Academic journal article Economics & Sociology

Open-Ended Funds in Romania. Their Performance in an Economically Difficult Environment

Academic journal article Economics & Sociology

Open-Ended Funds in Romania. Their Performance in an Economically Difficult Environment

Article excerpt

ABSTRACT.Romania is one of the emerging markets, where the investment funds market is less developed than in other European countries, but developing fast. The number of open-ended funds increased in the 20 years of existence of the investment market, reaching 60 in 2012. The paper looks at the open-ended funds' evolution (measured through the yearly changes in value of the fund unit), in the period 2010-2012. The main objective is to analyze the performance of the different types of mutual funds in a comparative manner and to assess them against the industry benchmark. The analysis takes place in a period of economic turmoil and based on the findings, the paper attempts to point out advices on what would be good placements for investors during economically difficult periods.

JEL Classification :G23, G11, D53, E22

Keywords: open ended funds, Romania, investment funds' performance


Investment funds represent an alternative investment opportunity to bank deposits or to direct investments on the Stock Exchange. They contribute to the development of financial markets, as new possibilities of investment for those who have available resources. Among those, open ended funds are seen as a primary instrument of investment for most individuals and households (Lenard et al., 2003). In the last decades, the role of mutual funds increased in the financial markets, as in 2007 the world mutual funds industry administered financial assets of 26 trillion USD compared to 1996 when there were administered 6 trillion USD assets (Ferreira et al., 2010).

The investment funds industry in Romania is a young industry, as it has only 20 years of existence. Its youth places it as an underdeveloped market, by comparison to the U.K, Germany and France from Europe or United States from America. The industry had an initial difficult start at the beginning of 1990's, when due to the lack of regulating rules, investors lost a lot of money and registered high failures on the investment funds market. Once the market started to be better regulated, allowing for higher control and less risk of failure for investors (due to un-appropriate calculation methods), it also started to develop.

The main objective of this paper is to compare the evolution of different types of open ended funds of Romania and their performances in the last years in order to identify which categories of funds performed better in the context of the present economic crisis. The evolution is measured through the funds' yearly changes in value of the fund unit.

Investment funds and their performance - a literature review

Investment funds are organizations that gather funds from individuals and invest these funds in securities traded on the stock exchange, in money market instruments and in municipal or corporate bonds. They represent an alternative investment option to deposits in commercial banks and to direct investments on the Stock Exchange (Prisacariu et al., 2008; Bodie et al., 2009). Investment funds are classified according to different criteria: method of management, goals, the composition of the fund's portfolio, markets and investment strategy. The method of management is seen as the most important criterion to classify investment funds and according to it, there are three types of investment funds: a) unit investment trusts, b) open-ended funds and c) closed-end funds. The unit investment trusts administer a fixed portfolio that is seen as being "unmanaged" (Bodie et al., 2009), as compared to the other two types of investment funds (open- ended and closed-ended funds) that hold portfolios that are continuously bought and sold, therefore being "managed". The open-ended funds issue permanently investment assets, allowing some investors to subscribe permanently and simultaneously allowing others to totally drop out. On the other hand, the closed-ended funds do not issue permanently and they address only to a limited number of investors, who purchase the shares when the fund is launched and redeem them when the fund closes. …

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