Mutual Funds

By CHARLES KING THE unit trust movement, a sleeping beauty for many years, roused from its enforced slumbers in 1953. It was in that year that the Treasury relaxed controls on the raising of new money by public subscription.

A lot has happened in the movement since then. But a lot more must happen if it is to become the savings force it could and should be. Its present size is some £228,000,000. A fair sum, but it becomes chicken-feed when com- pared with the £7,368,000,000 of National Savings and the £3,000,000,000 in building societies.

A comparison of net new savings through these three channels shows the following for twelve months: Unit Trusts .. .. £3,500,000 National Savings £314,000,000 Building Societies .. £200,000,000 In addition to these sizeable sums there must still be a large amount of money in the public's hands which would be better employed in the savings movements.

How are unit trusts to attract a larger slice of the country's new savings? One's mind immediately jumps to the well-used block offers. There is no denying that these have attracted a lot of new investors into the unit trust fold in recent years. From the managers' side, block offers are the most effective, and therefore the cheapest, form of advertising. As yet no adver- tisement, however good, without the mystic figure of the number of units on offer boldly stated at its head, has pulled in enough sales to make the Outlay really worth while. Few, if any, manage- ments could afford a sustained comprehensive educational campaign. Indeed, it is doubtful whether they would see their money back for a long time to come.

Unless block offers are made when stock markets are buoyant, i.e. when share prices are rising, the trusts arc often unable to display the 'sold out' notice. It follows, therefore, that a fully subscribed offer usually means that many investors have bought their units—often a first- footing in risk investment—at a higher price than the average they would have paid if they had been buying smaller lots of units over a period. The result may be a dissatisfied unitholder who is not prepared to regard his holding of units as a sound long-term investment.

Ideally, the movement would like to bring in investors when the markets are depressed and unit prices are low. But as the trusts have so far experienced difficulty in doing this, they must try other marketing methods. It is possible that, of these, the one most likely to succeed will be one that is directed at the savers of this country. Every endeavour must be made to bring in the regular savers at a steady pace throughout the year.

A start has been made. Most managements arc now operating savings schemes: Some of these are for the regular saving of fixed sums per month. In this direction, I believe, could lie a golden future for the movement.

There are many advantages to be gained by joining one of these savings plans. Firstly, the regular saver will, over a period, be buying his units at an average price. If he invests a fixed amount of money regularly, as against purchases of a fixed number of units, he will in addition enjoy the benefits of 'pound-averaging.' Pound- averaging enables him to accumulate his unit- holding at a saving of something like 10 per cent. over the man who elects to purchase fixed numbers of shares irrespective of price move- ments. Secondly, by joining a plan it is possible that he may be less tempted to go into the stock markets only during boom conditions.

There are a multitude of reasons why one should save. We all have our own particular desires: maybe marriage and the setting-up of a home, education of children, a long-cherished special holiday to visit grown children abroad, provision for one's retirement or dependants. You could add to this list. Everyone has a reason why he should be saving. Are you?

Regular long-term saving can be profitable. I quote, as an example, how one would have fared by saving through Investment-Trust-Units, one of the Save-and-Prosper group of trusts. If he had saved £1 per month in this trust over the last ten years (total outlay £120)and reinvested the dividends, he would now have a valuable nest- egg worth about £450. This is just one example of profitable unit trust saving. There is. of course, no fixed rate of progression. No ten years will be like the next. But unit trust saving, over the long term, is profitable saving.

Even with savings plans the managers have their problems. One could have assumed that the regular saver, having made up his mind to participate in a savings plan, would stay with it for a worthwhile number of years. But no; it has been found that far too many people, having accumulated some savings over a few years, decide to close their account and enjoy the pro- duct of their short-term saving--as indeed they are entitled to do.

Now this short-term saving is just what unit trust managers do pot want. Managementwise, it is not economic. The managers have to nurse savings accounts through the initial years, a period which to them is undoubtedly uneconomic, in the hope that the account will continue for many years when it has become not only profit- able to the saver, but also, of course, to the trust managers.

Somehow savers must be persuaded to join on a long-term basis. In the US, where unit trusts are called mutual funds (a much more descrip- tive title, I think), they have already experienced this short-term savings phenomenon and have countered it with the 'contractual' savings plan. Under this type of plan the would-be saver con- tracts to save a certain sum per year for a stated number of years. A feature is that one pays the greater part of the total management charges during the early years. This gives an incentive to continued saving in subsequent years Contractual savings plans are the vogue in the US. These and voluntary plans in the States are now being opened at the rate of something more than 40,000 a month. The Association of Unit Trust Managers has recently announced that the total British unit trust savings accounts operating at the end of May was just over 28,000; that the monthly average of savings accounts being opened is around 1,500. Allowing for the difference in the populations of the two countries, this means that the Americans are opening eight to nine new savings accounts for every one opened in this country.

The present total value of US mutual funds is £7,392,000,000. This huge investment works out at £43 per head of their population. The com- parable UK figure is barely £4 10s. These are• some targets for British unit trusts to go for.

There is, I believe, one facet of unit trust saving where we British—correction, Scottish— have the edge on the Americans. It is now nearlY four years since `Scotbits,' the £20,000,000 Edinburgh unit trust, with the co-operation of all the Scottish banks, made arrangements for the day-to-day sale of units over Scottish bank counters. Evidence that this sensible and easY method of thrift appeals to the canny Scot is apparent when one learns that more than 15,000,000 units of Scotbits and the sister trust, Scotshares, have already been bought over the bank counters.

From every angle it is far better that the movement should be supported by a host uf regular savers who arc paying a fair average price as they, year in and Year out, accumulate their unitholdings.

This brings the trusts to the pressing problen1 of perfecting a gimmick to 'sell' regular long- term saving to the public. What is it to be'? Will it be discounts, insurance, guarantees, contracts or something entirely new? This aspect of market' ing will be watched with great interest by people who are in the movement, and also by others outside.

The writer believes that as more and more regular savers come into unit trusts and exper- ience for themselves the financial advantages uf unit trust saving they will, quite naturally, pass the word on to their friends. This will be a long process, but when unit trust savings are as well known as National Savings and building societies —then we shall see the movement grow to the size it undoubtedly deserves.