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Over one third of sales move into a single fund, research shows

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For ten of the most popular sectors in 2009, on average over one third of annual net sales flow into a single fund, according to a report by Lipper FMI.

The report, Zen and The Art of Mutual Fund Maintenance, says this sounds a note of caution for asset managers considering new product launches, as well as highlighting the apparent herd instincts of distributors recently.
 
Comparing cross-border European equity funds’ performance with their sales, Lipper FMI’s research found that in 85 per cent of the time periods assessed, first quartile funds achieved the greatest net sales based on one-year performance. 

However this proportion fell to 75 per cent for three-year performance and virtually disappeared for five-year performance, with the proportion falling to just 33 per cent.

Apart from the initial sales activity when a fund is launched, a stellar one-year performance record is virtually essential in order to generate significant inflows. 
 
The largest groups (with over 60 funds each) attract an average 71 per cent share of net sales each year.

The report says it is difficult to see how large cross-border companies can reduce the size of their fund ranges while still maximising opportunities to build relationships with different distributors in different markets.  
 
The analysis has a knock-on effect for fee levels and fund companies’ need to build good relations with distributors. Annual fee levels for cross-border funds continue to rise for retail investors, but are falling for institutions.
 
Ed Moisson, author of the report, says: “The way funds are distributed in Europe has played an important part in the rise in funds’ fee levels for retail investors. The evolution of the active versus passive product mix in fund ranges, the rise of Ucits III alternative strategy funds, and the likely opportunities with Ucits IV, all suggest that discussion of fee levels is hotting up. But it will take seismic shifts for the asset manager-distributor dynamics outlined in this report to change.”

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