So-called mixed funds invest in both stocks and fixed-income securities. Among banks, mixed funds are often marketed for their simplicity and that they also provide a balanced risk, with the fixed-income securities compensating for a weak stock market.
However, the Swedish Financial Supervisory Authority (FI) has looked at the savings solution in a new report and raises a warning flag, noting that the major banks' fund assets are more often invested in mixed funds than with online brokers.
"However, it is difficult to understand why balanced funds are suitable for a large proportion of the major banks' customers," FI writes in the report.
Jimmy Kvarnström, business area manager in the markets department at FI, develops:
"We have seen that mixed funds are often expensive. That doesn't have to be a problem, but what we find in the report is that a much larger proportion of fund savings at major banks is in mixed funds than it is at online brokers," he says.
Another problem
There is also another problem here where customers can actually be deceived. FI has found that some mixed funds can be what are called hidden index funds.
Traditionally, passively managed index funds are a cheaper option for consumers than an actively managed fund that has a higher fee where a manager makes the decision to buy or sell holdings.
– A hidden index fund is a fund that is marketed as an actively managed fund. The fund company also charges for it as such, but in reality it is not actively managed.
If that's the case, the customer is paying for a service that they don't actually receive, says Jimmy Kvarnström.
The Swedish Financial Supervisory Authority also highlights in the report that around 85 percent of the savings capital at the major banks is in mixed funds.
A challenge
How does a small saver who sits down with their bank make sure it's not a hidden index fund?
It is difficult for the consumer to do this. Our recommendation is to be clearer to your customers. The important thing is to ensure that the funds that are marketed as actively managed funds provide value for money, that you get the return you pay for.
