Mortgage funds are growing
Mortgage funds in the fourth quarter of 2014 grew by EUR 0.8 billion (+13%) to EUR 6.7 billion. Partly owing to this, assets under management of Dutch investment funds climbed EUR 4.3 billion (+0.6%) to EUR 748 billion. The remainder of the increase was largely attributable to achieved price gains. Growth of assets under management was curbed by net outflows to the total of EUR 9 billion.
Mortgage funds are funds that invest in mortgages. These investments mainly concern indirect investments made by pension funds. Pension funds extend residential mortgage loans through these investment funds, e.g. by participating in investment funds offered by asset managers, or by entering into partnerships with other market participants. In the fourth quarter of 2014, extended residential mortgage loans on the balance sheets of mortgage funds increased by EUR 0.8 billion to EUR 6.7 billion (see Figure 1). The increase for the whole of 2014 amounted to EUR 3 billion (+81%). Although at 1% the proportion of the total outstanding residential mortgages held by mortgage funds is still modest, it has almost doubled in twelve months' time.
Figure 1 - Investments in residential mortgages by Dutch investment funds (outstanding amounts)
Partly owing to growing mortgage funds, total investments made by all Dutch investment funds achieved record levels for the sixth consecutive quarter (see Figure 2), increasing by EUR 4.3 billion (+0.6%) to EUR 748 billion. The remainder of the increase resulted from achieved price gains, which in the fourth quarter of 2014 amounted to EUR 14 billion, and were in turn attributable to capital gains achieved in global and US equity portfolios. Price losses were, however, incurred on emerging market equities, and we also saw negative revaluations on commodity investments due to declining commodity prices. Total returns on investments (including investment income such as interest and dividend) ended up at 2.5% on a quarterly basis, relative to 3.9% in the preceding quarter (see Figure 2).
Figure 2 - Investments by Dutch investment funds
The growth of investment funds was curbed by net withdrawals, which were seen for the first time in three years (see Figure 3). Net outflows in the fourth quarter of 2014 came to approximately EUR 9 billion (1.3% of assets under management), mainly due to transfers and rebalancing of investments by several pension funds. On balance, they withdrew EUR 15 billion worth of investments in the fourth quarter from investment funds established by pension fund investment managers (2.6% of capital invested by pension funds in Dutch investment funds). On the other hand, as in the previous quarter, money flowed into investments funds from insurers as a result of opening up of insurance funds to external investors. This is why these funds have now been included in the investment funds statistics. Such restructuring operations at asset managers are related to changing European regulations governing managers of alternative investment funds (the Alternative Investment Fund Managers Directive), and changed cost structures as a result of the ban on commission.
Withdrawals were made from bond funds (- EUR 7,1 billion), equity funds (- EUR 4.7 billion) and hedge funds (- EUR 1.5 billion). Real estate funds, however, enjoyed an inflow of EUR 1 billion and the ‘other funds' category saw deposits of EUR 2.7 billion (see Figure 3). In addition to mortgage funds, these deposits were mainly accounted for by commodity funds.
Figure 3 - Net Deposits into Dutch investment funds by investment category