With a steady increase in inflation rates last year, only very few asset classes were able to perform better; one such was mutual funds.
Mutual funds are created with the intent of pooling funds from various investors who are willing to diversify their holdings.
One of the best-performing asset classes in 2023 was the equity-based mutual fund, with average gains of more than 40 percent thanks to the performance of the stock market, whose average return exceeded the headline inflation rate of 28.92 percent in December.
Although the equity market also outperformed inflation, popular investment advice is not to put all eggs in a basket.
Among the best-performing funds in 2023 are; Futureview Equity Fund with an 86 percent return, Stanbic IBTC Aggressive Fund- up 66.35 percent, and Axa Mansard Equity Income Fund- up 49 percent,
Capitalised stocks, policy reforms fuel equity fund growth
Heading into 2023, the outlook for stocks was dim, with investors focused on the Central Bank interest-rate hikes, high inflation, and election instability.
But as the year went on, investors’ sentiment turned increasingly positive on policy reforms by the new president in June,paving the way for the stock market to deliver a 45.9 percent return in 2023.
In its economic outlook for 2024, the Bismarck Rewane-led Financial Derivatives Company noted that NGX has transitioned from a Lagos-based fringe player to a global player, adding that the Nigerian equities market outperformed others in 2023; “Performance boosted by new listings of capitalised stocks, policy reforms and lower interest rates.”
Equities fund ruled the market
BusinessDay analysis of different types mutual funds performance last year showed that equity based mutual funds and balanced funds outperformed both inflation and the stock market. We ranked performance using 2023 full year performance.
An equity fund is a mutual fund that invests principally in stocks.
Equity based funds had an average performance of 49. 62 percent in 2023 exceeding the average inflation rate of Nigeria in 2023 is 24.5 percent.
While equity based funds thrived in 2023 Futureview Equity Fund performed more than triple the average inflation rate with a return of 86.02 percent.
Among 2023’s best performing equity funds are Stanbic IBTC Aggressive Fund (Sub Fund), up 66.35 percent, Afrininvest Equity Fund up 64.39 percent, FBN Nigeria Smart Beta Equity Fund at 63.75 percent.
The least performing equity based mutual fund also outperformed inflation with returns of 31.80 percent in 2023.
Balanced funds were not left out of the gains with an average performance of 32 percent and its best performing fund, ValuAlliance Value Fund, gave a return of 83 percent last year.
A balanced fund is a type of mutual fund that owns both stocks and bonds.
Ayooluwade Ogunwale, fixed income analyst FBNQuest said that last year investors that diversified into mutual funds with equity funds, would have gotten returns that outperformed the stock market without direct exposure.
Uncertainties in fixed income dampen growth
Unlike the other mutual funds, the fixed-income mutual fund performed poorly last year.
Coronation in a weekly report last year said, “We were surprised to find that the value of fixed-income mutual funds has fallen this year. Only a part of this fall is attributable to the use of mark-to-market accounting (which only some funds use for their published data and which records price losses on bonds when interest rates go up),” it said.
They attributed the performance to the irregularity in the reporting of the fund, saying it is the very unevenness of Fixed Income fund reporting – some funds report average yields while others report mark-to-market positions – that puts people off.
Different strokes for different folks
Some of the types of mutual funds in Nigeria include the Equity based fund, Money Market funds, bond/fixed income funds, Euro bonds, Infrastructure bonds, Ethical funds, Balanced funds and Infrastructure funds.
Ogunwale said that investors with low risk can go for the fixed income funds which still gave double digits returns last year. “Currently we are in a period of lower interest rate largely because of the liquidity profile for this quarter, for an investor with low risk appetite the money market would have been your option but due to low interest and money markets are shorter dated so they are more reflective of whatever is happening at the intervals.”
“You can put your funds towards the bond/fixed income mutual funds if you have ethical bias you might want to go for some ethical fixed income funds reason being that they are still able to stretch their returns compared to normal fixed income funds,” he said.
Ethical funds are mutual funds where investment decisions are made after taking into consideration some agreed ethical factors. Such factors can be set from a religious, environmental, social, governance or other moral perspective.
Three-year performance of equity stock
Despite the defeat that equity based funds took in 2022 and 2021, their strong performance this year helped many of their names perform double digit over the last three years.
At the top of the list is the ARM Aggressiven Fund with a three- years average performance of 79 percent. It’s strong performance in 2022 despite a poor performance in the stock market of 19 percent the same year. The fund strong performance was carried into the year 2023
Futureview Equity Fund returns in 2023 helped maintain its spot at the top at an average of 29.15 percent.
Stanbic IBTC Aggressive Growth Fund also made it to the list of top performers. The fund performed an average of 29.15 percent in the last three years.