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15Oct2004
ECON.BG INTERVIEW WITH DANIEL GANEV, PORTFOLIO MANAGER, ADVANCE INVEST
Mr. Ganev, six months have passed after your initial public offering. What is the return realized by Advance Invest? Where are you ranked among the rest of the funds regarding this indicator?
Daniel Ganev:
The return realized for the first 6 months is about 19% on an annual basis. This is the highest return for this period among all Bulgarian funds, both investing in bonds and in equities. The return is also much higher than the bank deposit rates, where Bulgarians still hold more than half of their assets unlike the citizens of the EU. The typical financial mix of the European citizen is the following: 1/3 in investment products like mutual funds, 1/3 in insurance and pension funds, and only 1/3 in bank deposits. I hope Bulgarians will start to allocate their savings in such a rational way as soon as possible.
What are the advantages of the mutual funds compared to alternative investment schemes?
Daniel Ganev:
Having decided to invest in the capital markets, investment in a mutual fund is the easiest way to possess a portfolio without worrying about the selection of individual securities. This is the main advantage of the funds – professional management by a team of experienced portfolio managers. Your money becomes a part of a huge portfolio diversified in terms of markets, segments and instruments, which reduces the risk of price fluctuations of the different assets – something you cannot afford with a small sum and without a solid investment experience. Karoll Capital Management – the management company of Advance Invest – consists of experts with good reputation and excellent asset management experience in Bulgaria and Eastern Europe.
Secondly, when investing in Bulgarian funds usually there is no required minimal amount – it is defined by the par value (hence by the issue price) per share of the fund. Among the existing companies, the par value is respectively BGN 1, BGN 10, BGN 100, and BGN 200. In other words, this product is accessible for everybody. According to the law, the mutual fund constantly offers to the public its shares for sale and redemption; thus it guarantees solid liquidity of the investment. In contrast, when an individual investor structures a personal portfolio and then wants to sell a low-liquidity asset, it may not always be that easy. The shares are listed on the stock exchange where transactions can be conducted through brokerage houses. An important issue is also the transparency of the management and the security of the investment. The net asset value, issue price and the redemption price are calculated by the depository bank or by the fund’s management company, and are published in a central newspaper or on the Internet at least twice a week. The depositary bank also keeps the assets (securities and cash) of the mutual fund and oversees all transactions of the fund. Thus, apart from the Financial Supervision Commission, the depository bank supervises the fund and is thus yet another security guarantee.
A big advantage of Bulgarian mutual funds is the tax exemption both when redeeming shares at the counter and selling them on the Bulgarian Stock Exchange.
Where do you invest?
Daniel Ganev:
ADVANCE INVEST is an open-ended mutual fund with an equity focus. The Fund invests in liquid shares with high growth potential on the Bulgarian and the East European capital markets. Presently, about 60% of the assets are invested in Bulgarian stocks. The basic requirements for the securities is for them to have growth potential greater than that of the economy as a whole as well as adequate liquidity. Examples for such instruments are the shares of Bulgarian and foreign companies whose revenues and earnings are fast growing and that are expected to continue growing rapidly in the future.
Who invests in mutual funds?
Daniel Ganev:
The investment in a mutual fund is the easiest and the most convenient way to invest on the capital markets. The Bulgarian economizer, whose investment culture is improving, can already take advantage of this opportunity and buy securities indirectly and conveniently by purchasing shares in the portfolio of a fund. ADVANCE INVEST targets all types of investors in Bulgaria; foreign investment interest is also expected. The aim of the Fund is to offer each investor (both small individual investor as well as corporate and institutional investors) our experience on the capital markets in the country and abroad.
How do you see the development of the Bulgarian capital market? What has the state to do in this aspect?
Daniel Ganev:
In recent years we have witnessed the rapid development of the local capital market. The market cap of the companies listed on the BSE has grown enormously; the volumes of the trade have also increased considerably. There is still much to be desired regarding the corporate governance and especially the listing of new high quality companies on the local exchange. This year just two IPOs have debuted, which is extremely insufficient given the large number of stable companies in the Bulgarian economy. This is, of course, related to the need for Bulgarian companies to become aware of the importance and the advantages of the public status, which has happened in the EU countries long ago.
Other major problems include the low liquidity of the market, the small free float, the low number of market participants, mainly because of the not-so-good public investment culture in the country. In my opinion, the efforts have to be focused on the investment education of the society, both by the state and by all institutions on the market. It is evident that young people are more active on the market, but they are also the ones with the least savings to invest. Older people, because of ignorance, skepticism or low confidence, avoid investing on the capital market and prefer to stick to more conservative traditional schemes. I believe that with the common efforts of the state and the private financial sector, this situation will changed, especially on in the context of our forthcoming European integration.
