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Nigeria’s fixed income funds grow by 60% in H1 2020 – Coronation

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Growth in Nigeria’s fixed income funds has picked up rapidly in the past two years, with growth at 60 percent during H1 2020 in nominal terms, Guy Czartoryski, head of research at Coronation Asset Management, said on Tuesday.

Fixed income funds grew from 2015 to 2019 at a Compound Annual Growth Rate (CAGR) of 82 percent in inflation-adjusted terms and 111 percent in nominal terms.

Mutual funds are growing rapidly and are quickly becoming the default destination for Nigerians’ savings. Just as the pension funds began to take off a decade ago, now mutual funds are growing fast.

Mutual funds are set to become a large part of the savings industry. In a few years they may rival Nigeria’s pension funds in size.

In its new report ‘The Shifting Appetite of the Nigerian Investor: From Savings to Mutual Funds’, Coronation Research explains the conditions behind this growth.

The total Assets Under Management (AUM) of Nigeria’s Mutual Funds (also known as Collective Investments Schemes) rose by 305 percent in the period between 2015 and 2019, more than doubling in inflation-adjusted terms. As commercial banks progressively offered lower rates on savings accounts, more money switches to mutual funds. And the introduction of tech-based savings platforms introduces a new generation of young savers to Mutual Funds.

“The Mutual Fund industry in Nigeria faces two challenges, the first is risk management,” Czartoryski said.

“The era of high returns from Nigerian Treasury Bills ended in 2019. Today, investors need to invest in a variety of other asset classes in order to obtain a reasonable return, without becoming totally exposed to any one asset class. That means that investment management is more complex and more necessary than before.

“Second, there needs to be more information on fund performance in order to facilitate fund selection by investors and professional advisers. Fortunately, the industry and its regulator are moving in this direction, preparing the ground for a hugely expanded Mutual Fund industry in future, and creating the conditions for a significant capital base for the nation,” he said.

Czartoryski said Money Market funds grew from 2015 to 2019 at a CAGR of 28 percent in inflation-adjusted terms and 49 percent in nominal terms, faster than the fund management industry as a whole. They grew by 11 percent in the first half of this year.

The AUM of the fund management industry stood at N1.3 trillion (US$3.4bn) at 30 June 2020. The distribution by type is: Money Market funds, 61.4 percent; Fixed Income funds, 16.6 percent; US dollar bonds funds, 10.4 percent; Infrastructure fund (one fund), 4.4 percent; Real Estate funds, 3.2 percent; Mixed funds (i.e. money market plus fixed income plus equity), 1.9 percent; Exchange Trade funds, 1.0 percent; Equity funds, 0.8 percent, and Ethical funds, 0.3 percent, he said.