Spanish investors are beginning to react after the cold they caught last year. According to the experts, 2001 will go down in the history of investment funds as one of the most difficult years of the decade. But in spite of the stock market upheaval caused by the tragic events of September 11, in the end stock subscriptions outnumbered sales. That is to say more people took the plunge than got out of the pool.

 

An investment fund is in effect the pooled placement of capital on the markets by many investors who may be natural or legal persons (i.e. individuals or entities). Participants in a fund hold certificates or units representing their share in that fund, and they receive a percentage of the return on the pooled investments in proportion to the number of certificates or units they have.

 

To take part in an investment fund an investor needs to acquire a share which makes him or her a participant in that fund. The management of investments is the responsibility of institutions specialised in the matter, known as collective investment institutions management companies. The third essential player is a depository bank, responsible for the supervision and monitoring of all operations carried out by the fund, the custody of securities, receipt of investments from participants, control of the liquid assets the fund must have by law, and supervision of the fund manager. The fund manager is the entity responsible for managing the funds and taking the right decisions regarding investment policy, as well as calculating the daily value of each participation. The fund manager also has the task of actually carrying out trading activities on the securities markets.

 

Types of funds
The funds that collective investment institutions invest in can be broadly divided into two types, depending on whether investments are in assets of a financial or non-financial nature.

 

Among the first type are Securities Investment Funds (known as FIM in Spain) -fixed income, equity income, mixed and currency-; Money Market Funds (known by the acronym FIAMM in Spain); and funds investing in Government Debt or Treasury Funds. Real Estate Investment Funds (FII in Spain) are among the most important of the latter type, which also includes guaranteed funds.

Average commissions are under 1% (between 0.9% and 0.95%) in FIAMMS (Money Market Funds); and under 1.4% in FIMs (Securities Investment Funds). The reason why total commissions in Spain are lower than those in the EU is perhaps due to the absence of any set-up fee: since Spanish investors are not yet in the habit of buying into investment funds, having to pay a commission to participate in them might put many would-be investors off.

 

Since last year the Spanish investor has benefited from a drop in deposit commissions, which now stand at 0.2% of the capital, as opposed to the 0.4% charged up to the beginning of 2001. 

 

Guaranteed funds (those which guarantee investors a certain profit in a specific period) were the favourites for much of the year, manly due to the caution shown by investors at times of high market volatility. For this year some of the major banks are opting for this type of fund. Conversely, tech funds were hard hit during the year 2001, as were products basing their investments on emerging markets and Japan.

 

Equity income funds last year provided a lesson to any investor wise enough to heed it: only four of all the Spanish equity income funds managed to weather the storm and close the year with a positive yield, compared to the 98 products which made losses of between 0.57% and 27.39%. International equity income funds fared even worse, with some products losing as much as 55.62%. Of the 348 funds making up this group, 26 made a profit, though only three topped 10%. For the year 2002, which has kicked off with uncertainties surrounding the economic growth of the major world powers and a crisis in Argentina, experts are predicting a difficult year, but not as bad as the last one.

 

Legal framework.
Spanish political authorities are currently studying a draft bill to be known as the Law of Collective Investment (at the moment the legislation is at draft stage). Spanish legislation is currently obliged to incorporate two EC directives (one concerning products and the other fund management companies), although experts agree that neither of them will bring about any great change since Spanish legislation is ahead of Europe in this matter.