Funds are something that affects everyone
Nowhere in the world are mutual funds as popular as in Sweden. Seven out of ten Swedes save in funds, either directly, through endowment insurance or an investment savings account. Including the mandatory savings for the premium pension, we are all fund savers. For this reason, it is surprising that more is not written about funds and fund savings.
Swedish fund saving has a long history
Saving in mutual funds is nothing new in Sweden; in fact, as early as 1958, Ragnar and Gösta Åhlén, heirs to the mail order company Åhlén & Holm and the department store chain Tempo, set up a foundation called Aktietjänst with the aim of promoting share savings in Sweden. This foundation then launched three different funds under the Koncentra brand, one of which was a so-called open-ended fund. This means it was possible to make regular deposits and withdrawals, just like today’s mutual funds.
Aktietjänst was considered an innovator in the Swedish financial market and launched a variant of monthly savings. This meant that shareholders could have their shares sent to them each month by mail in advance. This was followed, in 1967, by a monthly savings scheme that allowed you to save even amounts between SEK 50 and 500, which were then converted into fund units. Fractional trading in mutual fund savings had arrived in Sweden.
Just over ten years later, the then government felt that something needed to be done to stimulate household savings and introduced tax funds where every krona saved was tax deductible. In addition, the return was tax-free for the duration of the savings and a further five years. Between 1979 and 1982, the number of fund savers increased from 75,500 to 425,000.
In 1984, Allemansspar was introduced, allowing savers to choose between saving in an account or in different types of equity funds. This is when mutual fund saving really took off. New groups were reached and there were even company-based allemans funds. At that time, savings were tax-free, which was partially changed in the 1990s and then stopped altogether. The Allemans funds became mainstream funds.
The next big step for fund saving came in 2000 with the launch of the Premium Pension System. This meant that the beneficiary can be freely invested in a selection of funds on a state fund marketplace.
In total, the funds in Sweden managed SEK 6,761 billion at the end of August 2023.
All households have mutual fund savings
Today, seven out of ten Swedes have their own fund savings, either directly or through an investment savings account. In addition, all Swedish households have their own mutual fund savings through the pension system. Most have chosen to save in the fund recommended by their own bank, which is not always a good thing as bank officials rarely recommend anything other than their own products.
What is a fund and how does it work?
A mutual fund involves a large number of savers joining together to own securities such as shares or bonds. It can also be commodities or other assets, but for simplicity we choose to focus on stocks and bonds as this text would otherwise be too long. If the fund buys shares in AstraZeneca or Volvo, it means that all unit holders, i.e. the investors in this fund, own a share in AstraZeneca or Volvo.
Funds use experts
Instead of making the investments in different securities yourself, a fund saver transfers the responsibility for securities trading to the fund manager. The fund manager has specific expertise in the market targeted by the fund. The fund manager works daily, usually in teams, analyzing companies and markets or interest rates and forecasts. All in order to make the best possible choice of securities.
A trustee may not choose securities freely. Each fund has, by law, fund rules that describe how that particular fund may invest. The rules are drawn up by the fund management company or fund manager, according to the rules in place and the investment policy envisaged by the fund management company.
The rules must then be approved by Finansinspektionen in Sweden, or the equivalent supervisory authority in the country where the fund is registered. For example, the fund rules may state that the fund should invest in European markets. Then the manager is not allowed to buy shares in a Japanese company for that fund.
Different types of funds
All funds have different levels of risk. A fund can provide good returns, but you can also lose money. All funds are managed by fund management companies, which select the securities in which the fund will invest. A fund can be actively or passively managed. In active management, the manager spends time and effort analyzing the market before making buying and selling decisions. When the management is passive, the fund only follows a certain index, and it does so slavishly. Warren Buffet has said that most investors would benefit from investing in an index fund that tracks the S&P500, the major US stock market index. In fact, in 2008, he challenged the hedge fund industry, which in his view was charging excessive fees that the funds’ performance could not justify.
Protégé Partners LLC accepted, and the two parties made a bet of one million dollars. Buffett won the bet. Buffett’s successful claim was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years. The initiative pits two basic investment philosophies against each other: passive and active investments.
Whether the fund is active or passive, you usually pay a fee to the fund management company. To determine whether a higher management fee is justified, you can check the fund’s activity level.
A common way to save in funds is through monthly savings. When you save on a monthly basis, your savings take care of themselves by buying funds every month without having to make a new choice. There are different types of funds. The most common funds are bond funds, equity funds, mixed funds and index funds. It is the assets in the fund that determine what type of fund it is. The type of fund affects, for example, the level of risk and fees.
An equity fund is a fund that invests the majority of its assets in a variety of normally listed shares. Equity funds regulated by the law on investment funds spread the risk by investing in at least 16 different shares. Usually the funds contain significantly more shares. The fund’s shareholders become indirect shareholders in all the companies in which the fund owns shares.
Interest rate funds
Fixed income funds are a collective term for funds that invest their assets in fixed income securities such as bonds and treasury bills. There are both short-term and long-term fixed income funds. Short-term fixed income funds are also known as money market funds, while long-term fixed income funds are also known as bond funds. A bond or treasury bill is issued by, for example, governments, municipalities or companies as a way of borrowing money from the public. Short-term fixed income funds involve very low risk, but also lower expected returns than higher risk funds.
A balanced fund is a fund that invests in both equities and debt securities. The allocation of equities and fixed income securities may differ from one mixed fund to another and is governed by the fund’s rules.
A fund-in-fund, or ‘fund of funds’, is a fund that contains shares in at least two other funds. By investing in such a fund, the risks can be further reduced compared to an individual fund, but at the cost of an additional management fee. Current legislation does not allow UCITS to charge for funds of funds containing their own funds.
An index fund is an equity or fixed income fund that aims to perform as closely as possible to an index. Such a fund has an equal share in the shares of different companies as these shares are represented in the index, i.e. the fund follows the average performance of the shares included in the index. Because index funds are passive and do not require active management, these funds have low fees on average.
An exchange-traded fund, or ETF, is a fund that is traded on an exchange like a stock. We will return to exchange-traded funds in a separate article later this fall. If you feel that you want to know more about this type of fund, I recommend a visit to www.etfmarknaden.se where I also write texts.
Usually, exchange-traded funds are index funds, but there are exceptions. To trade an ETF, you need a share depository. This type of fund is traded under the same conditions by institutions as individuals. Exchange-traded funds often have lower management fees than regular index funds, but have an implicit buy and sell fee in that the saver has to pay a brokerage fee to their broker when trading, in the same way as with share trading. However, Nordnet offers a commission-free monthly savings, which it is the only company in the Nordic region to do so. In addition, there is also a hidden fee in the form of a spread, i.e. the difference between the bid and ask price on the exchange where the exchange-traded fund is traded.
A hedge fund has freer investment rules than regular equity funds. The aim is often to provide returns even when the world’s stock markets are falling in value by allowing assets to be leveraged, invested in options and so on. Hedge can be translated as protection and hedging is intended to protect against certain changes in the market. Hedge funds can range from very high risk to low risk.
A comprehensive regulatory framework protects savers
There are many rules governing funds. One of the most important is that the fund and its managers should always act in the common interest of the shareholders. In practice, this means that all choices made by the fund company or fund manager should be based on whether their effects are beneficial to unit holders.
Risk in the context of investment refers to the risk that the value of the investment will fluctuate, both upwards and downwards. The greater the fluctuations, the greater the risk of losing money. However, risk and the potential for higher returns are closely linked. The saver needs to take some form of risk in order to be rewarded with a return. Funds are generally considered safer options with less risk than the underlying securities individually as it spreads the risks. The law of large numbers means that it is unlikely to assume that all the securities included in the fund will perform badly at the same time, which means that the so-called company-specific risk is reduced. However, a recession can lead to this.
There is a financial separation between the fund and the management company. The management company achieves this by keeping all of the fund’s assets with another company, known as a depositary. If a fund management company goes bankrupt, which is very rare, the value of the fund is not affected because the assets of the fund are not included in the bankruptcy of the fund management company but continue to be owned by the unitholders.
In other words, the fund itself cannot go bankrupt, but is taken over by another fund manager in the event of the fund management company’s bankruptcy. If not, the fund’s assets are paid out to shareholders. This protection replaces the so-called ‘deposit guarantee’ available for other forms of savings. On the other hand, an investment in a fund can decrease as well as increase in value, and a unit holder can lose all of their invested capital. However, shareholders cannot lose more than their invested capital.
Watch out for the fees
As a consumer, it is important to understand that even a small difference in fees in long-term savings can quickly add up to large sums. For Sweden funds, the difference in fees between an actively managed fund and an index fund is currently 1.06 percentage points. This means that if you save SEK 2 000 per month for 30 years with an annual return of 7%, you will have paid SEK 256 000 more for the actively managed fund. Most actively managed funds rarely beat their benchmark, so be careful what you pay for.
However, legislators have thought about this. All funds must declare their ‘standard amount’, which is a measure of the fees charged by the fund company. The name comes from the Minister for Financial Markets, Peter Norman, who introduced a requirement for funds to report the costs of a pre-determined savings plan in monetary terms. The ratio is calculated as the difference between the result that could be achieved if savings were allowed to grow completely without contributions and the actual amount the saver receives after 10 years.
Some funds charge a deposit fee and in some cases a fee for withdrawals. This is unusual in Sweden and is mainly used to prosecute short-term trading. Specific funds, such as some hedge funds, sometimes charge a performance fee in addition to the management fee, for example a certain percentage of the excess return relative to a benchmark.
Because a fund manager looks after the fund and buys and sells securities with the fund’s money, the fund company charges fees. The average fee for a Sweden-registered equity fund is 1.09%, which is the lowest in Europe, but very high with exchange-traded funds in the US where the annual management fee on several ETFs is less than 0.1%. The idea is that the fund’s performance should compensate for that cost and be a more efficient way to achieve the return than if the fund unit holder managed their own money. It is good for consumers to be aware of the costs charged by the fund.
A fixed management fee is charged as an annual percentage of the fund’s assets and is deducted from the fund at a rate of 1/365 per day. Index funds generally have lower fees than actively managed funds. In actively managed funds, the manager selects investments within the framework of the investment regulations that are deemed to have the greatest chance of producing good returns.
Apart from the fact that many households do not understand what a fund is, there is also a lot of uncertainty about the fee for saving. To raise awareness of the cost of some popular fund categories, FI publishes the median fee for both Sweden funds and global funds.
Choose the right fund
Choose a fund carefully. Read the factsheet to understand what is included and how the fund is managed. Also consider the risk you are willing to take with the money you invest and always compare the fees and historical returns of different funds before investing in them.
Some of the most important factors to consider are your own time horizon, level of risk and potential returns. You can also evaluate a fund by comparing its past performance against different indices or other funds. Another way is to compare the fund’s reputation/rating to evaluate it.
Despite a long history and an extensive regulatory framework, there are significant gaps in knowledge about what a fund actually is. Almost every second Swede answers incorrectly to the question whether it is safer to buy shares in a single company or to buy shares in a stock fund. This is according to the latest household survey published by Finansinspektionen on September 1, 2023.
Where to buy funds?
Most major banks now offer their customers the opportunity to trade funds. In addition, there are a large number of platforms that offer the possibility to trade funds from different managers. Some examples of these platforms are
– The fund market
– Future Pension
These platforms are only examples of different operators offering fund trading. The fact that they are named in this article does not mean that these companies are customers of Vikingen or Realtid, or that Vikingen, Realtid or the boards of these companies recommend them.
The Viking and the fund market
Viking’s databases now include more than 40,000 different instruments, not just shares. Since last spring, the databases contain price history for ETFs, so-called exchange-traded funds in Sweden, Germany and the USA. There is also data on more than 3,000 different funds. Read more at
Historical returns are no guarantee
Although saving in funds has historically proved to be profitable, we would like to remind you that there is always some risk involved when investing in securities. Just because a fund has performed well in the past, there is no guarantee that it will perform well in the future.
The value of your fund shares can go up or down, and you may not get back all the money you put in.
About the Viking
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