Danish fund industry association jumps into active versus passive debate

The Federation of Danish Investment Associations has reacted to an article on active versus passive investments in financial newspaper Børsen, with its own view on the advantages on offer from the country’s fund industry.

On 30th October 2012 the Danish financial newspaper “Børsen” published an article on active contra passive investment strategies and also on distribution fees – which the investment associations pay to ensure investment advice is given to investors, and to ensure distribution of certificates through the Danish banks and other channels. The Federation of Danish Investment Associations (InvesteringsForeningsRådet, IFR) made the following comments to the article.

The distribution fee is the cost which the associations pay to have their products distributed to the investors. The fee covers the distribution ensuring that the investors are advised about individual products and the composition of the investments, etc. The counseling is within the MiFID regulation, etc. As most Danes prefer dealing with their banks, and as most investment companies are established on the initiative of a bank, most companies have close cooperation with one or more banks regarding the distribution of investment funds and the counseling of their investors. A few have chosen to handle the distribution themselves.

Active contra passive are two types of investments, each with their advantages and disadvantages constituting different approaches for investors to choose from. Passively managed funds aim to keep costs low. Actively managed funds are supposed to give a higher return than the market. Differences in performance may be observed within both types of funds. The management companies compete with each other. Therefore, it is a good idea to look for better administration among both active and passive managed funds. In The Federation of Danish Investment Association we do not recommend one over the other type of investing. We have members who believe in active management, and others who prefer the passive management of their funds. We also have members who choose both products. Our members offer the investments they believe in and which meet the needs of the distributors and the investors. Most important is that the investors obtain a satisfactory return after the costs according to the chosen risk.

Cheaper than abroad. The distribution fee is part of the companies’ total expenses. In the autumn of 2011, Morningstar Denmark executed a survey on the administration cost in Denmark compared to the rest of Europe. They concluded “that the typical Danish fund generally is cheaper than the typical European fund – regardless whether it is an equity fund, a bond fund or a balanced fund.”

Best in Europe. The Danish investment associations are number one in Europe among a total of 15 countries that Morningstar monitors. Morningstar assess the funds’ historic returns taking into consideration the costs and risks involved.

 

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