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The State of the Nigerian Mutual Funds Industry

Though mutual funds are not as popular in Nigeria as stocks, a sizable number of investors keep purchasing them instead of individual stocks.

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Mutual Funds, Mutual Fund gone bad: Nigerian investor discloses his 10 years investment that nosedived , Nigeria’s mutual fund asset value reaches N1 Trillion

Though mutual funds are not as popular in Nigeria as stocks, a sizable number of investors have purchased and keep purchasing mutual funds in addition to or instead of buying individual stocks. That is the reason why the Net Asset Value of all mutual funds (including exchange-traded funds) in Nigeria keeps rising, week after week and is currently in the neighbourhood of N830 billion.

Why Buy Mutual Funds?

For those wondering why they or anyone should invest in mutual funds, there are good reasons to do so. Mutual funds provide the benefits of diversification and professional asset selection and management.

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When one owns a basket of securities through investments in a mutual fund, instead of individual security, he or she is exposed to much less individual stock risk. However, the ownership of mutual funds does not insulate an investor from non-diversifiable risks, otherwise called market risk.

[READ MORE: A guide to how Mutual Funds work in Nigeria]

Current Total Fund Assets

As of August 2, 2019, the Nigerian mutual fund industry had a total asset value of N834.3 billion, an increase of 28.7% from the 2018-year end total asset value of N651 billion. Exactly one year ago, on August 2, 2018, the Net Asset Value (NAV) of mutual funds in Nigeria stood at N654.5 billion, meaning that there has been an increase of 27.47% since then.

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Flow report as a measure of the state of the mutual fund industry

One of the ways to decipher the state of the mutual fund industry is through fund flows. Fund flow is a metric or statistic that analyzes whether investors are putting money into, or taking money out of, mutual funds over the course of a specified period. Nigerian mutual funds have recorded positive net flows for many weeks since 2015 although at a varying pace each week.

Since the beginning of the year, 2019, total inflows of about N265.4 billion have been recorded while the outflow for the corresponding period is about N77.2 billion. Though this is encouraging, it is slightly less impressive when compared with the flow report within a similar period in 2018. From January 1st, 2018 to August 2nd, 2018, the Nigerian mutual fund industry recorded a total inflow of N273.2 billion and total outflow of N47.7 billion. Understandably, the yield was higher in 2018 than in 2019.

Money Market Funds Fly High

The majority of the increase in net asset value came from money market funds, where rising yield during the first two quarters of the year and risk aversion by investors, combined to push the asset value of money market funds up. As has been the character of Nigerian mutual fund investors, much of the new investments in mutual funds were directed to money market funds.  Of that N265.4 billion inflow, N192 billion was directed to money market funds, which also suffered the highest outflow of N54 billion.

[READ ALSO: 20 Financial Terms You Need To Know In The Stock Market]

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FBN Money market fund generated the highest inflow of N66.08 billion as well as the highest fund level outflow of N25.3 billion, followed by Stanbic IBTC money market fund with inflows totalling N56 billion and N7.2 billion in outflows.

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Investors Fall in Love with Euro Funds

It appears that Nigerians’ love for anything imported is expanding towards the mutual fund industry. Eurobond funds generated the second-highest inflow, after money market funds, and surprisingly, higher than what bond or fixed-income funds attracted. Eurobond funds recorded a year to date YTD inflow of N41 billion, thanks to Stanbic IBTC Dollar Fund and United Capital Eurobond fund that attracted N30.2 billion and N8.4 billion respectively.

Eurobond funds

Collectively, however, the Eurobond funds suffered an outflow of N8.5 billion. The love for Euro bond funds may be as a realization by Nigerian investors that such investments could act as a hedge against a falling Naira and that investments in Eurobond funds have the potential of benefiting from price increase (unrealized capital gain) as well as changes in the exchange rate (exchange gain).

Bond and Infrastructure Funds Too

Bond funds, which recorded the third highest inflow of N12 billion, suffered outflow of N8.1 billion. Much of the inflow came from Stanbic IBTC Absolute fund and SFS Fixed income fund. Infrastructure fund category, a category that houses only Chapel Hill Denham Nigeria Infrastructure fund, saw  N11.8 billion flowing in with only N1.8 billion leaving the fund. This indicates that investors believe that there could be some hidden benefits to be gained from infrastructural investments.

[READ FURTHER: How to Know If It’s A Ponzi Scheme]

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Ethical and Exchange Traded Funds not as Good

Generally, every category of mutual funds recorded positive flows on a year to date basis except Ethical funds and Exchange Traded funds where the inflows were not big enough to compensate for the outflows.

Increase in Number of Mutual Funds

It was not only the Net Asset Value (NAV) that increased, the number of funds that are registered with the Security and Exchange Commission, SEC, increased by 7, according to the SEC NAV Summary Report. Among the funds that got added are GDL Money Market Fund, Lead Balanced Fund, Legacy Money Market Fund, PACAM Equity Fund, PACAM Eurobond Fund, Vantage Dollar Fund and Vantage Equity Fund.

That brings to 98, the total number of mutual funds in Nigeria per the SEC NAV Summary Report. 18 of those 98 are equity-based funds, 19 are bond funds, 20, money market funds, 3 Real Estate Investment Trusts, 14 Balanced funds, 5 Ethical funds, 9 ETFs, 2 Target Date funds, 7 Eurobond funds and 1 Infrastructure fund.

The Conclusion is that the state of the Nigerian mutual fund industry is strong and that strength and growth are expected to continue.

[READ MORE: Nigeria’s Mutual Fund asset value may reach N1tn before December 2019]

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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Business News

REMINDER: FGN Ijara Sukuk Bond auction closes on 2nd June 2020

Proceeds from the Ijara Sukuk Bond auction will be used solely for the construction and rehabilitation of key roads across the six geopolitical zones of the country.

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The Debt Management Office (DMO), on behalf of the Federal Government, has reminded the general public that the offer for subscription to the N150 billion FGN Ijara Sukuk Bond will close on Tuesday June 2nd, 2020.

The offer for subscription was announced some days ago by the DMO, as Nairametrics reported. Below are the details of the offering.

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The Auction: N150, 000,000,000 – Rental Rate of 11.20% per annum IJORA SUKUK FGN JUNE 2027 (7-Yr Opening)

Arranger: FBNQuest Mechant Bank Limited and Lotus Financial Services Limited.

Opening Date: May 21, 2020

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Closing Date: June 2, 2020

Settlement Date: June 9, 2020

Summary of the Offer

Instrument Type: Ijarah (Lease) Sukuk

Issuer: FGN Roads Sukuk Company 1 Plc. on behalf of the Federal Government of Nigeria.

Units of Sale: N1,000 per unit subject to a minimum Subscription of N10,000 and in multiples of N1,000 thereafter.

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Rental Payment: Payable Half Yearly.

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Redemption: Bullet repayment on the date of maturity

Use of Proceeds: Proceeds will be used solely for the construction and rehabilitation of key roads across the six geopolitical zones of the country.

(READ MORE: FG impounds aircraft for illegal flight operations)

About Sukuk bonds  

Sukuk is derived from the word Sakk, which can be translated to mean legal instrument, deed, and cheque. Sakk can also mean to strike a deal on a paper document.

The origin of Sukuk dates to 7th century AD, where the first Sukuk transaction took place in Damascus, Syria in the Great Mosque of Damascus (Umayyad Mosque).

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Since Islam prohibits usury – collecting interest from your loans – interest-based bonds are banned in Muslim nations.

Difference between Sukuk and regular bonds

Sukuk indicates ownership of an asset. The assets that back Sukuk are compliant with Shariah. In other words, such assets adhere to the Islamic prohibitions on gambling, alcohol, tobacco, narcotics, and adult entertainment products and services.

Sukuk notes pay a fixed percentage return as a profit-sharing percentage of the underlying assets’ revenues.

Regular bonds, on the other hand, pay a fixed rate of return as interest (coupon) semi-annually or annually. 

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Business News

Just In: PPPRA reduces petrol price to N121.50 per litre

“After a review of prevailing market fundamentals in the month of May and considering marketers realistic operating costs as much as practicable, we wish to advise of a new PMS guiding pump price…”

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NNPC, Reduce funding oil subsidy - IMF to Nigeria , Oil marketers, PENGASSAN call for subsidy removal 

The Petroleum Products Pricing Regulatory Agency (PPPRA) has announced a new retail price band for oil marketers.

In a circular dated May 31st, as seen by Nairametrics, the downstream regulator said oil marketers are now expected to sell petrol within the price range of N121.50 and N123.50. Part of the circular said:

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“Please recall the recently approved pricing regime which became effective March 19, 2020, and the provision for the establishment of a monthly price band within which petroleum marketers are expected to sell PMS at the retail stations.

“After a review of prevailing market fundamentals in the month of May and considering marketers realistic operating costs as much as practicable, we wish to advise of a new PMS guiding pump price with the corresponding ex-depot price for the month of June 2020, as follows; price band N121.50 – N123.50 per liter.”

Details later…

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Hedge funds, institutional investors rush to own stakes in Bitcoin

Hedge funds are firms that offer alternative investments to a specific type of investors (high net worth individuals), in a bid to protect their investment portfolios from market uncertainty, while generating positive returns regardless of market sentiments.

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Bitcoin users rise in Nigeria despite Senate, CBN campaign against it, Nigerians losing millions to crypto fraud, Investing in cryptocurrencies in this economic shutdown, Bitcoin could hit above $100,000 by August 2021, Hedge funds, Institutional investors rush to have a stake in Bitcoin

With global economic uncertainty gradually becoming a daily norm, institutional and hedge funds around the world have been rushing to have a stake in crypto assets which  all have been outperforming other financial assets in 2020).

Just recently, a popular hedge fund based in New York –Grayscale Investments –caught the investment world by surprise by buying up Bitcoin (BTC) at a great rate in recent months.

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Lennard Neo, the head of research at Stack Funds, told Cointelegraph that institutional investors have been seeking for other options, not just to provide returns, but also to hedge their existing portfolio from downside risks. Neo said:

“Similar to Grayscale, Stack has seen an uptick in investors’ interest — almost double that figures of pre-crash in March — in Bitcoin. I would not say they are ‘gobbling up BTC’ blindly but cautiously seeking traditional structured solutions that they are familiar with before making an investment.” 

(READ MORE:The Empirical Truth about an average Nigerian’s price point)

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In addition, Paul Cappelli, a portfolio manager at Galaxy Fund Management, explained in detail the reasons for this demand. According to him, “we’re seeing increased interest from multiple levels of investors’ wealth channels, independent RIAs, and institutions.

“The recent BTC halving came at an interesting time amid the COVID-19 outbreak and the growing unease about quantitative easing. He noted: “It clearly demonstrated BTC’s scarcity and future supply reduction as concerns deepened around unprecedented stimulus by the Fed with the CARES Act.” 

Also, Michael Sonnenshein, the Managing Director of Grayscale Investments, explained briefly why his firm uses Bitcoin as an option in hedging its firm’s portfolio position.

“All three are facing issues this time around. Bitcoin has emerged as an alternative hedge, operating independently of the dramatic monetary policies enacted by central banks,” he said.

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What you need to know about Hedge Funds

They are firms that offer alternative investments to a specific type of investors (high net worth individuals), in a bid to protect their investment portfolios from market uncertainty, while generating positive returns regardless of market sentiments.

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