The Securities and Futures Commission in Hong Kong yesterday released a survey that explored the behaviour of retail investors, defined as adults aged 18 or above who had traded investment products in the last two years. The results encapsulate the leading role that distributors play in selling mutual funds, for better or worse.

First of all, it is clear that while the number of people investing in funds is on the rise, Hong Kongers still prefer to punt stocks, and have an excellent knowledge of how to do so; nearly 24% of retail investors trade domestic stocks. Only 9.8% have put money into funds (excluding MPF) - but this is definitely an increase from the 3-6% levels common a decade ago.

The survey didn't go into the reasons behind the increase. Although the introduction of the Mandatory Provident Fund system may have spurred people to learn more about funds, the real reason is probably the ultra-low interest rate environment that has forced bank depositors into guaranteed funds.

What the SFC does report, however, is that guaranteed funds are the most popular type, preferred by nearly 55% of respondents, with equity funds second at 43%.

Moreover, the SFC found investors in guaranteed funds were distinct, in that they were mostly older women with lower levels of education. Equity investors, by contrast, have no gender bias, are much younger, and usually have university educations.

Although the survey found that fund investors are acting on their investment needs, as opposed to speculating, they are dependent upon suggestions by distributors. More than half of the market bought funds on a distributor's or fund house's recommendation, and most guaranteed fund investors bought from distributors (64%) than equity fund investors (57%) or other types of investors.

Nearly 67% said they relied "a lot" or "to some extent" on advice from bank staff or investment advisors, and another 24% said they relied on this advice "a little". Only 10% of retail investors say they didn't rely on some degree of advice. Guaranteed fund investors are even more dependent on recommendations, with 32% saying they rely on suggestions "a lot", versus 24% for equity fund investors. Moreover, although not all investors relied on a distributor's advice, they still expected agents to provide information about a fund's performance, and background information about the manufacturer.

Fortunately the vast majority of fund investors report they understood the fund's objectives (100%) and fees charged directly to them (88.5%) - although it is not clear from this wording whether this includes understanding of buried charges in structured products.

The implication of this survey is that the rise in Hong Kong's mutual fund retail investing is largely due to distributors (which in this town usually means banks) plugging guaranteed funds to unsophisticated grannies.