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Fund companies blamed for losses

By Jin Jing (China Daily)
Updated: 2008-07-17 09:08

A year ago, lots of investors pumped money into mutual funds, trusting that fund managers would "undoubtedly" double or even triple their investment.

But now, many blame their losses on the "unprofessional" manner of fund companies' management and investment.

Qian Chunni, a 24-year-old office worker in Shanghai, saw her mutual fund assets shrink by nearly 30 percent from the peak in August last year. "The hot fund sales last year made me believe that it must be a worthy investment," she said.

Qian bought 20,000 yuan ($2,934) worth of funds last year at the time when many fund companies were wooing investors by lowering the price of units through regularly offering dividends and splitting the existing funds.

"The low price attracted me to buy funds. No fund companies clearly warned me of the risks," said Qian.

Xav Feng, head of research of mainland and Taiwan at Thomson Reuters, said fund managers seldom point to the downsides to investors.

The bull-run and hot fund sales attracted 23 mutual funds split funds to hurriedly expand the scale beginning from the third quarter last year, despite the soaring average price-earnings ratio of A shares to an unbelievable 58 times.

To curb the speculation, China Securities Regulatory Commission released a notice in November, asking fund companies not to mislead investors so that they regard low net value funds as better for investment. Till now, those funds that have split have suffered an average of 35 percent loss in earnings.

Du Shuming, director of mutual funds research and evaluation center at China Galaxy Securities Co Ltd, said: "When the market is hot, fund companies should not solely consider their own interests by blindly expanding fund scale, but should take the actual market condition into account in order to ensure a consistency and sustainable growth in the future."

Meanwhile, in contrast to the optimism of fund managers when the index surged above 5000 points last year, many fund managers sold their stocks when the index fell under 3000 points, which led investors to attribute the market's sharp fall to fund managers.

The net capital outflows from A-share market by fund management companies and other institutional investors amounted to 7.99 billion yuan in six trading days from June 26 to July 3, according to statistics from Dazhihui Topview, a market statistics provider.

However, Yan Ji, of HSBC Jintrust Fund Management Co Ltd, said: "Fund managers are faced with the increasing pressure from investors and daily rankings, which pushes them to focus on short-term returns, though most of them are actually value investors."