SWEDEN - Less than a fifth of Swedes made active investment fund choices in the latest round of contributions to the country’s PPM system, according to figures emerging from the country’s Premium Pension Authority (PPM).

From the 500,000 new contributors to the national pensions system in spring this year - 325,000 of whom were in the 18 to 27 age group, only 18% (SEK130m) personally chose their funds out of a total SEK659m in premiums, with the balance (SEK529m) going to the default AP7 Fund.

“It is disappointing that more people did not actively chose their funds, “ said Rune Lindohf, information officer at the PPM, addressing the IMN Northern Europe pensions conference in Copenhagen.

In the first round of PPM contribution choices, where 4.4m Swedes were entitled to invest SEK56bn into mutual funds, some 66% (SEK44bn) made an active choice, with the balance (SEK12bn) going to AP7.

PPM says that combining the initial and the most recent investment selection shows average fund selection to come out at approximately 3.4 funds per person, although
investors can choose up to five funds each.
“The main reason people gave was to have a range of mangers to spread the risk,” says Lindohf.

PPM adds that internal surveys show TV commercials to be the biggest influence on most individuals in their fund selection process.
Nonetheless, the PPM’s own information package was found to be the main source of information about the funds available for investment.
However, surveys also discovered that in the latest round 34% of investors believed they had made a fund selection, against the 18% that actually had.
“It is very interesting that in the second selection some 40% (20% in the first) said ‘I will make a selection later, it does not suit me to do so currently’,” Lindohf notes.

The same pattern of fund investment was followed this time as in the first selection round, where SEK12bn went into foreign equities and SEK6bn into Swedish equities, a factor which helped drive the currency down at the time, Lindohf pointed out.

While Swedish managers again dominated the ‘top five’ list, two foreign managers Pictet and Carnegie did well. “There was more sign of foreign managers,” he notes. International managers became more important in the second round, which Lindohf attributes to a more globally minded generational shift.

A worrying trend in both rounds though, Lindohf notes, were those choosing the AP7 fund as a safer investment choice. “We want to get away from that idea, as it is no safer than any other fund with the same asset allocation.”
But, while there has been little switching so far, PPM points out that some 60% of those actively choosing the AP7 fund say they intend taking responsibility for their account later on.
The PPM says it will be concentrating its “educational efforts” on getting the message across that there is no inherent difference between AP7 and other funds.

Lindohf said that there would be 100,000 new faces joining the system each year, with SEK120m to invest on top of the existing SEK20bn inflow each year. “It may be hard to get people to switch once they have made the choice, but investors seem to stay there.”
And while many people say they want to make a selection of funds in the future, it seems to be the recognised players, particularly among the Swedish managers, that are getting the business.
“People have to know who the fund manager is,” Lindohf, concluded.

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