Investors are seeking safety of principal investment and guaranteed returns as collective investment schemes grow, Capital Market Editor, Taofik Salako reports.
Total net asset value of all registered mutual funds in Nigeria rose over a one-year period by 22.8 per cent as investors showed preference for less risky fixed-income funds.
Mutual funds, otherwise known as collective investment schemes (CIS), are joint investment vehicles through which investors can pool funds and invest in chosen basket of securities with a view to optimising returns and reduce risks.
Latest official data obtained from Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) yesterday indicated that total net asset value (NAV) of all registered mutual funds rose from N649.775 billion on August 3, 2018 to close at N798.04 billion on August 2, 2019, representing an increase of N148.265 billion or 22.822 per cent.
NAV is determined by subtracting total liabilities of a fund from its total assets. The NAV can further be divided by the total number of units of the fund to determine the unit price.
A mutual fund is usually categorised by the class of assets that forms the primary focus of its investments. Thus, there are equity funds, money market funds, bond funds, real estate funds, ethical funds and balanced funds among others.
The reports showed that the increase in NAV was driven by increase in number of mutual funds as well as appreciation in some segments. Total number of mutual funds rose 7.9 per cent from 76 mutual funds by August 03, 2018 to 82 mutual funds by August 02, 2019.
A breakdown of the funds showed strong preference for portfolios that invest generally in fixed-income securities, especially short-term securities. While the number of equities-based funds increased by two as against one addition to money market funds, the value and percentage of money market funds rose considerably over the period while the value of equities-funds declined during the period.
Money market funds, which invest mainly in money market instruments such as treasury bills, remained the largest group of mutual funds, underlining the paradigm shift since the stock market crash displaced equities as most-preferred portfolio. The NAV of money market funds rose from N494.92 billion to N602.64 billion while the number of money market funds increased from 18 funds to 19 funds.
Conversely, the NAV of equities-based funds dropped from N13.467 billion to N10.613 billion despite increase in number of equities-based funds from 10 funds to 12 funds. Mixed funds-which include allocations of some funds to equities alongside other fixed-income assets, also showed a similar pattern, dropping from N25.70 billion in 2018 to N23.51 billion in 2019. Ethical funds-which include funds that do not invest in alcohols, cigarette, firearms and sometimes, in the case of Islamic ethical funds, in interest-based businesses, also dropped from N5.48 billion to N4.716 billion.
Other non-equities funds largely followed the pattern of money market funds. Fixed income funds-which invest in fixed-income assets, rose from N51.737 billion to N86.497 billion. Bonds funds- named because they invest solely on sovereign and other approved bonds, doubled from N11.209 billion to N24.533 billion. This underlined the significant flight to government’s sovereign bonds, by several fund managers. Real estate funds- which invest in real estate assets, declined from N47.26 billion to N45.53 billion, reflecting the slowdown in the real estate industry.
Stanbic IBTC Asset Management Limited (SIAML) remains the largest investment management firm in Nigeria with its funds dominating major segments of the market. Stanbic IBTC Money Market Fund remains the largest CIS rising from N244.34 billion to N277.65 billion. FBN Money Market Fund, being managed by FBN Capital Asset Management Limited, also retains its second position, growing from N136.93 billion to N165.4 billion. ARM Money Market Fund, being managed by Asset & Resources Management Company Limited, also retains its ranking as the third largest CIS, rising from N48.49 billion to N66.43 billion. In further illustration of the flight to safety and depreciation in the value of equities, Stanbic IBTC Nigerian Equity Fund, Nigeria’s largest equities-based fund, also being managed by Stanbic IBTC Asset Management Limited (SIAML), dropped from N6.526 billion by August 03, 2018 to N4.806 billion by August 02, 2019, a decrease of N1.72 billion over the 12-month period.
With a drop of 17.81 per cent in 2018, the continuing decline at the equities market had implied average decline of 29.62 per cent over the19-month period ended July 31, 2019. This implied that average investors who had invested over the period had lost almost a third of their portfolios, altogether implying a loss of about N4 trillion for the entire market.
Investors in Nigerian equities had lost N1.38 trillion over the past seven months of 2019 as the onset of the first half earnings season failed to sustain expected recovery at the stock market. Nigerian equities suffered their worst depreciation so far this year in July 2019, dropping by an average of 7.50 per cent, valued at about N990.45 billion.
The steep decline in July worsened the average year-to-date return, which had closed first half at -4.66 per cent, to -11.81 per cent, equivalent to net capital depreciation of N1.38 trillion for the seven-month period ended July 31, 2019.
Nigerian equities had traded mostly on the negative this year, declining in five out of the seven past months. The market also closed both the first and second quarters on the downside and most analysts remained cautious about the outlook for the third quarter.
The All Share Index (ASI) – the main value-based index that tracks share prices at the Nigerian Stock Exchange (NSE), closed July at 27,718.26 points as against its month’s opening index of 29,966.87 points, June’s closing index. The ASI had opened 2019 at 31,430.50 points, 17.81 per cent down from its 2018’s opening index of 38,243.19 points. It had however rallied a world-leading gain of 42.30 per cent in 2017.
The Nigerian Stock Exchange (NSE) recently launched its new trading platform for mutual fund as part of efforts to boost investors’ participation in CIS. About five per cent of investors in the Nigerian capital market engage in mutual funds, a paltry fraction that underlines the tendency of most retail investors to invest in the market directly.
Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr Oscar Onyema, said the launch of the NSE distribution and trading platform for mutual funds would not only provide an opportunity for the 256 brokers in the market to distribute to existing 13.9 million investors’ accounts in CSCS but also attract new investors that may be interested in gaining exposure to the capital markets through mutual funds.
He said the new platform will enhance visibility for listed funds and promote financial inclusion, while stimulating retail investor participation in the market.
“This distribution platform is a new channel for accessing mutual funds which are listed on the NSE. This restates our commitment to provide market operators, issuers, fund managers and investors with a reliable, efficient and an adaptable platform to create a more transparent, liquid and accessible market in line with global best practices,” Onyema said.
According to him, the platform will facilitate electronic transactions with seamless connection between NSE, CSCS, fund managers and brokers as investors have the benefit of a single view of their mutual fund investment while being able to invest with multiple fund managers through a single broker.
He noted that in recent years, there has been significant increase in the number of mutual funds in Nigeria, an indication of the growing interest in collective investment schemes.
Managing Director, Central Securities Clearing System (CSCS) Plc, Mr. Haruna Jalo-Waziri, said the new platform marked another milestone for the Nigerian capital market as it will serve as a step towards improving the level of financial inclusion in Nigeria by giving investors varieties of investment products.
According to him, as part of its commitment to providing far-reaching benefits to the capital market, CSCS has proactively invested in technology that would enable us provides seamless post-trade services to a wide range of financial instruments including collective investment schemes.
“Additionally, fund managers can now augment their product distribution strength using the brokerage communities’ network. We believe this will also contribute towards increasing secondary market participation whilst growing funds under management for Asset managers”, Jalo-Waziri said.
President, Fund Managers Association of Nigeria (FMAN), Mr. Dayo Obisan, noted that one of the initiatives in the FMAN five-year road map was to develop and implement a nationwide distribution and trading platform for mutual funds.
Chairman, Association of Stockbroking Houses of Nigeria (ASHON), Chief Patrick Ezeagu, said stockbroking firms were delighted to have been a part of the development and emergence of the new trading platform.
According to him, the new platform was directed at reawakening the small savers in order to take advantage of investing through mutual fund and to have the synergistic benefit of a better return in the market.
“The memorandum trading platform will facilitate the ease of doing business in trading and distribution of mutual funds, it will inspire small savers thereby promoting financial inclusion which is an important focus of our members. We congratulate everyone that contributed to the success of this initiative and encourage all operators to embrace this new aspect of deepening of our market which is a formidable incursion into an erstwhile grey sector,” Ezeagu said.