Indonesian mutual fund investors have blinkered outlook: Analyst

The Jakarta Post, Jakarta

The Indonesian mutual fund industry will continue to struggle as long as most investors maintain a short-term investment horizon, according to the head of research at Mandiri Sekuritas, Kahlil Rowter.

"People go in and out of mutual funds frequently. Whenever there is a (negative) price movement, they redeem their funds," said Kahlil at a recent seminar on mutual funds hosted by the Chartered Financial Analysts of Indonesia and PT Mandiri Manajemen Investasi.

He said many investors held mutual funds for just a month before redeeming them and reinvesting the proceeds in either bank deposits or different mutual funds with higher returns.

"It is more like trading than investing," said Kahlil.

Last year, fund managers held their portfolios for less than 70 business days on average, compared to an average turnover rate of 230 days in the United States.

According to data from the Capital Market Supervisory Agency (Bapepam), as of May there were more than 300,000 mutual fund investors holding over Rp 82 trillion worth of funds.

This is down from the all-time record of Rp 110 trillion reached in February.

Kahlil said that although the drop was initially triggered by fears of inflation and an expected increase in interest rates, it was exacerbated by the herd-like behavior of short-term investors.

Kahlil said shifting investors' horizon to the long term would be a difficult task.

"Indonesian investors are very averse to uncertainty and big risks. Also, there is a lack of transparency and legal certainty."

The head of research and investment management of Bapepam, Freddy Saragih, said his agency was not obliged to try and turn people into long-term investors.

"How can we educate them? We do not have the money or the experience to change people's views," said Saragih during the seminar.

Saragih said Bapepam was actively taking steps to increase public confidence in mutual funds, including forcing fund managers to apply marked-to-market pricing to establish their daily net asset values.