Total financial assets of Irish households are just under €600 billion.
(Here we’re talking about stocks, bonds and funds – not property)
The bulk of this €600 billion is in pensions, insurance funds and deposits at 83%. The amount invested in retail investment funds is a much smaller number at just over €11 billion. So the share of investment funds in total household financial assets is just under 2%.
This is low – very low.
The Central Bank, with its “Behind the Data” series carries out regular reviews of where we invest our money.
Our 2% figure compares to a Euro area average of 11%. We rank down the table with Lithuania and Latvia at around this 2% mark. This is in contrast to the experience of countries like Belgium, with nearly 20% of household financial assets invested in funds. So the myth of the Belgian dentist rings true!
In Ireland the amount we invest in funds differs based on how much money we have. Not surprisingly the amount of financial assets held in funds is higher among the wealthiest cohort. Households in the top 10% of the population will have 16% of their assets invested in funds.
So where is the €11 billion held in funds by Irish people invested?
51% is invested in equities with about 38% invested in bonds. 9% or so is invested in unlisted securities.
Digging deeper, there is a wide difference between where we invest through funds and where we invest when we buy stocks and bonds directly. Looking through the data, it’s clear that one of the attributes that investing in funds brings to the Irish investor is diversification. For example, funds invest over 60% of their equities in the US – a large liquid market, but only 3% in Ireland. This reflects the different market sizes of the two. However when we look at direct holdings of shares by Irish households, 44% ends up in Ireland. This will reflect factors like familiarity, share option schemes etc.
This pattern is even more pronounced in the bond world. Bond funds invest only 2% of their assets in Irish bonds, while for those buying bonds directly, 50% is invested locally. There is also a strong diversification angle to the nature of bonds held within funds. Those who own bonds directly almost exclusively invest in government bonds. Funds, on the other hand, will own a wider range of bonds including investment grade and high yield corporate bonds.
Bottom line: There is clear room to increase the role of funds in household financial assets in Ireland compared to all of our neighbours. And funds offer a wider, more thoughtful and maybe more cost effective menu of choice for investors compared to holding asset directly.
Tradewinds 