The search for yield by Nigerian investors continues to be the motivating factor for choosing what to invest in. Analysis conducted by Quantitative Financial Analytics, on the inflows and outflows into and from Nigerian mutual funds, shows that FBN Money Market Fund attracted the largest inflow in the month of January, 2019.
Total inflows higher than total outflows
According to the analysis, mutual funds in Nigeria attracted an estimated inflow of N47.5 billion and suffered outflows totalling N13.3 billion. Inflows are new money that investors pour into mutual funds by way of subscriptions, while outflows constitute withdrawals by investors who may decide to either take their money from the funds or transfer/switch such money to other funds.
FBN Money Market Fund’s inflow
Of the N47.5 billion inflow, N23.2 billion went to FBN Money Market Fund while N4.4 billion went to Stanbic IBTC Money Market Fund, with N2.8 billion each going to Abacus Money Market Fund and Stanbic IBTC Dollar Fund.
With that huge inflow, FBN Money market fund consolidates its position as the second largest mutual fund by asset in Nigeria while the fund manager, FBN Asset Management Limited, also consolidates its position as the second largest fund management company in Nigeria.
Stanbic IBTC Money Market and Stanbic IBTC Asset Management still at the top
Stanbic IBTC Money Market Fund and its manager, Stanbic IBTC Asset Management company, still occupies the enviable positions of the largest fund and fund manager in Nigeria, respectively. Stanbic has occupied this position since Quantitative Financial Analytics began tracking Nigerian mutual funds over five years ago.
The Quest for High Yield
The huge inflow is mostly being driven by the quest for yield by investors. The FBN Money Market Fund yields 14.2%, the highest among mutual funds in the current market. Its rivals, Stanbic IBTC Money Market Fund, and ARM Money Market Fund are yielding 13.24 and 13.36 respectively.
These are higher than what is currently obtainable from FGN Savings Bonds and most corporate commercial papers although FGN Savings bonds carry less risk. Compared to available information on yields on money market funds in Nigeria, FBN Money Market fund is currently having the highest yield and it is therefore of no surprise that investors are noticing that and therefore rewarding that performance with increased amount of inflows and subscriptions.
PFAs investment in FGN securities rises by 3.7% in November 2020
RSA registration marginally increased by 0.17% to 9,188,475 as at November 2020.
The Pension Fund Administrators (PFAs) have increased their investments in Federal Government of Nigeria securities by 3.7% to N8.14 trillion in November 2020.
This is according to recent data from the National Pension Commission (PenCom), which revealed that the amount invested by PFAs on FGN securities including; Bonds, Treasury Bills, etc., increased from N7.85 trillion as of October 2020 to N8.14 trillion by the end of November 2020.
The breakdown of the amount invested on various FGN securities within the period under review are:
- FGN Bonds got the lion’s share of N7.38 trillion as of November 2020, accounting for 90.7% of the total amount invested in FGN securities for the aforementioned month. This indicates a growth of 4.3% Month-on-Month.
- Investment in Sukuk bond increased to N100.07 billion in November 2020, up by +6.9% Month-on-Month.
- Investment in Treasury Bills declined to N642.03 billion, down by -1.7% Month-on-Month.
- Investment in Agency bonds also declined to N6.03 billion, down by 50.9% Month-on-Month.
- Investment in green bonds declined to N11.8 billion, down by 10.6% Month-on-Month.
- Investment in state government securities stood at N150.59 billion, down by 2.5% Month-on-Month.
Upshots: The increased investment in FGN securities by PFAs within the aforementioned period might be attributable to an earlier order by CBN which prohibited PFAs from OMO Auctions. The order redirected the investment focus of most PFAs, with many opting for other low-risk FGN securities, possibly explaining why the increase occurred.
What you should know: Nairametrics had earlier reported that CBN had restricted OMO auctions to banks and foreign investors.
- The Net asset value of all PFAs in the country as of November 2020 stood at N12.3 trillion, marginally up by +1.98% Month-on-Month.
- Total RSA registration for the aforementioned period also increased by 0.17% to 9,188,475.
Nigeria’s pension funds continue to divest from treasury bills
Since the beginning of 2020, pension fund managers have moved out about N1.112 trillion of treasury bills investments into mostly FGN Bonds.
As the low-interest regime that characterized most of 2020 continues with no immediate sign of an increase, pension fund managers have also continued to rid their portfolios of treasury bill investments.
Analysis of the recently released September 2020 edition of Pension Fund assets, by the Pension Commission of Nigeria, PenCom, shows that pension fund managers reallocated their assets away from treasury bills to FGN Bonds.
In the month of September 2020, according to the latest report, pension fund managers closed out of treasury bill positions worth N0.224 trillion while loading up on FGN bonds worth N0.254 trillion. Since the beginning of 2020, pension fund managers have moved out about N1.112 trillion of treasury bills investments into mostly FGN Bonds.
At the beginning of 2020, total pension fund assets invested in treasury bills stood at N1.88 trillion, but that has fallen to N0.78 trillion as at the end of September 2020. Put in another way, as at the end of 2019, 18.4% of pension fund assets were invested in treasury bills but as at September 30, 2020, pension funds’ treasury bill investment stood at 6.7%
Implications for domestic borrowing and monetary policy
Treasury bills serve a whole lot of purposes for the government. They are used as a means for the government to borrow to cover short term budgetary deficits as well as a means for the Central Bank to manage the supply of money and its inflationary effects.
With the increasing and seeming lack of interest by pension fund managers, who, usually are big players in the treasury bill market, the government may find it a bit problematic raising the much-needed domestic borrowing from them.
In like vein, the Central Bank’s ability to implement monetary policies through treasury bills and others, open market operation, may also suffer. May be, fiscal policy may become a more potent instrument of economic management, if that happens.
Nigeria’s Mutual Fund asset value grew by 50% in 2020
2020 appears to be the year with the highest growth in the value of mutual fund assets in Nigeria.
While the year 2020 will go down in the annals of history as one of the worst years in the history of mankind, it was not so bad for the Nigerian mutual fund industry.
Interestingly, 2020 appears to be the year with the highest growth in the value of mutual fund assets in Nigeria.
According to data from the Security and Exchange Commission, SEC, the total value of mutual funds in Nigeria stood at N1.042 trillion as at the end of 2019. The same data source now shows that as at the end of 2020, the net asset value, NAV of Nigerian mutual fund had risen to N1.572 trillion, representing an increase of 50.79%.
A deeper analysis of the industry reveals that in 2020, mutual fund contributions amounted to about N0.903 trillion while redemptions amounted to about N0.42 trillion. The same analysis points to the fact that mutual funds gathered an estimated sum of N46.7 billion in gains.
Compared to 2019, the capital activities, comprising of subscriptions and redemptions were slightly far afield. In 2019, subscriptions stood at N0.52 trillion while redemptions came up to N0.14 trillion, resulting in a net inflow of N0.38 trillion. Net inflows for 2020 stands at N0.483 trillion. Unlike in 2019, when mutual funds made an estimated gain of N9.9 billion, the N46.7 billion made in 2020, makes Corona Virus a non-issue for the industry.
Majority of the funds ended 2020 in the black, as 15, out of the 118 mutual funds on the SEC’s NAV Summary Report. The good thing about it is that no particular fund group dominated in making gains.
Although most of the funds that recorded huge gains came from the Euro Dollar category, Bond and Fixed income funds were not left behind as a whole lot of them stood out with mouth-watering gains. Out of nowhere, Stanbic IBTC Nigeria Equity fund sneaked in with some sizable gains too.
On the downside, the two funds that recorded the greatest losses came from the Real Estate Investment fund category. Apparently, the Real Estate Investment Trust funds have not been doing good. Be that as it may, it is laudable that the Nigerian mutual fund industry stood out in 2020.