Retail investors lose €2bn

Poor equity markets wiped more than €2 billion from the value of retail investment products in 2002, according to an annual survey of the Irish retail funds market by the Irish Association of Investment Managers (IAIM).

However, the IAIM's retail committee has advised investors in equity-linked special savings incentive accounts (SSIAs) not to panic, but to stay in for the rest of the five-year investment term.

Turbulent stock markets have eliminated the value of new business invested in the market last year along with an additional €568 million off the value of assets already under management. This represents an 11.2 per cent drop in the value of the retail investment market, excluding pensions.

Despite market conditions at the end of 2001, new business in the Irish retail investment market actually increased by 14 per cent last year, reversing the trend on the previous year, when new business tumbled by 36 per cent.

The turnaround is largely due to a last-minute influx of investors in the Government's special savings incentive scheme.

Contributions made to equity-linked SSIAs in 2002 came to €416 million, more than one-third of the total value for new business, which stood at just under €1.5 billion.

But investors in equity-linked SSIAs have suffered the effects of sharp declines in equity markets. Early investors will now find it "reasonably challenging", although not impossible, to make returns as high as those that were available under fixed-rate deposit SSIAs, according to Mr Dara FitzGerald, chairman of the IAIM retail committee.

Investors who took out an SSIA in May 2001 have lost an average of 16 per cent. People who took out an equity-based SSIA just before the scheme deadline last April are down an average of 7.5 per cent.

However, Mr FitzGerald said this compared favourably to the performance of managed funds, which are down 19 per cent since May 2002 and 28 per cent since May 2001.

SSIA investors have a cushion due to the 25 per cent Government bonus and because they are investing "on the drip", in the form of regular premiums.

"Comparisons with previous bear markets show that equity markets do rebound following such periods of uncertainty and suggest time is on the side of those SSIA investors contributing into equity-linked products," said Mr FitzGerald.

Ms Ann Fitzgerald, secretary general of the IAIM, said investors were keeping large amounts of money on deposit while they waited for more stable market conditions, including clarity on the political situation with Iraq.

She said there was no sign that investors were abandoning the market in a panic, as they did during previous downturns.