Low interest rates are channelling fund investments increasingly into non-financial corporations

Lower interest income has decreased the relative attractiveness of fund investments in general government entities and increased the relative attractiveness of fund investments in non-financial corporations in Finland.

In 2008, about 20% of Finnish investment funds’ assets were in general government entities (mainly government bonds), but by the end of September 2016 their share had decreased to below 8%. At the same time, investment funds have attracted considerable amounts of new capital, and the share of investment funds’ investments in non-financial corporations has increased from 25% to about 40% (Chart 1).

These developments have been reflected in funds’ investment portfolios as an increase in the weight of equities and a decrease in the weight of debt securities (Chart 2). In the case of debt securities, the share of corporate loans has increased steadily in recent years (Chart 3).

The majority of investment funds’ investments are targeted at financial and insurance corporations. About half of these investments are in other investment funds. Most of these investments in recent years have been to funds investing in equities and corporate loans.

The corporate sectors in which Finnish investment funds have invested most are the manufacturing and the information and communications sectors. About 30% of Finnish investment funds’ corporate investments are targeted at domestic non-financial corporations.