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Nigerian mutual fund industry grows by 43% in 2020

…as bond, fixed-income funds drive AUM to N1.4trn

The Nigerian economy may be struggling to grow, but the mutual fund industry appears to be enjoying a growth spurt.

In the 12 months ended December 2020, total assets under management grew 43 percent, according to data compiled from the Securities and Exchange Commission (SEC).

Most of the fresh funds flowed into fixed income and bond mutual funds as the low yield environment, particularly in treasury bills, dampened investors’ appetite as they reduced allocation to money market funds.

Money market-based funds fell from 73.32 percent of total mutual funds at the start of 2020 to 49.26 percent of total funds by December last year.

Fund managers were tasked with the challenge of managing almost half a trillion more funds than they managed at the end of 2019, with a capital influx of over N450 billion recorded as at the end of December 2020.

The asset under management (AUM) of the mutual funds grew to N1.49 trillion last year. A 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.

According to the Securities Exchange Commission data analyzed by BusinessDay, bond funds and fixed income funds were the top gainers with the highest inflow of capital.

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Fixed income funds which started the year with a net asset value of N434.65 billion attracted N290.50 billion in investment and closed last year with a 29.10 percent share of the entire mutual fund (from 13.82% in 2019) as the NAV stood at N144.15 billion as at December 2020. Coral Income Fund United Capital and Fixed Income Fund were some of the top performers in the category.

Bond funds which make up 14.99 percent of the mutual funds in Nigeria saw its segment grow by almost four times, as investors poured over N223.94 billion into bond funds, over 100 percent increase when compared to the N49.36 billion it started the year with. United Capital Euro Bond Fund and Stanbic IBTC Bond Fund reported some of the biggest gains in this segment.

Meanwhile, real estate funds and money market funds were the biggest losers as they shed a combined N31.59 billion in the space of 12 months. According to market analysts, the low return on fixed income funds and the lack of liquidity in the real estate industry were key reasons why investors redirected their funds from the two funds.

The net asset value of money market funds reduced by N28.95 billion between January and December 2020. From a NAV of N735.76 billion at the beginning of last year, the money market funds shed 3.8 percent to close the year at N764.7 billion. The real estate fund, on the other hand, declined by N2.65 billion in the period under review.

Increased investors’ appetite for dollars and international instruments like the bond funds amid the low yield environment experienced in 2020 is a key reason why the instruments that attracted more funds did better than their peers, according to an asset manager.

“I don’t expect the narrative to change going into 2021, nothing has changed as local investors still have a lot of funds searching for attractive and high yielding instruments,” a Lagos-based wealth manager said, adding that more dollar instrument will remain attractive to investors as they try to hedge against Nigeria’s double-digit inflation rate.

With a 15.75 percent inflation rate that accelerated to a 33 month-high in December 2020, real return on investment in Nigeria, especially for government short term instruments like treasury bills has plunged further to a negative interest rate.

Factoring the December inflation figures, the return on the 92-day T-bills instrument -15.25 percent, -14.75 percent for the 182-day maturity while the longer 364-day instrument has a real return of -14.25 percent.

The stop rates recorded in the Wednesday 13 January 20201 T-bill auction result stood at 0.50 percent, 1.0 percent and 1.5 percent for the 90-day, 182-day and 364-day bill, respectively.

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