With an 11.05percent increase in its unit price, Frontier Fund, emerged the top gainer among 10 equity funds in Nigeria between January 4 and 27th, December 2019, according to data from the Securities and Exchange Commission (SEC).
Managed by SCM Capital Limited, Frontier Fund was the only asset class under the equity-based funds that reported a double-digit appreciation, rising from N120.13 unit price at the beginning of the year to N133.41 as at 27th December 2019.
Paramount Equity Fund, which is managed by Chapel Hill Denham Mgt. Limited, was the only other gainer after Frontier Fund. The equity fund reported a unit price increase of 7.16 percent, from N 11.74 in January 4th 2019 to N12.58 as at the last month of 2019.
“From a portfolio perspective, it means they delivered positive gains last year,” Ayorinde Akinloye, a research analyst at Lagos-based CSL Stockbrokers, said.
The positive values by both funds put the equity-based funds on a new record as the first in two years. The last time the equity-based funds saw positive gainers was in 2017 when the Nigeria Stock Exchange was ranked the third-best performing bourse globally.
In the period under review, Frontier Fund grew its net asset value (NAV) by adding N23.91 million to its portfolio from N234.84 million at the beginning of the year to close with a total asset worth N263.75 million.
Despite being the second top gainer, Paramount Equity Fund added more asset than Frontier Fund. The former grew its NAV by 21.93 percent, more than double the 10.96 percent reported by the latter. Paramount Equity Fund grew its asset under management by N62.43 million from N222.1 million in January to N 284.49 million in December 2019.
“CHD and SCM must have posted positive returns which impacted Net Asset Value and consequently the price of the funds,” Akinloye said.
While last year may have ended well for the two funds, Stanbic IBTC, FBN Smart Beta, AXA Mansard, Meristem Equity and others saw their unit prices slide in the southward trajectory.
FBN Nigeria Smart Beta Equity Fund shed 23.8 percent in its unit price to post the highest drop in equity funds for the review year. The fund that is managed by FBN Capital Asset Management opened 2019 with a unit price of N159.91 but as at 27th of December, it had dropped to N129.17.
Managed by Meristem Wealth Management Limited, Meristem Equity Fund lost 17.28 percent, from N11.20 it started the year with, to close with N9.55 as of December 27 2019. This placed the fund as the second-worst performer.
A further analysis of the SEC data revealed that Stanbic IBTC Nigerian Equity Fund and ARM Aggressive Growth Fund shed 11.70 percent and 10.45 percent, respectively in their unit price.
Having the largest market share of 48 percent from the total N10.64 billion controlled by equity-based funds, Stanbic IBTC shed N999million in 2019, from having a NAV of N5.76 billion in January to closing the year with N4.76 million.
The total asset managed by equity-based funds listed on SEC lost N1.25 billion in 2019 from N11.89 billion it opened the year with to N10.64 billion as at December 27 2019.
Other poor performers in the year include AXA Mansard Equity Income Fund, United Capital Equity Fund, Stanbic IBTC Aggressive Fund (Sub Fund), and Legacy Equity Fund.
Even though 80 percent of the SEC listed equity funds reported a drop in unit price in 2019, they all outperformed the benchmark of the Nigerian Stock Exchange (NSE) all share index return for the period at – 14.6 percent except for FBN Nigeria Smart Beta Equity Fund and Meristem Equity Market Fund, which recorded unit price drop by 23.80 percent and 17.28 percent, respectively.
According to Johnson Chukwu, MD of Cowry Assets Limited, a fund manager should ordinarily have a good performance because the portfolio investor has to first identify the instrument that qualifies for investment in their portfolio; that is, those instruments that have very good fundamentals.
“The selectiveness of investors in picking instruments into their portfolio is such that any good fund manager should ordinarily outperform the market index because their choices will largely be on the good performers,” Chukwu said.
Also known as stock funds, an equity fund is a mutual fund that invests principally in stocks. It can be actively or passively (index fund) managed. Stock mutual funds are principally categorised according to company size, the investment style of the holdings in the portfolio and geography.
The Nigerian stock market ended 2019 with a return of -14.6percent, largely due to low investor sentiment in the country that was dragged down by unclear policies and a tough economic environment.
A breakdown of the SEC 2019 data revealed that Nigeria mutual funds grew their asset under management to highest so far. The country’s AUM of N85.42billion as at December 2011, surged by N919.57billion to post N 1billion in the last month of 2019, data compiled from the Securities and Exchange Commission show.
Rising from N644.56 billion at the beginning of the year, the total asset under management for Nigerian fund managers grew by 55.92 percent as fund managers added N360.44 billion to their mutual funds.
The strong growth in Nigeria’s AUM was driven by a robust growth in low-risk investment funds – money market, fixed-income and bond funds, which reflects the conservative investment strategy of investors packing cash to mutual funds as they believe Nigeria is somehow a risky market.
Also, the significant appreciation in AUM of Nigeria’s mutual funds can be largely due to the recent policy by the Central Bank of Nigeria (CBN) to increase investment to the real sector of the Nigerian economy.
In its extra efforts to boost credit flow to the real economy, the CBN prevented local corporates and individuals from participating in both primary and secondary activities of Open Market Operations (OMO).
Effective from October 23, 2019, the deadline set by CBN for compliance of the OMO policy to commence; mutual fund AUM recorded an asset surge by 11.44 percent from N870.75 billion on October 25, 2019, to 970.35 billion in December 2019.
The net asset reported by the Nigerian mutual fund after the CBN policy was implemented was N146.291 billion or 17.75 percent higher than the N 824.059 billion posted at the end of September when the policy was yet to be initiated.
“We may see a change going forward as these funds would start reporting low yield scorecards in another 6-12 months,” Akinloye projected.