Battle of the mutual funds heats up in HK

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Published: 12:00am, 12 Jul 1998

THE embattled fund management industry is to become the scene of a new battle: traditional 'front end' charging versus no-load funds.

In the latter corner is Manulife Funds Direct (MFD), which bought Regent Pacific's Asian mutual fund business in 1996 and is pioneering the no-load funds in Hong Kong.

Rather than pay an initial fee, which in Hong Kong is about 5-6 per cent, investors in the MFD funds simply pay the daily management fee (which is also levied by conventional-charge funds) and then a performance fee once certain targets are reached.

Older hands in the Hong Kong fund management industry - MDF boasts a 100-year track record via its parent insurance company, but the mutual fund business is relatively young - disagree with the concept, arguing the territory is not ready for it.

'The majority of people in Asian markets are and remain unfamiliar with mutual fund products,' Templeton Franklin Investment Services Asia director Stewart Aldcroft said.

'Therefore, it's still going to be quite a long time before people are sufficiently educated to then understand what this is about before they can then make an educated choice about no-load funds. We are still a long way from that.' Not so, responds Philip Hampton-Smith, managing director of MDF: 'Nobody's offered no-loads so people need to know what these things are. The reason why we've gone into the market on this basis is we would like to see our customers make money.' Global experience suggests the move towards no-load is inevitable, even in Hong Kong where mutual fund ownership represents a tiny 3.1 per cent of the population. In the United States, more no-load funds are sold than the conventional variety, and they are growing in popularity in other countries too.

In Britain, for example, the aggressive entrance of Virgin Direct - the financial services unit under bearded entrepreneur Richard Branson - has capitalised on its no-load credentials to capture a substantial market share in the space of a couple of years.