However, over 80% said that the situation in Europe is different from America. Explaining why, some groups mentioned better regulation and smaller sized funds which lower arbitrage opportunities for frequent traders. They also referred to the existence of preventative measures such as redemption fees or dilution levies which are used to protect underlying investors from the costs of rapid trading.
One of the key ways for fund groups to prevent frequent trading is to scrutinise t
he trading activity in their funds but only 75% monitor trades on their funds.
This monitoring has led 22% to occasionally terminate clients’ access to funds because of frequent trading. No groups said they have done so often. Some participants mentioned that rather than terminating access they blocked frequent traders.
One solution to the problem widely discussed is fair value pricing which permits fund groups to adjust the share price of a fund under certain circumstances and strictly controlled methods. These circumstances include surprise events, such as natural disasters or terrorist attacks, that will affect the markets where the funds invest.
While 39% said it was a good approach only 14% apply it to all of their funds all of the time. A tenth do for some funds under special circumstances while 70% never do.
Country preferences
In terms of fund manager sentiment Europe excluding the UK improved significantly in November. On a relative basis managers ranked it the second best expected performer over the next year, after Asia excluding Japan.
Fund groups were downbeat on America. Some 82% said the dollar would be the worst currency over the next year while 27 percent said its stockmarket would be the worst performing.
Morningstar’s European offices conducted the survey from November 13th– 20th. Some 65 fund groups from 12 countries participated. On average they each managed €61 billion (£43 billion) and offered 94 retail funds.
