•Value of mutual funds up 107%
•Losses in equities now N946b
By Peter Egwuatu
Latest reports on investors focus has indicated huge withdrawals from the stock market and fixed income securities into Mutual Funds, otherwise known as Contributory Investment Scheme, CIS.
Consequently, Financial Vanguard’s findings show that while the investors have recorded huge losses with massive decline in total value of the equity market, the CIS has recorded astronomical gains with acceleration in volume and value of investments since this year.
Value of investments in equities in the Nigerian Stock Exchange declined by a total of N946 billion, or -7.3 per cent Year-to-Date, YtD, loss.
On the other hand investments in Mutual Funds increased to N1.4 trillion as at last week, a N721 billion or about 107.5 per cent rise in the Net Asset Value (NAV) from N671 billion in January this year.
The stock market had faced negative sentiments following the economic crises that came with the emergence of Coronavirus (COVID-19) pandemic in Nigeria.
Analysts who spoke to Financial Vanguard on the investment situation said this development which meant an unrelenting bearish pressure on stock prices, forced the investors to switch to mutual funds initially for safety purpose, but ended up with a windfall in terms of returns on investment.
Analysts and regulators are hinting that the bullish position of investors in the mutual funds would likely persist to year end with NAV at about N2.0 trillion.
Mutual funds is a class of investment portfolio professionally managed by asset management firms that pool funds from individuals and trade the funds in some select higher yield instruments. But big institutions such as Pension Fund Administrators, PFAs, and insurance companies, are now taking big investment positions in the mutual funds segment, especially at the backdrop of the recent negative developments in their traditional class of investments which is mainly equities.
Financial Vanguard gathered that the PFAs, in their bid to avert losses following the low interest rate for deposits in the money market and negative returns in the equities, have also increased their investments in mutual funds.
According to the data from the National Pension Commission, PenCom, the PFAs invested N24.8 billion in mutual funds as at May 2020, representing an increase of 40.9 per cent from N17.6 billion in January 2020.
Regulators, analysts react
Commenting on the development last week, analysts at WSTC Securities Limited, said: “The weak growth prospects of the Nigerian economy, in our view, have made investors to shy away from the equities market. Given the significant liquidity and lower risk-appetite of fund managers, we expect to see continued demand for fixed income securities.”
Meanwhile, the Securities and Exchange Commission, SEC, has expressed optimism that mutual funds will continue to grow in the present circumstance despite the COVID-19 challenges.
Divisional Head, Economic, Research and Policy Management, SEC, Dr Afolabi Olowookere, noted that the commission expects to see a significant rise to N1.5 trillion or N2 trillion in mutual funds by the end of the year.
He stated: “About 480,000 investors had keyed into that investment segment. We still expect the size to get to N1.5 or N2 trillion and the reason is because it provides an avenue for retail investors to buy.”
Commenting as well, Mr Olumide Bolumole, Head of Listing Business Division, Nigerian Stock Exchange, NSE, said: “We are delighted that the mutual funds are increasing. We are also delighted to provide a solution that will enhance visibility for the listed mutual funds and promote financial inclusion while stimulating retail investor participation in our market.
“This reinforces our commitment to provide market professionals, issuers, fund managers and investors with a reliable, efficient and an adaptable exchange hub in Africa, to save and to access capital. Through this platform investors can pool funds into a chosen basket of securities which have proven to be a veritable means to optimise returns and reduce risks.”
‘Mutual funds need more support’
Commenting as well, analysts at FSDH Research, a division of FSDH Merchant Bank Limited, said however, that mutual funds need more support than is currently available to enable potential investors to fulfill their wealth creation and development roles. Meanwhile, the mutual fund assets in Nigeria have grown Year to Date, YtD. This is an indication of the growing interest in this class of investment.”
The FSDH has also stated that the mutual fund assets in Nigeria have grown consistently in the last five years.
“This is an indication of the growing interest in this class of investment. Data from the SEC on the NAV of all registered mutual funds in the country shows that the collective NAV grew by 349 per cent between 01 November 2013 and 02 November 2018. This translates to a Compound Annual Growth Rate (CAGR) of 35 per cent between the period” it noted.
Despite the impressive growth rate, FSDH Research noted that there is significant room for growth in Mutual Fund assets as we estimate the ratio of Mutual Funds to the country’s Gross Domestic Product (GDP) at 0.51 percent.
FSDH stated further: “Governments and corporates may access the required long-term funds to finance critical infrastructure and business expansion through the growth of mutual funds.
With appropriate structures in place, mutual funds can also be used to revive the real estate sector, which is currently in depression. As fund managers mobilise funds and invest in bond funds, real estate funds and equity funds, they are providing long-term capital for developmental purposes.
“They also provide short-term working capital through investment in money market funds. The growth in investible funds has positive multiplier effects on the economy.”
‘Why mutual funds are attractive’
Also speaking, President, Fund Managers Association of Nigeria (FMAN), who is also the Managing Director, Greenwich Asset Management Limited, Dayo Obisan, said, “The growth recorded in mutual funds was a reflection of product creation and returns recorded in the sector. The relative attractiveness of mutual funds stem from the higher yields they offer compared to other fixed income instruments.”