Investors dump mutual funds over inflation, low returns


Investors are daily abandoning the Collective Investment Scheme (CIS), popularly known as mutual funds, over low rate of returns recorded in some of the funds, Business Hallmark can reveal.

The mad rush for the exit door is coming barely sixteen months after mutual funds became the preferred bride, with investors abandoning the volatile stock market and fixed income securities for the more profitable collective investment scheme.

BH recalled that by August 2021, the value of mutual funds had risen to 107% after investors who embarked on withdrawals from the loss making stock market and low yielding fixed income securities turned to it.

While investors recorded huge losses with massive decline in total value of the equity market, the CIS gained massively with acceleration in volume and value of investments in 2020.

For instance, investments in Mutual Funds increased from N671 billion in January 2020 to N1.4 trillion as at August of the same year, about 107.5 per cent rise in the net asset value.

The switch to mutual funds was led by big institutions like Pension Fund Administrators and insurance companies who took big investment positions in the mutual funds in their bid to stem continued losses from the stock market and low interest rate for deposits in the money market.

According to the National Pension Commission (PenCom), the PFAs invested N24.8 billion in mutual funds as at May 2020, an increase by 2020.

The good run continued into 2021 with the bullish position of the investors in mutual funds pushing its net asset value to N2.0 trillion despite the adverse impact of the COVID-19 pandemic on the economy.

However, the tide has ebbed drastically, with the volume of transactions in mutual funds dropping by 12.2 percent in 2021.

According to BH findings, investors’ commitment in the asset class fell to N1.3 trillion by December 2021 from N1.49 trillion in the previous year, 2020.

Investors’ apathy towards mutual funds in 2021 dropped sharply as total investment in the asset class on a Year-to-Date (YtD) basis fell by 12.8 per cent from N1.49 trillion in January, 2021.

Findings revealed that while bonds funds outperformed equity-based funds and the money market funds, the bonds funds benefited the most with 12.6 percent Year-on-Year (Y/Y) growth in asset value to N534.14 billion from N474.30 billion in 2020.

On the other hand, money market funds fell 25.1 percent to N536.39 billion from N743 billion, while equity-based funds crashed by 7.2 percent to N28.34 billion from N30.54 billion in 2020.

Speaking on the development, some financial experts who spoke with our correspondent in Lagos blamed it on low rate of returns recorded in some of the funds and the lack of understanding of the benefits by investors.
The Senior Vice President, Parthian Partners, Ola Oladele, blamed the decline on the low returns on the funds as well as the lack of understanding of the benefits of mutual funds and it works.

“Even investors that know of them are not interested given the high inflationary environment.

“Asset managers also need to improve on their skill in asset selection so that fund performance can improve. The moment people feel they can do better by investing themselves than investing in a fund, it is less likely that they’ll opt for funds”, Oladele explained.

In his own submissions, the National Chairman of the New Dimension Shareholders, Patrick Ajudua, blamed the low appetite for CIS by investors on low yields.

“The low appetite for CIS by investors is because of its aggregate low yield when compared to returns on other high yield investment classes.

“As a result, most investors prefer to make their individual investment decisions with their market advisers rather than subscribe to CIS,” Ajudua stated, while calling for the review of the minimum entry amount in order to give opportunity for more retail investors.

The Vice Chairman, Highcap Securities, David Adonri, revealed that investors are abandoning mutual trusts because they no longer have confidence in them.

“The low investors’ confidence in mutual trust is because of past events that left sour taste in their mouths. Several CIS failed in the past before recent introduction of strict rules by the Securities and Exchange Commission (SEC). Stanbic IBTC Asset Management led the new wave of CIS and many banking institutions have also keyed in.

‘‘However, it will take more time to restore investors’ confidence once more in the scheme.
“Secondly, the number of retail investors in the capital market has generally dwindled after the calamity of the global meltdown. Consequently, the target market for the scheme has declined considerably.

“To reawaken the interest of investors in CIS will require showing them that CIS are more capable of meeting the differentiated goals of investors. There must be a value proposition that is stimulating.

“Further enlightenment of retail investors is necessary to sell the benefits to them and also assure them that the space is now better regulated leaving no room for schemes to fail”, he said.

Meanwhile, a member of the Independent Shareholders Association of Nigeria (ISAN), Moses Ayodele Ogundeji, traced the cooled appetite to lack of confidence on the part of new investors who are wary and hedging against financial losses.

“Government policy somersault is another factor. For investors, the safety of their investment is paramount. More sensitisation needs to be done; there should be confidence building campaign and investors should be assured that their investment is safe under the scheme,” he said.

Also analysts at Afrinvest Securities maintained that the introduction of a new fee structure in the collective investment scheme by the SEC towards the end of 2021 would likely impact negatively on the performance of funds.

BH learnt the Securities Exchange Commission (SEC) had on December 27, 2021, introduced an annual supervisory fees of 0.2 per cent of the Net Asset Value (NAV) of Collective Investment Schemes (CIS) to be computed and accrued daily for each CIS.

SEC had mandated for fund/portfolio managers, an annual regulatory fee of 0.25 per cent of the NAV of all discretionary and nondiscretionary funds/portfolios (other than CIS) under the management for retail investors and 0.01 per cent for qualified investors.



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