Mutual Funds defy Covid-19 effect, as returns rise 50% to N1.5trn

Analysts project moderate returns in 2021

By Peter Egwuatu

Despite the adverse impact of the Coronavirus, COVID-19 pandemic, on the Nigerian economy, fund managers have raised their investment in Collective Investment Scheme, CIS, otherwise known as mutual funds.

 The Scheme itself has recorded a return of 50 per cent Year-to-Date, YtD, with the net Asset value, NAV, rising to N1.5 trillion in 2020 from N1.0 trillion in 2019.

However, financial analysts have asserted that the huge gains recorded in equities in 2020 may not be replicated this year as they project moderate returns across all against  the backdof changing monetary policy environments.

Financial Vanguard gathered that anticipated concerns by Nigerian investors that low economic growth experienced last year were going to affect future revenue of corporate entities such as banks and other blue chip companies led to the increased desire for higher yielding mutual funds.

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Financial Vanguard’s review of the latest report released by the Securities and Exchange Commission, SEC, for 2020 shows that Money Market Funds recorded a negative return of    -2.2 per cent to N738.3 billion Year-on-Year, Y-o-Y.

On the other hand, bond market recorded the highest return,growing by 535.5 per cent to N222.6 billion, while the real estate funds posted the worst returns.

Fund  managers pool  resources together through mutual funds to provide investment window for individuals and institutional investors into select classes of investment instruments in money and capital, as well as real estate and other windows.

By diversifying their investments, mutual fund managers assist with minimising the potential risks typically associated with selecting and concentrating investments.

  

2020 Performance

Financial Vanguard  review of the SEC report on performance of mutual funds shows that among the seven mutual funds registered by SEC, Bonds Fund recorded the highest return in terms of net asset value growing significantly by 535.2 per cent to N222.6 billion from N35.023 billion in 2019.

Following the Bond Funds on the performance index is Fixed Income Funds which grew by 232.4 per cent to N428.1 billion from N128.8 billion, while Ethical Funds and the Mixed Balance Funds paired at the third position going up 175.6 per cent each. Ethical Funds moved up to N12.4 billion from N4.5 billion, while Mixed Balanced Funds grew to N12.4 billion from N4.5 billion.

On the lower returns, Equity Funds appreciated by 34.8 per cent to N15.1 billion from N11.2 billion, followed by Money Market Funds  which recorded abysmal performances posting a negative return of -2.2 per cent to N738.3 billion from N754.6 billion. In the same vein Real Estate recorded the worst performance with a negative return of -5.3 per cent to N42.6 billion from N45.0 billion.

Operators’ reactions

Reacting, analyst and Executive Vice Chairman, HIGHCAP Securities Limited, David Adonri said: “Mutual Funds are of different types based on the composition of their portfolios. 

They are actually so many. They are designed to satisfy various investment needs of diverse investors. They are also vehicles used by investors to diversify their asset base where ordinarily their capital would not have been sufficient.”

On the impact of the investment in Mutual Funds in 2020, he said: “In 2020, Nigeria’s economy was seriously troubled. The only two areas that soared were forex and equities. Consequently, any Mutual Fund that invested in those asset classes was capable of generating over 50% increase in Net Asset Values.

“ The debt market, whether bonds or bills was not very rewarding in 2020 compared to equities and forex due to sharp decline of yields to low single digits. Hence, Mutual Funds constructed on debt assets may have performed poorly. Most Funds are usually structured to be balanced between debt and equities on one hand, and between short term cash assets and long term non cash assets.”

Commenting on the prospect for Mutual Funds in 2021, Adonri said : “ The bonanza enjoyed last year in equities and forex are windfalls that may not be replicated for long time.

 They were exigencies of market imperfection that arose from panic measures to curb recession. With the normalization of economy, there will be less room for the kind of economic rent witnessed in forex and equities in 2020. With the massive debt plan of government in 2021, I will not be surprised if debt based Mutual Funds outperform others in 2021 but returns may not be above 15 per cent.”

Analyst and Chief Operating Officer, InvestData Limited, Ambrose Omordion said : “Mutual Fund recorded huge return due to the nature of the fund and different investment windows it plays. Equity market and real estate had a boom in 2020 despite outbreak of coronavirus that led to economic recession.

In his comment on the abysmal performance of Money Market Fund, he said: “Money market funds suffered setback because of the prevailing low interest and yield in the fixed income space. Bond funds were up due to continue borrowing of the government.”

In his projection for 2021, Omordion said: “The market will close positive in 2021 but not such return recorded in 2020. Breakthroughs in vaccines and recovery oil prices to drive economic recovery and growth, as the new normal will support some industry and sectors rebound.

In his own reaction analyst and Head of Investment, Fidelity Securities Limited said: “The last FGN savings bond saw rates move to    five    per cent from three per cent    for the 3-year tenor, the last    Open Market Operation,    OMO auction saw rates move to 10 per cent from five per cent for 364 days, while the last treasury bill auction saw rates move to four per cent    from two    per cent. 

This increase across all the fixed income and money market instruments are continually sending a signal to the market that rates may be on their way up and this is expected to negatively impact the equities market. If this uptrend in rates persists, we may see most PFA’s and other investors sell off their investments in equities and move their capital to the fixed income market.”

Commenting as well, the NSE said: “The growing interest in the mutual funds asset class evidenced by the increasing number of registered mutual funds with the SEC since 2019.”

The Exchange stated this during the digital Closing Gong ceremony to commemorate the election of Mrs. Tope Omojokun as the President, Fund Managers Association of Nigeria, FMAN on Tuesday, 02 March 2021.

Speaking, the Divisional Head, Listings Business, NSE, Mr. Olumide Bolumole stated, “ I must commend FMAN for its continuous collaboration in ensuring increased efficiency and investor participation in the Nigerian mutual funds market. 

As at 19 February 2021, the number of registered mutual funds with the Securities and Exchange Commission (SEC) has grown from 76 in 2019 with Net Asset Value (NAV) in excess of N600 billion to 102 mutual funds with NAV of over N1.43 trillion; 56 of which are listed on the NSE with NAV of over N1.24 trillion representing 88.3 per cent of total NAV. 

This confirms the NSE as the preferred listing destination for this asset class and we will continue to strategically position ourselves to support the growth of our fund managers and our stakeholders.”

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