Investors in the capital market have invested N1.374 trillion in the Nigerian mutual funds in the first two months of the year.
Mutual funds also known as collective investment schemes, are joint investment vehicles through which investors pool funds and invest in a chosen basket of securities to optimise returns and reduce risks. Mutual funds are typically managed by Securities and Exchange Commission (SEC) registered fund management firms alongside other professional parties such as trustees and custodians that provide additional supervision on the fund management.
Mutual funds are usually categorised by the class of assets that forms the primary focus of their investments. Following the recent reclassification by the Securities and Exchange Commission (SEC), there are now 10 categories of publicly-listed mutual funds: Money Market Funds, Fixed Income/Bond Funds, Infrastructure Funds, Real Estate Funds, Mixed Funds, Exchange Traded Funds (ETFs), Equity Funds, Ethical Funds, Sharia Compliant Funds and US Dollar Funds.
It will be recall that last year the Nigerian mutual fund industry suffered its first contraction in five years with its total assets under management (AUM) contracting by 10.6 per cent.
So far this year, by contrast, its total AUM have risen by 4.57 per cent from N1.314 trillion in December 31, 2020 to N1.374 trillion in February 25, 2022. The financial analysts said that the prospects for the rest of the year look good.
They also noted that mutual funds are growing rapidly and are quickly becoming the default destination for Nigerians’ savings.
According to Coronation Asset Management, last year, there was rise in dollar mutual funds as Treasury Bill (T-bill) rose to 10.70 per cent in May 2021 as investors demanded high yield at auctions.
“By the end of the year, however, one-year T-bill rates had collapsed to 5.35 per cent per annual,giving an inflation-adjusted return of negative 8.89 per cent per annual when compared with annual inflation of 15.63 per cent year-on-year (December). This provided the impetus for investors to take on risk assets such as equities and to buy US dollar funds.”
Coronation further said that “This year, while inflation has continued to decline, primarily due to base effects, one-year T-bills yield 5.02 per cent as at the end of February 2022 with inflation still in double digits at 15.60 per cent as at February.
“This has presented challenges for fund managers seeking to attract money into Money Market and Fixed Income funds.”
It also said that Nigeria Risk appetite has sent the NGX All-Share Index up 11.05 per cent year-to-date. This rally has been driven by new NGX Exchange listings ( BUA Foods), better-than-expected Q4 earnings, positive earnings expectations and corporate actions, as well as investors taking positions ahead of full year 2021 dividend payments.
Coronation Asset Management noted that “Having realised a nominal compound annual growth rate (CAGR) of 61.58 per cent between 2016 and 2020, the Nigerian mutual funds’ industry suffered its first decline in five years in 2021.
According to the SEC, between December 31, 2020 and December 31, 2021, the total combined Net Asset Value of all the regulated mutual funds declined by a nominal 10.63 per cent from N1.57 trillion ($3.78 billion) to N1.41 trillion ($3.38 billion). This decline was primarily driven by an exodus of N187.86 billion from Money Market funds and N101.37 billion from Fixed Income and Bond funds.
However, in this same period, other categories of funds, notably US dollar-denominated funds (+62.24%), Infrastructure funds.
So far, this year, the total combined Net Asset Value of all the regulated mutual funds is up 4.34 per cent.
Prospects for the rest of this year, Colation said “Our view is that risk assets will remain in vogue as long as risk-free returns continue to fall. So, we expect to see money going into the above-mentioned categories of funds. By contrast, our core view on market interest rates is that these are likely to rise this year and so we expect risk-free returns to improve. We therefore expect mainstream Money Market and Fixed Income funds to attract money through out the year.”
Cordros Capital, which manages mutual funds, said collective investments allow investors to reduce their risks and optimise the potential for higher returns by investing in a mix of asset classes in line with their risk horizon and targets.
Cordros Capital stated that mutual funds allow people to plan, save and invest towards their dreams and goals, such as a wedding, buying a house, starting a business, and furthering education among others.
According to the investment management group, investing for the long term involves setting goals and consistently investing in achieving them while such long-term investments help people to achieve their lifetime and long-term goals.
The managing director of HighCap Securities Limited, Mr. David Adonri said that mutual fund investment has been widely embraced as a good investment platform in the developed economies, and serves as a vehicle for the mobilization of capital for economic development.
He noted the investors are now embracing mutual fund instrument to diversify their investment risks especially in the equities market, explain that since investments in mutual funds are like investment in a basket of securities.
He added that mutual funds have commenced the year 2022 on a good note.