Every year, thousands of new investment funds see the light of day. A catchy name, an attractive website and a slick factsheet tout a new, seemingly well-thought-out investment strategy that offers investors a unique opportunity to respond to current investment themes, making use of the proven expertise of fund houses. However promising new investment funds are presented, many do not survive the test of time.
A glance at the investment fund graveyard shows that the lifespan of strategies does not match the long-term horizon of their fund managers, while many funds still lead an anonymous and moribund existence in the mothballs of fund houses.
So wrote Jeffrey Schumacher of Morningstar in his contribution to Fondsnieuws, Investment Officer Luxembourg’s sister publication.
At the end of November, there were 1671 European actively managed investment funds that will cease to exist in 2021. The majority, 967 funds, were permanently wound up, while the others were merged with another, perhaps more promising, strategy. Of these funds, 400 have been in existence for less than five years, while the rest often languished before the lights went out.
Declining interest
One example is DWS Inter-Renta, which was merged with DWS Eurozone Bonds Flexible on 24 June 2021. The memo announcing the merger is illustrative of what often underlies such a decision, noted Schumacher. “Years of waning investor interest due to disappointing results resulting in a lack of scale and the fund no longer being viable. It caused DWS Inter-Renta to close the book after a 52-year existence. The respectable age that DWS Inter-Renta was able to reach is, however, not expected to be the case for most active investment funds that are still alive.”
Another reason why investment funds cease to exist or merge into other strategies is when a fund manager itself is taken over and the product range is rationalised by the acquiring party. “We have seen this in 2021 with Kempen, for example,” explained Schumacher. The takeover of Hof Hoorneman Bankiers by parent company Van Lanschot Kempen brought with it various in-house funds of the bank that were transferred to the asset manager. Some funds did not fit Kempen’s investment philosophy, while others had much overlap with the bank’s own funds. As a result, eight Hof Hoorneman funds ceased to exist.
Converting to sustainable
What Morningstar also sees happen regularly, and what is not included in the liquidation figures, is that (inferior) investment funds get a second life by repositioning them. “For example, we are increasingly seeing conventional funds being converted to a sustainable investment strategy. The hope is that such strategy changes will breathe new life into the fund. Although this can offer new opportunities for investors in the fund, they usually have to pay the bill for this first. The (trading) costs incurred in rebalancing the portfolio are often charged to the fund and thus to the investors. They are therefore paying the bill for the investment fund’s failing investment policy.”
“If we take a look at the funds that are still active, we also see many candidates for rationalisation: over 7100 investment funds. These are investment funds that have been in existence for at least five years, have less than €100 million in assets under management and have seen an outflow of capital over the past five years. For these funds, their economic raison d’être seems questionable. While this is unfortunate for some funds given their above-average performance, funds with one or two Morningstar stars appear to be over-represented. Of the approximately 4400 funds within this group with a star rating, 43 per cent have only 1 or 2 stars. Many of these funds also charge above-average fees compared to their category peers. In that respect, these funds are priced to fail.”
Top 5
This week’s top 5 is compiled based on the number of funds that have merged with another strategy per fund house by 2021. Leader in this ranking is Amundi, which gave 69 investment funds a second chance by merging them into existing investment funds.: “Amundi Euroaktien, for example, merged into Amundi Ethik Plus at the end of June after its assets had fallen to EUR 24 million and it was therefore no longer profitable to continue the fund, said Schumacher.” Several funds of subsidiary Etoile Gestion were also transferred to other funds.”
Eurizon shifted 44 investment funds to a different investment strategy this year. The Italian asset management arm of Intesa Sanpaolo mainly revamped the range of allocation funds in 2021, merging many small funds to increase fund capital. The average fund assets of the strategies that were terminated hovered around EUR 22 million.
Spain’s Santander is in third place with 29 fund mergers in 2021. The newly created allocation fund Santander Multiactivo Sistemático benefited the most from the merger of several smaller funds and saw a total of around EUR 1.8 billion transferred from strategies that were terminated.
Fund house
Number of merged investment funds in 2021
| Amundi | 69 |
| Eurizon | 44 |
| Santander | 29 |
| Anima | 19 |
| Unicaja | 18 |