- Fund Managers have largely missed out on stock market rally as Mutual Funds NAV hit N400 billion
- They prefer to invest in safer low risk but low yielding fixed income securities
- This is probably due to one reason
The Security and Exchange commission just released its latest compilation of mutual funds NAV. As projected by analysts at Quantitative Financial Analytics, the combined net asset value of Nigerian mutual funds has crossed the N400 billion mark. How the NAV got so big is a discuss of another article, however, fund type analysis of the mutual funds’ assets points to one troubling indication.
That analysis which was based on the NAV Summary report as at November 24th, 2017 indicates that slightly over 67% of mutual fund assets is invested in money market funds, 11.33% in Real Estate Funds, 8.7% in Fixed Income funds while 7.34% is invested in Equity based mutual funds. With 2.63% invested in Balanced funds, only 1.57% is invested in Exchange traded funds with Ethical funds having only 1.35% of the NAV
The same analysis carried out as at December 31st 2016, shows that 48.6% of mutual funds NAV was in money market funds, 20.35% in Real Estate Funds, 12.25% in Equity based funds, 11.24% in Fixed Income funds and 3.93% in Balanced or mixed funds. Ethical and Exchange traded funds had 2.12% and 1.62% respectively.
By the end of the second quarter of the year, mutual funds’ assets invested in money market funds had gone up to 54.48%, while those in Real Estate funds increased to 16.77%, Fixed income funds’ share also increased to 10.72% while investment in Equity mutual funds decreased to 10.68%. That trend has continued through the last quarter of the year but it does look like it is a trend against the run of play.
Yield curve has been falling since February 2017, although it witnessed some recovery in August but has since resumed and continued its downward move. One would have expected that investors would reallocate their assets away from yield curve dependent investments, but it does not seem that they did.
On the other hand, the equity market has been aiming at the sky. By the end of Q1, the All Share index was down 5.05% on a YTD basis, but by the end of Q2, it had recovered and gone up by 23.23%, and by end of Q3 it had recorded a YTD performance of 31.87% which now stands at 39.04% (as at November 24th, 2017). Equities are by far out performing fixed income securities.
Specifically speaking, FBN money market fund is currently yielding about 18.6% while Stanbic IBTC money market fund is yielding about 17.77% and ARM Money market fund yields about 17.08%.
On the other hand, most equity based funds are yielding much more in YTD returns
With the performance of the equity market so high and yield curve sloping downward, one could not but wonder why investors will divest from equity funds to money market funds. The only reason that comes to mind is that investors are risk averse preferring the little return being offered by money market funds for their known risk to the high equity returns with their unknown risk. It has been said that one of the greatest risks in investment is to remain risk averse for too long.