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Debt Securities

Nigeria’s Mutual Fund asset value may reach N1tn before December 2019

According to information contained in the latest available data from SEC, the total Asset Value of Nigerian mutual funds was about N710 billion as at March 15th.

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Money market fund investments

Not too long ago, I reported that Nigerian mutual fund asset value plunged. But that looks like history now that the mutual funds seem to have gotten their mojo back with soaring net asset value, as investors continue to dump cash into short term funds.

According to information contained in the latest available data from the Security and Exchange Commission, SEC, the total Asset Value of Nigerian mutual funds was about N710 billion as at March 15th, 2019. That represents 9% growth in Asset Value from the 2018 year-end value of N652 billion.

UBA Money Market Fund grew the fastest with 145% growth from N1.17 billion as at December 31, 2018, to N2.9 billion currently. CEAT Fixed Income Fund, which grew by 77% from N208 million to N369 million,  recorded the second fastest growth so far this year. This is followed closely by UBA Euro Bond Fund’s 56% in Asset value from N2.5 billion to N3.9 billion.

Categorically speaking, analysts at Quantitative Financial Analytics have determined that the equity fund category grew its asset value by negative 0.89% on the average due to huge withdrawals and poor performance that out-weighed the N2.9 billion new investments that came into the category.

Bond funds recorded average asset value growth of 7.19% due largely to N11 billion inflow since the beginning of the year, while money market funds grew by 11.2% on the average as 4 money market funds recorded negative growth in asset value.

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Real estate funds and Balanced/Mixed fund category recorded asset growth of 2.39% and 2.64% respectively. While Exchange traded funds grew by an average of 9.2%, Target Date funds grew by 3.08%. But Infrastructure fund category grew by negative 2.5% as a result of withdrawals.

Investors still hiding out in cash equivalents

On a fund by fund basis, the growth in asset value was mostly felt by the money market category of mutual funds, as investors continue to hide out in cash and cash equivalent investments. It is often said that cash is king. And Nigerian investors seem to be proving that by having most of their mutual fund investments allocated to money market funds.

Asset value of Money Market Funds has ballooned to N517 billion, representing about 72.9% of total mutual fund asset value. Since the beginning of 2019, money market funds had attracted an estimated N65 billion in new investments. It only suffered about N13 billion in withdrawals.

This trend underscores the conservative nature of Nigerian investors who are always wary of stock market volatility while taking advantage of whatever yield they can get from money market funds. The fear of the market has driven fund investors so far that only 3.8% of mutual fund asset is invested in equity-based funds.

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The two largest money market funds, Stanbic IBTC Money Market Fund and FBN Money market fund, now account for 55% of total fund assets.

High Yield is the Reason

In keeping with the saying “keep your money where your mouth is”, it is only moral and prudent that wise investors will put their money where yield is highest. And that is in the money market funds, especially in a market where the broad stock index is struggling to stay out of the red.

As I reported recently in an article – Top 10 high yield money market funds, most money market funds are yielding a minimum of 11% on an annualised basis. That high yield, in relation to the performance of the stock market, explains the continued surge in the asset value of money market funds.

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Although, investors may be aware that leaving their money in cash or cash equivalents could hurt their performance, the realization that there are not enough good stocks to buy, makes it a no brainer to remain in money market funds.

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Trillion Naira Asset Value in Sight

Even though investors have not fallen in love with every type of mutual funds, if the trend of increasing assets (especially at the money market fund category) continues, it will not be long before the country’s mutual fund asset value hits the trillion Naira mark. That time may likely be before December 2019.

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Mutual Fund Asset to GDP Still Low

Despite the encouraging growth in mutual fund assets, Nigeria still remains one of the countries with the lowest mutual fund asset to GDP ratio in Africa and the World at large.  There is, therefore, an urgent need for investor education, increased awareness, and the creation of an enabling and motivating regulatory environment that will encourage and enthuse investors to embrace mutual fund investments the more.

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

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Companies

Flour Mills moves to diversify funding sources with N29.8 billion bond listing

Flour Mills Nigeria Plc lists N29.8 billion bonds to diversify funding sources from the Nigerian capital market.

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Flour Mills makes one of the largest contributions to COVID-19 relief fund

Flour Mills Nigeria Plc’s fresh N29.8 bond listing will help the nation’s leading food business company to explore diversified funding sources from the Nigerian capital market, with the hope of enhancing growth and the development of the company.

This statement was made by the Group Managing Director of FMN, Mr. Omoboyede Olusanya, at the listing of the Tranche A and Tranche B bonds valued at N29.8 billion on the Nigerian Stock Exchange (NSE).

The food and the agro-allied company which has remained Nigeria’s largest and oldest integrated agro-allied business with a broad profile and robust Pan-Africa distribution issued these bonds under its N70 billion Bond Issuance Programme.

Olusanya said that the company would continue to explore funding opportunities inherent in the capital market to ensure business growth and continuity.

While speaking about the Credit Rating of the Programme, he disclosed that FMN’s credit rating, as well as the operational financing of the Group, have improved considerably.

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According to him, the bonds floated by Flour Mill will help to strengthen the company’s capital base and provide the needed working capital required by the Company. He added that Flour Mills Group will continue to deleverage and replace short term financing with longer-tenured and lower price funding to optimize capital structure and reduce financing cost.

He noted that Flour Mills will continue to explore opportunities to raise fundings via the capital market as this enables the company to diversify its funding sources and continue to play a role in the capital market as a significant player in it.

What they are saying

The Group Managing Director of FMN, Mr. Omoboyede Olusanya, at the virtual event, said;

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  • “We are delighted with the response from the market, we are happy to be listed.
  • “We are introducing an N29.9 billion listing under an N70 billion bond issuance cover; we will continue to raise funding to diversify our funding sources.
  • “The company remains passionate about feeding the nation to improve the quality of living for Nigerians through increased production and investments in backward integration.”

What you should know

  • With the successful issuance of the new N29.8bn Tranche A and Bonds, FMN has utilized its bond issuance program registered in 2018.
  • It is important to note that the Senior Unsecured bond listing includes an N4.89bn under Series 4 Tranche A of the bond issuance programme, at a 5.5% rate for 5 years, due by 2025, and a 25bn under Series 4 Tranche B of the same program at a 6.25% rate for a tenure of 7 years, due by 2027.
  • The bond proceeds will be used to refinance existing debt obligations. It will also help the company take collaborative actions to diversify the company’s financing options beyond expensive short term debt.

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Debt Securities

January 2021 FGN Bond records oversubscription of N88.3 billion

FGN bond offer has received a total bid of N238.28 billion across all tenors.

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Debt management office, DMO,Nigeria's Debt to revenue ratio, DMO suspends April 2020 FGN savings bond offer

The January 2021 FGN bond offer has received a total bid of N238.28 billion across all tenors, indicating it was oversubscribed by approximately N88.3 billion.

This fact was implicitly revealed through a disclosure by the Debt Management Office (DMO), seen by Nairametrics.

Nairametrics had earlier reported the offering of N150 billion worth of FGN bonds by the Debt Management Office for January 2021. In line with the notice, the auction occurred on the 20th of January, 2021 (yesterday).

Key highlights

The following are the key highlights of the 2021 FGN bond auction;

  • A total of N91.84 billion was submitted for the 10-Year tenor worth N50 billion, implying that it was oversubscribed by N41.84 billion.
  • The 15-Year tenor recorded a total subscription of N106.37 billion, implying an oversubscription of N56.37
  • On the other hand, the 25-Year tenor was undersubscribed by N9.93 billion, after it recorded a total subscription of N40.07 billion.

What you should know

  • Recall that the December 2020 FGN bond offer was oversubscribed by more than N70 billion, as reported by Nairametrics.
  • Nairametrics learnt that the oversubscription is sequel to higher rates across all tenors for January 2021, at 7.98%, 8.74% and 8.95% for the 10-Year, 15-Year and 25-Year period respectively, compared to the rates of 6.945% and 7.00% for the 10-Year and 15-Year tenors at the last auction in December 2020.

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Debt Securities

Collapse in domestic bills and bonds yields forcing local funds into stocks

A collapse in yields on domestic bills (3 months at 0.35%) and bonds (five-year at 3.5%) is forcing local funds into stocks.

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Nigerian Treasury Bills falls to 3.05% per annum, Implications of the new CBN stance on treasury bill sale to individuals

EFG Hermes has stated that a collapse in domestic bills yield (3 months at 0.35%) and bonds yield (five-year at 3.5%) is forcing local funds into stocks.

This is according to a recent report by the company tagged: 2021 The Year Ahead — Is the Recovery in the Price?

The report notes that current fixed income yields, of which bills and bonds are a part, seem unsustainable – citing that real 12 month yields are -13.8%. Hence, the report suggests that the country is likely to remain a cautious market for foreign investors in 2021.

READ: CAC says defaulting lawyers to face 2 years imprisonment for filing false documents

Despite the awareness, the company is of the opinion that fixed income yields in Nigeria could stay higher than 2020 lows for the next few months, which may lead to heavy bond issues in early 2021, as precedent suggests.  

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  • The company believes that the macro context is weak and policy-making is unpredictable in the country – pointing that although the country is facing a slow-burning BoP and fiscal crisis, it appears the authorities are making little efforts towards the difficult decisions necessary to put the economy and market on a sustainable footing.
  • This may, according to the company, impact earnings growth negatively in 2021 and 2022.

Accordingly, the report contends that this is one of the reasons why foreign investors avoid investing in the country’s instruments – noting that foreign investors seem to be happy selling to the local institutional bidders so that current data on holdings and flows depicts there is not much foreign money left in the market – as illustrated by foreign and domestic portfolio investment.

READ: Nigeria’s GDP growth to rebound between 1.7% and 2.0% in 2021 – United Capital report

What EFG Hermes is saying

  • “While foreign portfolio investors are seeing some relief on the backlog, until we see serious policy changes, we do not think foreign investors will become net buyers of Nigerian stocks. There is no indication that such changes are in the pipeline.
  • “We, therefore, expect a rising share of future net contributions to go to stocks, as well as cash coming from bond and bill maturities. However, we note that PFAs remain reluctant buyers, and the list of stocks in which they are happy investors is short.”

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