By Lilian Olubi, CEO, EFG Hermes Nigeria
We have written quite a bit about mutual funds in the past, as a viable product option, especially for retail investors.
They are essentially collective investments professionally managed on behalf of various investors from whom money is pooled and which offer diversification at reduced costs as a key attribute.
For decades, mutual funds have had worldwide popularity and according to the Investment Company Institute, represent over 20% of total global assets under management. Unfortunately, a lot of Nigerians are not taking full advantage of its benefits.
Today, we take a look at its performance in Nigeria over the past months, dissecting the different fund types and how investors have responded to macroeconomic sentiments and the knock on effects of the equity and fixed income markets.
Mutual funds in Nigeria saw their total net asset values (NAV) declined by 8.54% in the first 4-months of 2021.
Data obtained from the Securities and Exchange Commission (SEC) revealed that the total NAV of the 106 mutual funds declined from N1.48 trillion as of 31st December 2020 to N1.36 trillion as of 30th April 2021.
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The decline was mostly attributable to a 29%, 2%, and 1% decline in the NAV of the 26 money market mutual funds, 15 equity mutual funds, and 20 balanced mutual funds registered with the SEC, respectively.
This performance is attributable to the bearish performance recorded in the stock market and the treasury bills market given the sharp uptick in yields of money market securities.
On the other hand, bond funds grew by +16%, while fixed-income funds and ethical funds both grew their NAV by +10%. The NAV of real estate funds grew by 18% driven largely by the launch of a new N7.4 billion Real Estate Investment Trust (REIT).
An interesting development was a 4% increase in the number of subscribers to 457,256 as of April 30, 2021, from 440,256 as of December 31, 2020, and the analysis of the data provided by the SEC showed that fixed income and bond funds added the greatest number of new subscribers, offsetting the decline in subscribers witnessed by money market funds.
In terms of the type of mutual funds favored by investors, money market funds continued to dominate, accounting for 38% of the total NAV of mutual funds registered in the country.
However, there has been a major decline in its dominance from accounting for about 50% of the total NAV of mutual funds as of December 31, 2020.
This decline can be attributable to the negative real returns being experienced by those funds given the wide disparity between short-term yields and inflation since the start of the year and perhaps a shift to some alternative and foreign currency-hedged products.
Going by the above statistics and considering Nigeria’s population size, it implies that less than 0.25% of the population invested in mutual funds evidencing the very low penetration levels of mutual funds in Nigeria, the considerable potential for growth, and the need for asset managers and the regulators to actively campaign and support the awareness drive of the benefits and stability that this asset class brings to the market.
It is important while working on the economic fundamentals that capital market operators and stakeholders of the economy strategize and work cohesively on an effective and sustainable financial literacy drive, one that imposes into the education systems, cuts across the different demographics and geographical regions, and latches well on technology and social media to gain the grounds that is much needed for its resuscitation and advancement.