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SCMP Reporter

THE concept of no-load mutual funds has failed to win widespread support among Hong Kong's business community.

  Regent Financial Services introduced the idea to the territory in 1992, arguing they offered an excellent vehicle for investors.

  But since the fanfare of the initial launch, few similar schemes have been marketed.

  In the United States, no-load funds - which are sold directly to investors by fund management companies and do not rely on intermediaries - are now thought to make up about 50 per cent of the mutual fund market.

  But in Hong Kong the industry relies almost exclusively on intermediaries or advisers to sell funds, and is very cool about the viability of the alternative system.

  Most funds in Hong Kong are front-end-load unit trusts, which deduct a percentage of investors' initial outlay.

  This fee ranges from four per cent to six per cent and is used to pay the financial intermediary.

  The same load is charged even when investors apply directly to the management company.

  In a no-load fund, investors do not pay a fee on entry. Instead, in funds such as those offered by Regent, they are charged a performance fee which takes effect once the fund generates a return above an agreed level.

  This is not a blanket definition and there are no-load funds which do not charge a performance fee.

  Regent charges a one per cent annual management fee and a one per cent redemption fee for any investment which is redeemed within two years. It also has a performance fee of eight per cent which comes into effect once the fund's return rises above 10 per cent per annum.

  Resistance to no-load funds in Hong Kong's mutual fund industry is widespread even from companies such as Fidelity Investments.

  Fidelity has one no-load fund in Hong Kong, the Fidelity Income Plus Fund. But regional marketing manager Richard Wastcoat said: 'I think Regent is a lone voice in the wilderness.

  'The identity of the company and the quality of service are more important to Hong Kong investors than price.'   Like other companies specialising in no-load funds, Regent maintains it is offering a cheaper service to investors.

  'The difference is that we sell direct and don't pay an intermediary to sell our fund and that's a cost that doesn't get passed on to investors,' said Regent Financial Services manager Astrid Stapleton.

  Regent said most of its clients were from the US, Canada and Europe, where no-load funds are commonplace.

  'A good performance is still what clients are after, but people who understand how mutual funds work always see the benefits of a no-load fund,' said Mrs Stapleton.

  The Hong Kong Investment Funds Association (HKIFA), the territory's unit trust body, has a neutral stance on no-load funds.

  Templeton Franklin marketing director Stewart Aldcroft argued that while cheaper initially, no-load funds were more expensive for investors, especially in Hong Kong's volatile markets.

  Regent is thought to be the only active promoter of no-load equity funds in the territory, but later this month it will be joined by private bank Hill Samuel, which will launch the Private International Portfolio, a balanced fund investing in equities, bonds and cash.

  Unlike Regent's fund, it will not have a performance fee and will charge only a 1.5 per cent annual management fee.



Few takers for no-load funds system