Investors seek safe haven in mutual funds

As regulators up their ante in the quest for retail investor to approach the capital market through Collective Investment Schemes (CIS) or Mutual Funds, investors appear to be taking refuge in the market via such form of investment.

Concisely, the major driver of investors’ appetite in favour of mutual funds relates to among others their search for preservation of capital and liquidity; long-term capital growth; steady income stream through competitive returns, and professional management of investments.

The growing interest in mutual funds is reflecting on the growth rate of their asset value as investors continue to see such Funds as a growing investment option in the aftermath of the stock market crisis. Mutual funds offer opportunities for retail investors to access various asset classes like equities, bonds, Treasury Bill (T-Bill) and real estate investments.

In Nigeria, the Securities and Exchange Commission (SEC) regulates these forms of investment, which are managed by the fund manager or fund management company that trades (buys and sells) the fund’s investments in accordance with the fund’s investment objective.

A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities. Most mutual funds are “open-ended,” meaning investors can buy or sell shares of the fund at any time.

The SEC classified these funds into: Equity Based Fund, Money Market Fund, Bond Fund, Real Estate Fund, Balanced Based Fund, Ethical Fund, Sector Fund, Umbrella Fund, and Exchange Traded Fund.

Recently, while looking at various funds under their management, Michael Oyebola, managing director, FBN Capital Asset Management, noted: “the FBN Money Market Fund invests strictly in short-term money market instruments including Treasury Bills, high quality commercial papers/notes, bankers’ acceptance and fixed deposits. The FBN Money Market Fund is an open ended mutual fund, which invests strictly in short-term money market instruments including Treasury Bills, high quality commercial papers/notes, bankers’ acceptance and fixed deposits.”

Read also: In search of yields, investors drive three-fold jump in bond funds

According to him, the primary objective of the Fund, which is managed by FBN Capital Asset Management, is to provide investors with an opportunity to earn an above average current income stream over a short term period consistent with preservation of capital and liquidity. “With just a minimum investment of N5, 000 and minimum holding period of 30 days, an investors is on board,” INVESTOR learnt.

Recently, Agusto & Co assigned a rating of ‘Aa(f)’ to FBN Money Market Fund (‘FBN MMF’ or ‘The Fund’). Funds rated ‘Aa(f)’ are deemed to have minimal to low risk of investment loss due to net asset value volatility. This rating comes few months after the Fund’s launch in September 2012.

The rating by Agusto & Co is supported by good credit quality of underlying assets. All investments must have a minimum ‘A’ rating and at least 25 percent of net assets are invested in short-term Federal Government securities.

The investment benefits include quarterly income streams, suitable for risk averse/near cash investors, professional management at an affordable price, capital preservation, liquidity provision, competitive returns that rival direct money market placements, and diversification to an existing equity portfolio or real estate investment.

The Fund’s fact sheet at the end of March available to INVESTOR shows the investment limits per asset class within the portfolio are as follows: Bank Placements (10 – 75%); Treasury Bills and other Short Term Government Securities (25 – 80%), and Other Money Market Instruments (10 – 75%).

The Fund has conservative investment guidelines with respect to interest rate risk. All investments mature within 365 days, with a maximum weighted average maturity of 90 days. The Fund’s risk profile is classified as “low.” It is suitable for investors: seeking regular income, want to be in near cash, require capital preservation, and regular savings scheme.

An uptick in the headline inflation from 9 percent to 9.50 percent and the consensus decision by the Monetary Policy Committee (MPC) members to maintain Monetary Policy Rate (MPR) at 12 percent ensured that interest rates remained fairly stable all throughout last month.

What other funds under their management?

According to him, the FBN Heritage Fund, launched on April1 2008, is an open-ended Mutual Fund that invests in stocks, bonds, money market instruments, real estate and other securities in the Nigerian Capital Markets. “The primary objective of the Fund is to achieve total return through a combination of income and long-term capital appreciation.”

At the end of March, the fund bid price was N115.39, while the offer price was N116.10. The fund’s risk profile is classified as “medium.” It is suitable for investors: seeking long-term capital growth, require minimal income, and that can tolerate market volatility.

According to the fund managers, “during the quarter ended March 31, 2013, the Heritage Fund returned 7.84 percent versus 11.46 percent for its benchmark and 19.44 percent for the Nigerian All Share Index (ASI). Therefore, the Fund’s performance for the Year Ended March 2013 stood at 27.64percent. Since inception the Fund’s return is 15.39 percent versus -6.53 percent for its benchmark and – 46.43percent for the NSE ASI, respectively.”

They said: “The fund’s positive performance during the quarter was due to an increase in the allocation to equities by the fund manager and price appreciation on most equity holdings. The fund manager was also successful in further reducing holdings in the only remaining illiquid stock in the portfolio; we will continue to try to exit the balance.”

There were a significant drop in Treasury bill rates and bond yields in February; the 91,182 and 364-day Treasury bills declined by 1.49 percent, 1.01 percent, and 1.25 percent, respectively, in February.

However, in March, there was a slight uptick in rates as the 91, 182, and 364 day rates increased by 0.09 percent, 0.52 percent, and 0.18 percent, respectively. Bond yields also declined by an average of 0.45 percent across maturities in February, but increased by an average of 0.38 percent in March. The equity market returned 19.44 percent during the quarter due increased buying interest in anticipation of FY2012 earnings reporting season and declining yields.

FBN Fixed Income Fund

The FBN Fixed Income Fund is an open ended mutual fund which seeks to generate a steady return on capital and assured liquidity for all classes of investors. The Fund’s invests mostly be in long tenured debt instruments of the FGN, states and highly rated corporate institutions and may also invest its assets in money market securities such as Treasury Bills, Commercial Papers, Bankers Acceptances and Certificate of Deposits with rated banks in Nigeria.