Modupe Gbadeyanka
By Quantitative Financial Analytics
The Mutual Funds market in Nigeria is gaining momentum as more funds hit the market sending total NAV soaring.
The momentum is the result of fund management companies developing mutual funds products or acquiring alternative asset businesses to augment their fund offerings with a view to diversifying their revenue sources.
Some fund managers are also repackaging existing funds to align them to investors’ appetites and preferences.
Specifically, in late 2016 Afrinvest Asset Management Ltd carried out a corporate action on its Nigeria International Debt Fund resulting in a 1 for 10 stock split that makes the fund affordable to retail investors.
Recently, Nigeria Global Investment Fund, formerly an equity based fund, was reorganized into the Chapel Hill Denham Money Market Fund while BGL Nubian Fund was acquired by Alternative Capital Asset Partners (ACAP) and turned into ACAP Income fund.
In fact, the late 2016 and early 2017 has seen record fund launches with 11 launches in 2016 and 6 launches in 2017 so far giving rise to such funds as Abacus Money Market Fund by Investment One Funds Management Limited, AXA Mansard Money Market Fund and its Equity Fund counterpart, Cordros Money Market Fund as well as Greenwich Plus Money Market Fund and a lot more.
The effect of these events and introductions has been that mutual fund assets have ballooned within a short space of time.
A good impact of the new launches is that investors are now presented with many funds to choose from although that comes with the difficulty in manager due diligence and selection process because investors now have more managers to evaluate and do due diligence on.
Another driving force for the momentum is increase in investor interest represented by fund inflows. Mutual fund inflows have grown in leaps and bounds over the past few months especially among money market funds which investors now see as alternative to treasury bills and as safer than Ponzi schemes.
Within the first quarter of 2017, Quantitative Financial Analytics estimated that mutual funds attracted the sum of N42 billion inflows as against the N49 billion inflow recorded the entire 2016.
Those factors have combined to give a boost to the asset value of mutual funds.
As at April 13, 2017, Mutual fund assets had grown to N268.3 billion from the 2016-year end value of N223.6 billion.
With the growth in mutual funds and as investor interest and education increases, mutual fund may become the dominant vehicle used by both advisors and institutions to access investible funds hidden somewhere among investors.
It may as well become the investment vehicle for investors seeking diversified portfolios.
Our prediction is that if the growth continues, mutual funds will become part of the mainstream market in the years to come
Much of the momentum and growth is in the money market funds. Category of mutual funds Of the N42 billion estimated inflows in Q1 2017, N33 billion went to money market funds.
Again, out of the 11 new funds launched in 2016, 4 are money market funds while 3 of the 6 funds launched so far in 2017 are money market funds. While this seems to be a proliferation of money market funds, there is yet to be a single fund of funds in the Nigerian mutual fund universe.
A fund of fund, is a mutual fund that invests in other mutual funds rather than investing directly in stocks, bonds or other financial products.
The advantage of fund of funds is that it offers broader diversification than regular mutual funds. Fund of funds may even present more efficient ways to implement investment strategies. A disadvantage, however is that fund of funds subject investors to double fees.
The double fees notwithstanding, it is time for fund managers to be more creative with their product offerings which should include the launch of fund of funds in Nigeria, until then, the mutual fund industry seems to be gathering steam.
