Bernd Fortsch, from Kulmbach, Bavaria, is possibly the first ever German to reach country-wide fame through the medium of financial markets. Owner of a publishing company and an investment magazine, Mr Fortsch has been managing and distributing the country's best performing international equity mutual fund for the last 12 months and is now a household name among the growing community of German investors.
In 1998, his DAC-Fonds UI, which concentrates on small German high-tech stocks, internet issues and blue chips, turned in a 137 per cent growth performance. Launched in April 1997 with DM500,000 (E255,645.94), the fund now has E350m under management.
r Foertsch's profile, boosted by his magazine, internet site, and occasional TV appearances, bears witness to the growing appetite for equities in Europe. According to figures from Lipper, the mutual fund data provider, the proportion of funds invested in equities has grown by 14.3 per cent in Europe over the last seven years. Of the 1,705 new funds created in Europe in 1998, 45 per cent were invested in equities, compared with half that figure in 1991.
The bulk of the growth came from continental Europe, with private holdings of equity funds up threefold in Spain, twofold in Germany and France, and by a third in Italy over 1998 alone. Although the Asian crisis capped the amount of cash flowing into equity funds late last year, figures from Salomon Smith Barney suggest the movement is now gaining new momentum.
For Diana Mackay, director of business development at Lipper, the rising interest in shares is largely related to the launch of the euro. "By dragging interest rates lower, the Maastricht criteria made deposits unprofitable, both for banks and private investors," she says.
"And the fact that governments are not allowed to run excessive fiscal deficits has increased the likelihood that they will renege on their pension liabilities, forcing people to make their own provisions," she adds.
arc Raynaud, head of global distribution at Paribas Asset Management in Paris, agrees. He says individuals who were used to getting a 10 to 15 per cent return on government bonds and money market funds are now looking for products that offer the same return, albeit with a higher risk. Paribas' biggest mutual fund, Parvest, is now 46 per cent invested in equities, up from 20 per cent in 1996.
Companies and governments have been quick to take advantage of this surge of interest by launching initial public offerings (IPOs) and privatisation programmes. New offerings of stocks in Europe rose from $47bn in 1995 to $98bn in 1998 and are set to breach the $100bn mark this year. In fact, according to Mark Howdle, European strategist at Salomon Smith Barney, supply has been struggling to keep up with demand.
In contrast, the rise in equity mutual funds has been slow to affect markets, largely because retail investors are dwarfed by big institutions such as pension funds that have been slower to shift into equities. "The largest 50 stocks in Europe that are the main holdings in euro-denominated mutual funds have outperformed smaller stocks recently, but the sector effect has been subdued," Mr Howdle says.
This may change as investors start buying into more sophisticated products including pan-European funds and, increasingly, sectoral funds. For Marco Bolgiani, chief executive of Eptaconsors in Milan, "the trend is going towards bespoke products that match a risk profile with the specific needs of an investor".
Eptaconsors will offer nine new sectoral funds this year while Paribas recently launched outsourcing, financials, telecoms and technology-oriented funds. In Germany, one of the best performing equity funds last year was Nordinvest's Nordinternet, with a 115 per cent return and E347.7m under management. The company recently launched Europline, a package of seven funds allowing investors to make their own sectoral weightings across European markets.
"The trend towards sectoral funds will be a major feature of 1999 because sector performances across European markets are much more correlated than regional performances," says Anke Dembowski, a Berlin-based consultant in the investment sector.
Some bankers, however, fear the sophistication of the products on offer is not matched by an improvement in the financial acumen of private investors. "The shift into equity has largely been a top-down, bank-driven process," says Mrs Mackay.
Investors' unhealthy reliance on banks has been compounded by the stranglehold these enjoy on the distribution of funds. In Europe, despite the rising number of discount brokers, funds shops and direct banks, between 75 and 95 per cent of mutual funds are sold through retail banks against four per cent in the US.
Even in Germany, where 3-SAT, a satellite TV operator, broadcasts an investment game show on prime time every Friday, the public seems to have little grasp of the risks involved in equity trading.
"The new generation of investors has not been through a crash and needs to learn that the market can go down," says Universal's Mr Wolf.
Alfred Maydorn, a collaborator of Bernd Fortsch, thinks the embryonic equity culture remains immature. "Among the eight per cent of Germans who own stocks, most are only interested in speculative investments; when they get burnt, they will grow more conservative."
