some seeing the profit growth of 2005 and 2006 as undermining the markets stability.

Market analysts say more attention needs to be paid to consultations with clients.

“I think 25-30% yearly profit is absolutely reasonable. It's not as frightening as the 50%-60% growth of previous years. After consultation, 70% of our clients who wanted to take out their money, either didn't do so or even put in more. I think this is why UFG is not experiencing the capital outflow of some of our competitors,” commented Igor Ryabov, Mutual Funds Sales Director at UFG.

UFG was among the first to start working with mutual funds after laws were introduced to facilitate mutual investments in the mid-1990s. It currently has the third largest open-ended fund, which allows investors to withdraw at any moment. But Russia's mutual fund industry still has a long way to go.

“Currently about 350,000 people invest in mutual funds in Russia, fewer then 1% of the employed population, and with such growth in incomes,  this market should be tens times bigger,” added Ryabov.