As Coronation Asset seeks uniform accounting in the sector

By Peter Egwuatu and Nkiruka Nnorom

Investment in Mutual Funds increased by 3.4 per cent as its Net Asset Value, NAV, went up to N1.407 trillion Year to Date, YtD, April 2022 from N1.361 trillion in the corresponding period of 2021.

Mutual fund investment is a pool of funds by investors that can be used to create wealth through the money and capital markets, and can also be used to finance critical infrastructure and expand business operations.

Vanguard’s investigation from the latest data released by the Securities and Exchange Commission, SEC, showed that Money Market Funds recorded the highest NAV in absolute term at N606.258 billion YtD April, 2022 from N525.532 billion in the corresponding period of 2021. The value represents 43.1 per cent of the total NAV of the entire market YtD, April 2022.

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Under the Money Market Funds, Stanbic IBTC Asset Management Limited was the most active player among the 26 players in the market recording N226.362 billion NAV, representing 37.3 per cent of the total sub sector‘s fund.

It was followed by FBN Capital Asset Management Limited posting N173.232 billion NAV, representing 28.6 per cent of the sub sector’s fund.

Trailing behind FBN Capital is ARM Investment Managers Limited recording N69.557 billion, representing 11.5 per cent of the total sub sector’s value.

Further analysis showed that Bond/Fixed Income Funds occupied the second position in the Mutual Funds market segment posting a total N418.683 billion NAV. This accounted for 29.8 per cent of the total NAV of the entire market.

Leading the sub sector is Capital Express Asset and Trust Limited recoding N127.779 billion NAV, thus accounting for 30.5 per cent of the total sub sector’s value. It was followed by Stanbic/IBTC Bond Fund posting N66.773 billion, accounting for 15.9 per cent of the sub sector’s NAV, while Stanbic IBTC Absolute Fund occupied the third position in the sub sector’s chart recording N60.797 billion NAV.

Furthermore, Dollar Funds occupied the third position in the Mutual Funds market recording N268.206 billion, representing 19 per cent of the total NAV.

Commenting, analysts and Chief Operating Officer, InvestData Limited, Ambrose Omordion, said: “Mutual Funds recorded huge return due to the nature of the fund and different investment windows it plays. Money Market Funds was the most active because of the favourable interest rate and huge demand as against equities which has been unsteady in
terms of return on investment.”

…Coronation Asset seeks harmony

Meanwhile, at the backdrop of the steady growth recorded in the Mutual Funds industry over the past six years, financial analysts at Coronation Asset Management have called for harmonisation of the accounting method in the sector, saying that a situation where operators use different accounting methods is an obstacle to competition.

The Managing Director of the company,   Mr. Aigbovbioise Aig-Imoukhuede,  made the assertion at the virtual media presentation of the company’s latest report, saying that the Mutual Funds industry has witnessed an increased patronage over the years, recording a 33 per cent compound annual growth rate between 2015 and 2021.

The report titled: “Comparing Mutual Funds II – Apples & Oranges, and a

Hand Grenade”, took a deep dive into the
differences between the amortised accounting method, which most funds in Nigeria use and the international mark-to-market accounting method as applied to Fixed Income funds, noting that while the amortised method may be good for business because it gives a steadily rising increment in value, but it is fundamentally flawed.

Speaking at the event, Aig-Imoukhuede said that adopting different accounting methods makes it impossible to compare the performance of the Funds.    He said: “We believe that the Mutual Funds industry needs to harmonize the way it accounts for its securities. There has been diverse ways in which the industry accounts and to our minds, that is not acceptable.

“Some Funds use the amortised method, while others use the mark-to-market,   which is the international best practice of accounting method. What this means is that it is difficult to compare the performance of the Funds because we cannot say we have an effective “morningstar or yodelar” service in Nigeria. If we did,  we could attract international investment in Mutual Funds and it is also good for our local investors.

“Secondly,  we find that the amortised accounting method has a fundamental flaw when it comes to dealing with interest rate fluctuations; and there is a possibility, however remote, it could lead to systemic risk in future.”

Presenting the report,   Guy Czartoryski, Head of Research at Coronation Asset Management, said: “To a considerable degree, a Fund’s performance will reflect its fund manager’s skill in selecting appropriate bonds and market durations, given the different risks posed by different bond issuers and day-to-day changes in market interest rates. The only way to compare fund managers’ performance is if all funds mark-to-market their positions, but, as we have seen, few of them do. The absence of uniform mark-to-market implementation across the industry is an obstacle to competition.”

He emphasised the need to support the growth momentum recorded so far in the industry, saying: “At just 11% of the size of the pension fund industry, we believe that the mutual fund industry needs to support its momentum with confidence-building measures, first among them is the adoption of market-to-market accounting and Global Investment Performance Standards (GIPS).

“GIPS would open the door to credible fund comparison services such as Morningstar, Yodelar and the Financial Times fund comparison service. These advances would pave the way to significant industry expansion and international investor participation.”  

He asserted that Nigerian savers are now making the long-term transition from building savings with banks to a culture of saving with mutual funds, leading to the growth in the industry. 

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