Mutual funds, 2008

The value of all mutual fund shares decreased by NOK 139 billion this year, eliminating most of the increase of the previous two years.

From growth to fall

Following two consecutive years of growth in the value of mutual fund shares of more than NOK 70 billion annually in 2006 and 2007, the mutual fund shares capital dropped by NOK 139 billion in 2008. Of this drop, NOK 34 billion is due to net redemption of mutual fund shares. Households and insurance companies redeemed mutual fund shares for NOK 14 and NOK 12 billion respectively in this period. The remaining drop in the mutual fund share capital in 2008 can largely be explained by dramatic declining market values at the world’s stock markets following the financial crisis. However, this decrease was to some extent offset by foreign exchange gains due to the strengthening of many currencies compared to the NOK in the last part of 2008. As a result, the mutual fund shares were NOK 319 billion at the end of 2008 compared to NOK 457 billion at the same time in 2007.

Bond funds were the only type of mutual funds that investors net purchased during 2008. Equity funds, money market funds and combination funds were all net redeemed by investors and the net redemption of equity fund shares amounted to NOK 14 billion in this period.

Reduced holdings of equity

Mutual funds held NOK 121 billion in equities and NOK 103 billion in bonds as of December 2008. Compared to 2007, the equity holdings have been reduced by NOK 95 billion, while the bond holdings have remained at about the same level.

A total of 41 per cent of the mutual fund holdings were invested in foreign securities as of 31 December 2008. Most of these foreign holdings were in securities quoted in USD, but the mutual funds had also large holdings of securities quoted in EUR and SEK. The USD and the EUR both strengthened relatively to NOK, resulting in the funds portfolios increasing in value. Both the USD and the EUR strengthened by more than 20 per cent from the end of 2007 to the end of 2008 compared to the NOK. This strengthening had a positive impact on the funds’ portfolios, and contributed to offset some of the negative effects on their portfolios due to the financial turmoil in 2008.

Continuing fall in households’ share

Households held mutual fund shares for NOK 83 billion at the end of 2008, which is 26 per cent of the total mutual fund share capital at that time. In comparison, the households’ share of the total mutual fund share capital was approximately 60 per cent 10 years ago, at the end of 1998. The insurance sector has increased its share of the mutual fund share capital significantly over the same period of time. At present, the life insurance companies are the largest holder of mutual fund shares and their holdings amounted to NOK 94 billion at the end of 2008, or approximately 29 per cent of the total mutual fund share capital.

Large deficit

The dividend and interest payments received on stocks and bonds by the mutual funds were higher in 2008 than the two previous years. However, the mutual funds faced very large realised and unrealised losses on securities. Consequently, the mutual funds ran the largest ever deficits of NOK 96 billion in 2008.

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