Nairametrics| Nigeria’s mutual funds’ asset under management (AUM) took some beating in 2016, going down by about a whopping N40 billion, per data released by the Security and Exchange Commission (SEC) and analyzed by Quantitative Financial Analytics.
The analysis reveals that the decrease in assets was due to cash outflows as the mutual funds collectively made gains of about N2.3 billion in the year under review. The asset under management as at Dec 31, 2015 was N264 billion but by the same period in 2016, it has fallen to N224 billion. Our cautionary analysis indicates that there was an estimated outflow of N141 billion and inflow of N99 billion in 2016.
The fund sector mostly hit by the outflow is the money market fund category which shed about N108 billion only to receive about N67 billions of inflows within the year. The situation could have been worse if not for the additional 10 or more new mutual funds that got added to the stock in 2016. This trend is a total opposite of 2015 when money market funds generated about N93 billions of inflows but only N10 billion worth of outflows, resulting in a 143% growth in Asset.
It is not surprising that money market funds lost so much of their assets to redemptions. The major reason could be the continued increase in interest rate which makes treasury bill and bond yields much more than what money market funds could offer. Apart from Arm Money Market Fund and Stanbic IBTC Money Market fund that offer yields in the 17% range, the rest offer something in the 15% range, a far cry from the yields on bonds and Treasury bills. Again, the evolution and preponderance of commercial papers in the Nigerian market is taking a toll on money market funds as such papers with their high yield are now competing with money market mutual funds for investible cash.
A major concern is that money market mutual funds are the heart and soul of the Nigerian mutual funds industry because they represent about 49% of the total mutual funds’ assets. It is therefore a concern that whatever happens to money market mutual funds by way of massive redemptions will directly have an impact on the entire industry. While the high interest rate environment may be good for some, may be to compensate for and manage inflation, it does not seem to be working for the mutual fund industry.