Six of the largest Danish fund managers are expected to pay over DKK 19bn (EUR 2.5bn) in dividends to retail fund investors in the coming weeks.

Even though this marks a drastic plunge compared to the record in 2022, dividends are forecast to land in positive territory, from a historical perspective.

Several companies struggled to get investors to reinvest their dividends due to last year’s market circumstances. Customers who chose to sit on their hands have not missed out on dividends, as only a few funds yielded positive returns. 

”It is true that investors can say they avoided losing money by choosing not to reinvest their dividends last year. This tendency spurs fear that more customers will be hesitant to reinvest going forward until markets start behaving differently. Despite this inclination to purchase new funds, investors have not sold out of their holdings completely. They are still in the market,” says Head of Nordea Invest, Rasmus Eske Bruun. 

Last year’s net flow – the net purchase of investment funds after dividends – was at DKK 33bn (EUR 4,4bn) by the end of November, as opposed to a plus of DKK 51bn (EUR 6.9bn) in the previous year.

Phoning the largest Danish fund managers results in answers that everyone is expecting lower dividends from retail funds when the AGMs have approved the dividends in January and February.

Reinvesting dividends

Bankinvest, Danske Invest, Nordea Invest, Nykredit Invest, Sparinvest and Sydinvest jointly expect their dividends to comprise a total of DKK 19.4bn (EUR 2.6bn) in comparison with around DKK 34.5bn (EUR 4.6bn) last year. 

Danske Invest expects a total return of DKK 2.7bn (EUR 363m) – roughly half that of last year. 

”On a general level we see that the present market situation is affecting investors’ desire for new investments, which naturally rubs off on reinvestments of dividends. There are many reasons to keep money in the bank or use it for other purposes,” Danske Invest’s CEO Robert Mikkelstrup writes in an e-mail. 

Fewer BankInvest customers chose reinvestment in 2022 relative to previous years, despite being subjected to automatic reinvestments, according to manager Lars Bo Bertram.

It has always been a challenge for banks to convince customers to reinvest returns. People forget it and spend their dividends on something else. Yet investors prefer funds with dividend payouts where their returns aren’t taxed until sold. 

The challenge has been especially tough in 2022 due to the falling asset prices.

That this year’s dividends aren’t dropping further can be attributed to the funds distributing all the gains made on sales and dividends. Many companies paid big dividends in 2022.

”If we don’t pay accurately, we might risk overstepping tax laws and lose our right to be a dividend-paying fund manager. And to sell assets – which we might have owned for a long period of time – in order to pay dividends alone, might increase next year’s returns,” Bruun explains.

Tough year hit Danica’s customers the hardest

This contrarian stock market signal is losing predictive power

Nordea’s new chief strategist functions solely at full steam: ”I’m kind of either 0 or 1”