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March 05, 2002 at 07:00 PM
NU Online News Service, March 5, 10:15 a.m. – U.S. mutual fund companies and their producers may have to work overtime to persuade the typical investor to pay for a guarantee of principal.
Despite two years of stock market volatility, American fund experts are still skeptical about the guarantee concept, even for the most cautious investors.
“If you’re that risk-averse, you probably shouldn’t be in an equity fund,” says Brian Portnoy, a fund analyst in Morningstar Inc.’s Chicago office.
“Guaranteed” mutual funds and “principal-protected” funds are popular outside the United States, in countries where older investors have vivid memories of financial and political turmoil.
In Hong Kong, for example, guaranteed funds accounted for about 44% of new mutual fund sales during the first 10 months of 2001, according to a January report carried by the Dow Jones Newswire.
DWS Investment S.A., Luxembourg, an affiliate of Deutsche Bank, has estimated that guaranteed funds account for about 20% of its mutual fund assets.
When Morningstar polled executives at 43 large European fund companies in late 2001, it found that five executives expected guaranteed funds to attract more money than any other type of fund over the next 12 months.
In the United States, insurers make investment guarantees a key selling point for variable annuity contracts, but fund companies have been trying to sell guaranteed mutual funds outside VA wrappers for years without getting much attention.
