Mutual fund mangers are getting more and more creative when it comes to investments, in an attempt to get the highest possible yields to attract investors.
The top performing fund since the beginning of the year, Orizont, managed by Certinvest, made most of its profit this year from speculations with mutual funds, instead of bonds, which are its specialty.
The fund speculated the growth periods on the Bucharest Stock Exchange, buying fund units in another mutual fund managed by Certinvest, as managers can know how this fund will perform beforehand.
The average investor cannot make such speculations, however, because of the prohibitive repurchasing fees charged by equity funds for short-term investments.
Speculations with mutual fund shares are investments that are almost certain to yield a profit and are perfectly legal on the Romanian market, unlike most developed capital markets, where they are prohibited or heavily regulated.
As far as investors are concerned, the mutual funds provide the advantage that the purchasing and repurchasing value of the shares in a specific day is calculated based on the quotes on the Stock Exchange two days before that, so that it is easy to calculate where the fund is headed over the next two days knowing its portfolio.
In the absence of legal provisions, the Romanian managers shield themselves from speculators that can affect their performance by charging high commissions on short-term investments.
Orizont, however, is exempt from paying commission to the Intercapital fund, according to the issue prospectus of the latter, unlike the average investor who has to pay up to 3% fee for investments made for less than 90 days.
The reason why such transactions are heavily regulated on foreign markets is that they allow an investor to put his money next to that of the other investors in the fund only when profits are made, letting the others share the losses among themselves when the market goes down.
"Orizont's investments in Intercapital have not affected the performance of the latter significantly, given the sizeable difference between the assets of the two. We are fighting for performance for all the fund categories we manage," stated Eugen Voicu, Certinvest chairman.
A Romanian-born US broker, Daniel Calugar early this year agreed to pay a 153 million dollar fine in a settlement with the Securities and Exchange Commission. He was accused of having engaged in speculations with mutual funds based on the closing prices on the stock exchange.
There are no regulations regarding this type of speculation on the Romanian market, yet CNVM (National Securities Commission) representatives say they are to issue rules in this regard.
"The situation will be cleared up by modifying regulation 15/2005," stated Ciprian Ene, CNVM spokesman. He added the granting of preferential repurchasing fees to some investors is not in breach of the law as long as such fees are documented in the fund's papers.
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