Economy
Mutual Funds Gain Traction as More Funds Hit Market
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.
By Adedapo Adesanya
The Naira appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, July 17, by N1.35 or 0.07 per cent to N1,380.18/$1 from N1,381.53/$1.
It also improved its value against the Pound Sterling in the same market segment during the session by N11.75 to trade at N1,854.42/£1 compared with the previous day’s N1,866.17/£1, and gained N5.69 against the Euro to sell at N1,576.99/€1 versus Thursday’s closing price of N1,582.68/€1.
In the same vein, the Naira chalked up N1 against the United States currency yesterday at the GTBank forex desk to quote at N1,388/$1, in contrast to the preceding day’s N1,389/$1, but closed flat at the black market at N1,405/$1.
The appreciation of the Nigerian currency on Friday came amid fresh signals that Nigeria is building its external reserves for protection against shocks and excessive currency volatility.
The Governor of the Central Bank of Nigeria (CBN), Mr Yemi Cardoso, said the country’s gross reserves had risen above approximately $52 billion by 15 July, while net reserves had increased from about $3 billion when the current CBN leadership took office to more than $40 billion.
Mr Cardoso linked the increase in reserves to reforms that had restored greater confidence in the foreign exchange system. He also pointed to efforts to diversify foreign currency inflows, including policies designed to increase remittances through official channels.
He noted that monthly diaspora remittances had risen above $600 million and the CBN expected them to reach approximately $1 billion by the end of 2026. The target is part of a broader effort to grow reserves through recurring inflows rather than temporary measures.
The improvement, he argued, had strengthened Nigeria’s capacity to respond when unexpected events threatened market stability.
The apex bank has also launched a new digital platform that will track every foreign exchange transaction involving Bureau De Change (BDC) operators, marking a major step in its efforts to improve transparency and strengthen oversight of Nigeria’s retail forex market.
As for the crypto market, prices were up as markets overlooked geopolitical developments and macro forces weighing on the whole market ecosystem rather than anything crypto-specific, with Cardano (ADA) up by 4.6 per cent to $0.1661.
Bitcoin (BTC) jumped by 1.8 per cent to $63,968.32, Ethereum (ETH) improved by 0.9 per cent to $1,843.88, Dogecoin (DOGE) also rose by 0.9 per cent to $0.0723, Solana (SOL) soared by 0.6 per cent to $74.90, Ripple (XRP) also appreciated by 0.6 per cent to $1.08, and Binance Coin (BNB) advanced by 0.1 per cent to $567.32.
However, TRON (TRX) depreciated by 0.2 per cent to close at $0.3218, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
The prices of the crude oil grades rose Friday, as fighting between the US and Iran continued in the Middle East, leading to further attacks in Bahrain, Jordan, Kuwait, Oman, Qatar and Syria.
Brent crude futures advanced by about 4.6 per cent to $88.10 per barrel, while the US West Texas Intermediate (WTI) futures gained about 4.5 per cent to settle at $82.49 per barrel.
US forces stepped up attacks on Iranian sites, reportedly striking key bridges, railways, and an airport, prompting retaliatory action by Iran.
US Central Command said that it had completed its sixth consecutive night of strikes against Iran, hitting dozens of military targets such as military logistics infrastructure and maritime capabilities.
Centcom said more than 50,000 service members were operating across the Middle East, adding that they “remain vigilant, lethal, and ready.”
Iran said it attacked the US targets in Bahrain, Jordan, Kuwait, Oman, Qatar and Syria in retaliation for the latest round of strikes by the Americans.
Kuwait said Iran attacked a power and water desalination plant as fighting escalated in the Persian Gulf, saying that the attack damaged the facility that sparked a fire that affected a large number of its electricity-generating units, according to The Kuwait Times.
Kuwait is heavily dependent on desalination plants for potable water. Analysts have long feared that Iran would strike infrastructure that is critical to supporting civilian life in the Middle East.
A tanker was hit by a projectile off the coast of Oman, causing minor damage, the United Kingdom Maritime Trade Operations Centre said in an incident report Friday. Iran has repeatedly attacked tankers over the past week as it tries to force civilian ships to transit the Strait of Hormuz through its waters.
The escalating fighting comes as the fragile truce reached last month has collapsed, once again disrupting energy flows through the strategically vital Strait of Hormuz, which typically handles around 20% of the world’s oil traffic.
Earlier in the week, President Donald Trump said American forces would target Iran’s infrastructure next week unless the two sides reached a diplomatic breakthrough.
Iran has asked Yemen’s Houthis to close the Red Sea oil route if the US targets Iranian power infrastructure.
Market analysts noted that Iran and the US still have strong economic incentives to avoid a complete breakdown in talks, with the US seeking lower oil prices ahead of the November midterm elections and Iran reluctant to forgo economic incentives.
By Adedapo Adesanya
Despite signs that Nigeria’s headline inflation is easing, rising food prices continue to threaten the country’s inflation outlook, the chief executive of the Centre for the Promotion of Private Enterprise (CPPE), Mr Muda Yusuf, has warned.
He noted that structural inflationary pressures in the real economy remain pronounced despite improving macroeconomic stability.
In a policy brief released following the inflation report, he noted that headline inflation eased marginally, while month-on-month change moderated from 1.75 per cent to 1.66 per cent, indicating that headline inflation has largely plateaued.
According to him, the dominant concern in the latest inflation report is the renewed acceleration in food inflation.
This growth, he said, suggested that food prices have resumed an upward trajectory after a brief period of moderation.
Warning that a renewed increase in food inflation has significant economic and social implications, he stressed that food inflation remained the biggest driver of Nigeria’s cost-of-living crisis, stressing that rising food prices continue to erode household purchasing power, worsen poverty and food insecurity while weakening the inclusiveness of the current reform programme.
He maintained that sustained moderation in food prices is critical to improving citizens’ welfare and strengthening public confidence in the ongoing economic reforms.
Acknowledging the easing of core inflation as encouraging, he drew attention to the persistence of urban inflation.
At 16.08 per cent, urban inflation exceeded the national headline inflation rate of 15.91 per cent, while month-on-month urban inflation increased from 1.99 per cent to 2.13 per cent.
According to Mr Yusuf, the figures indicated that inflationary pressures remained particularly intense across urban centres.
He attributed the rising urban inflation partly to increasing population displacement from rural communities affected by insecurity, expressing worry that as more households migrate to urban areas, demand for housing, transportation, utilities and other essential services would increase, adding to inflationary pressures and creating additional urbanisation challenges.
Addressing insecurity in farming communities, he said, was important not only for protecting lives and property and boosting agricultural output but also for easing cost pressures in urban centres, adding that the June CPI data reinforced the view that Nigeria’s inflation challenge is predominantly structural rather than monetary.
On the monetary policy outlook, he said the data do not justify further monetary tightening, arguing that headline inflation has largely stabilised.
The CPPE chief expected the Monetary Policy Committee (MPC) to retain the current monetary policy rate at its next meeting, adding that the priority is for monetary and fiscal authorities to work together to accelerate structural reforms to expand food supply, improve logistics, reduce energy and production costs, lower debt service costs, as well as strengthen domestic value chains.
