Equity investors lose N1.2trn to risk as Mutual funds gain traction

Investors’ demonstration of preference for mutual fund asset classes due to risk induced by negative sentiments at the equities market may have spurred about N10 billion in value addition, BusinessDay analysis of the market shows.

The development, on the other hand, resulted to a rough ride for the equity buyers with a loss of about N1.2 trillion in the first quarter ending March 31, 2016.

Investors’ aversion to risk, at Customs Street bourse resulted in value addition in the collective investment space over a seven-week period tracked by BusinessDay.

Nigeria’s Initial Public Offerings (IPOs) market which would have enticed liquidity in stock market dried-up in the this same period as many prospected companies showed there are more alternative funding avenues than Customs Street capital.

Fears of Nigeria’s economic slowdown, increased volatility in FX market, falling oil prices and the current equity market turbulence have all contributed to the slow start to the year for IPOs.

“While equities have seen some momentum in recent weeks from speculation around full year 2015 dividend pay-out by the listed corporates, on-going bearish run suggests that cycle is gradually grinding to a halt. Hence, we expect to see some more profit booking by investors in the near term as the market begins search for new triggers”, said analysts at Lagos-based United Capital.

Mutual funds are investment vehicle that are made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. The Funds are operated by fund managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors.

From N283.356billion as at February 5, the value of mutual funds asset at the Securities and Exchange Commission (SEC) rose to N292. 153billion as at March 24 driven by increased liquidity into money market funds.

Amid sliding stocks market occasioned by FX pressure, declining oil prices, and unimpressive results analysts say greatest mutual fund managers produce long-term, market-beating returns while helping many individual investors build significant nest eggs.

Our trend watch on the performance of SEC-regulated mutual funds shows that the value of Umbrella Fund rose from N7.158billion as at February 5 to N8.240billion as at March 24.

In the same period, increased investment in Islamic/Ethical Funds impacted its value from N4.360billion to N4.507billion; Mixed Funds rose from N23.057billion to N23.388billion; Fixed Income Funds increased from N10.427billion to N11.258billion.