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Mutual Funds - 1998 (1st Semester)


II - THE EVOLUTION OF MUTUAL FUNDS INDUSTRY

Mutual funds, as they are known today, appeared in Portugal in 1986. Since then, this financial activity has registered a strong development. By the end of June 1998, 18 fund management companies were in activity with 250 investment funds.

In the last four and a half years, mutual funds activity registered a strong increase. Between 1993 and June 1998, total funds’ assets increased at an average annual rate of 26%. This increase was also fueled by the positive performance of the stock exchange particularly during the years of 1996 and 1997.

By the end of June1998, fund management companies had about PTE.4,656 bln.


The mutual funds’ portfolio still reveals the importance of the short-term financial instruments such as bank deposits, treasury bills and commercial paper, although the actual trend points out towards a gradual reduction of the weight of this assets.

Yet with a small expression, the risk components in the portfolio of mutual funds have been increasing through the investment in shares and other funds’ units.

The importance of shares in portfolio’s composition has been growing consistently, representing, by June 1998, 15% of the industry assets.

Portfolio’s Composition Evolution

​19931994​1995​1996​1997​1998 (*)​

Bank Deposits

11,9%

31,8%

30,8%

16,3%

20,4%

16,5%

Treasury Bills

21,0%

19,2%

17,6%

13,8%

2,5%

0,7%

Commercial Paper

0,1%

0,6%

6,6%

8,1%

4,6%

5,8%

Public Debt

33,7%

28,1%

23,2%

24,6%

19,6%

18,1%

Bonds

28,6%

16,1%

13,8%

24,6%

26,6%

26,5%

Shares

4,1%

3,0%

3,7%

6,7%

11,9%

15,4%

Unit shares

-

-

4,8%

6,3%

15,6%

17,5%

Other Securities

0,6%

0,5%

0,4%

0,3%

0,5%

0,4%

Values to Settle

-

0,7%

-0,9%

-0,7%

-1,7%

-0,9%

TOTAL

100%

100%

100%

100%

100%

100%

(*) Data from June


Since 1994 new regulation made international markets accessible to Portuguese mutual funds. Consequently, the international applications of mutual funds have been increasing specially in the European Union markets.

By the end of June 1998, applications in bonds (68.2%) and shares (26.9%) in international markets assumed already an important role, in comparison with total applications for each category of securities.


Applications of Mutual Funds by Market

​Public Debt
Bonds​Shares​Participation Bonds​Rights​

Portuguese Markets

90,5%

26,5%

67,5%

100%

45,7%

EU Markets

6,9%

58,7%

22,6%

-

13,4%

Other Markets

0,0%

0,1%

4,0%

-

-

National Pre Listed

2,2%

4,3%

4,3%

-

3,9%

Foreign Pre Listed

0,4%

8,2%

-

-

3,1%

National Non Listed

0,0%

1,0%

1,6%

-

33,9%

Foreign Non Listed

0,0%

1,2%

-

-

-

TOTAL

100%

100%

100%

100%

100%

June 1998

Mutual funds can be classified in two types:

  • Open-ended funds have a variable number of units. These funds allow investors to purchase or redeem their units at any time. This type of funds fulfils the conditions imposed by the UCITS  Directive (Council Directive 85/611/EEC of 20 December, relating to Undertakings for Collective Investment in Transferable Securities), which allow the free commercialization of open-ended funds in the European Union;
  • Closed-ended funds have a fixed number of units. If listed, investors can buy or sell their units in the Lisbon Stock Exchange.

Money-market funds and funds of funds are also regulated by the mutual funds regulation.

Money-market funds hold short-term financial instruments such as treasury bills, commercial paper and bank deposits.

Funds of funds is the most recent category of funds. They have been very well accepted by the Portuguese investors. By the end of June 1998, total funds of funds portfolio had PTE 874 bln., of which PTE 81 bln was invested in foreign funds.

Personal Equity Plans and Retirement Plans are a special type of mutual funds which give tax benefits to the unit-holders.

By the end of June 1998, the net asset value was:


Net Asset Value by Type of Funds

​Net Asset Value
​Number of funds

Open-ended Funds

2.372,2

128

Closed-ended Funds (*)

95,5

6

Money-Market Funds

1060,3

42

Funds of Funds

874,6

50

Retirement Plans

184,0

8

Personal Equity Plans

69,7

16

TOTAL

4.656,3

250

(*) Five equity funds and one mixed. Pte: 10^9


The open-ended funds can also be classified according to the investment policy.


Open-ended funds by Category

​Net Asset Value
​Number of funds

Bond Funds 2

1.521,5

65

Equity Funds 3

477,5

49

Mixed Funds 4

373,2

14

TOTAL

2.372,2

128

Pte: 10^9
2 Bond Funds predominantly bonds and cannot invest in shares
3 Equity Funds must unvest 60% or more of total assets in shares
4 Mixed Funds are no subject to the previous requisites

Although it is not a specific type of fund it also exists the so called "umbrella funds".

An Umbrella fund can aggregate two or more mutual funds ( with the exception of funds of funds) and is mainly characterized by the flexibility and advantages they offer in the redemption and purchase of units "inside the umbrella".

By June 1998 there were 5 umbrella funds which aggregate 21 mutual funds.