Increase in investors’ appetite for the less risky mutual fund instruments has driven the asset under management (AUM) to a record high of N777.92 billion in the trading week to July 12, the latest data by the Securities and Exchange Commission (SEC) showed.
The asset managed by Nigerian mutual fund appreciated by N700.25 billion from Net Asset Value (NAV) of N77.67 billion reported in August 2011, when the industry regulator started collating the data, to N777.92 in July, fuelled by a joint 118.16 percent increase in investments into fixed income, money market and bond funds.
“These funds – which are perceived to be low-risk alternatives to other more traditional asset classes, account for over 70 percent of collective investment schemes and 25 percent of non-pension assets under management,” Agusto & Co., a Lagos-based ratings agency, said.
According to the SEC data analysed by BusinessDay, total asset controlled by the mutual fund managers appreciated year-t0-date by 20.69 percent, a NAV increase by N133.36 billion from N644.56 billion in January 2019 to N777.92 billion for the month under review.
Commenting on the performance, Ayorinde Akinloye, a consumer goods analyst at Lagos-based CSL Stockbrokers, said investment education is rapidly gaining grounds in the country which has seen many people beginning to develop investment culture.
“The surge being driven by fixed-income, money-market and bond funds is majorly on the back of risk characteristics of the Nigerian populace. Also, when you look at the disappointing streak of the equities market, it definitely discourages people from investing in equity funds,” Akinloye said.
Mutual fund is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets.
”Within the asset management space, more products have been created and a lot of fund managers are into distribution,” Dayo Obisan, president, Fund Managers Association of Nigeria (FMAN), said.
Obisan’s view was affirmed by Akinloye, who explained that fund managers have been aggressive in marketing their money market funds over the past two-three years “for obvious reasons”.
“Equity funds have been performing poorly over the past two years particularly those exposed to bellwether stocks. Thus, fund managers market their dollar-denominated debt funds and money market funds,” Obisan said.
A dive into the data by SEC, the industry regulator, revealed that the fixed income funds attracted the most investments year-to-date. The fund reported a NAV surge of 53.89 percent from N57.65 billion in January 2019 to N88.72 billion.
Fixed income is a type of investment security that makes fixed interest payments to investors until its maturity date. Fixed-income securities are recommended for conservative investors seeking a diversified portfolio.
The second seat was occupied by the bond funds which reported a 40.02 percent increase in investment inflow, from N14.36 billion asset reported in the first month of 2019 to N20.11 billion in July 2019.
A bond fund is simply a mutual fund that invests solely in bonds. For many investors, a bond fund is a more efficient way of investing in bonds than buying individual bond securities. Bond funds can be sold at any time for their current market NAV but individual bonds can be harder to unload.
The money market funds, which comprise investments in short-terms securities such as treasury bills, commercial papers and certificate of deposit, reported a 19.76 percent increase in its asset under management, while the real estate funds recorded 4.49 percent in the review period.
“We expect these funds to continue to drive retail participation in the Nigerian capital market, given the current macroeconomic headwinds that continue to hamper the performance of other traditional investment outlets,” Agusto & Co. said.
“Money market funds continue to appeal to a broad spectrum of customers ranging from institutional investors to HNIs (High Networth Individuals) and the mass affluent. We believe that in the long term, money market funds may represent the silver lining in mobilising savings and creating a huge pool of investible funds while also creating a new culture of savings and investments,” the ratings agency added.
On the hand, ethical funds, equity funds and mixed funds reported a joint asset decline by 17.91 percent between January and July 2019.
Ethical funds topped the list of the less attractive interment class, recording a drop in AUM by 8.82 percent. This was closely followed by the equity funds which was down 7.62 percent from N11.88 billion in January to N10.98 billion in July while investors’ appetite for the mixed funds reduced by 1.47 percent.
A further probe into the data by SEC revealed that 75.64 percent of the entire N777.92 billion asset managed by Nigerian mutual fund industry was controlled by the money market fund, this translated to N583.88 billion.
A further breakdown of the figure showed that Stanbic IBTC came top on the list of funds under the money market instrument with the highest NAV of N272.38 billion; this represented 46.65 percent of the total N583.88 billion.
Legacy Money Market Fund managed by First City Asset Management plc reported asset of N6.11 billion, which gave the fund the second seat with a 30.38 percent share of the entire asset controlled in the money market fund asset class.
Meanwhile, equity funds with 10 different investment options had 1.84 percent NAV, which is worth N11.88 billion of the entire asset managed by the mutual fund industry. This is 4.9 percentage points lower that the real estate funds which had only three investment funds.
The real estate funds with only three investment options, the least registered on the Securities Exchange, reported NAV of N43.53 billion, that is 6.75 percent share of the asset managed in the industry.
ENDURANCE OKAFOR
