The condition of domestic equity mutual funds clearly reflects the flightiness of Israeli investors. Most of all, the funds' condition is the result of the struggle between mutual funds and exchange traded funds (ETFs).
Domestic equity mutual funds currently have NIS 6.7 billion under management, just 5.7% of total assets under management by all mutual funds, after suffering NIS 2.3 billion in withdrawals since the beginning of the year. NIS 230 million was withdrawn from these mutual funds in May alone.
Even though the return on stocks is preferential over time, Israeli investors are find it difficult to make long-term investments in sector. This is seen especially in times of stock market volatility. The withdrawals from equity mutual funds is a reflection of the market slump since August 2007 as well as, and maybe primarily due to, competition from ETFs, which are grabbing market share from the mutual funds. ETFs that invest in the TASE now have NIS 9.43 billion under management, 40% more than domestic equity mutual funds, and 27% of all ETF assets.
Domestic equity mutual funds have had greater withdrawals than stock ETFs, demonstrating investors' clear preference for ETFs over the equity funds. The main reason for the preference for ETFs over equity mutual funds is obvious - the difference in costs: an equity mutual fund charges 2-4% of assets in management fees, compared with zero to 1% by a TASE ETF.
Published by Globes [online], Israel business news - www.globes-online.com - on June 16, 2008
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