Despite ongoing volatility in the market and the huge erosion in equity market capitalization, investor appetite for mutual funds shows no sign of slowing down, according to analysis of data from the Security and Exchange Commission, SEC. With nearly N207 billion in assets, the Nigerian mutual fund industry remains the largest in sub Saharan Africa as at July 31, 2015. Total net assets increased by an estimated N31 billion from what it was at year-end 2014, boosted primarily by strong investor contributions. Net new cash flow into all types of mutual funds totaled about N34.2 billion during the first 7 months of 2015. Investor demand appeared to be driven, in large part, by higher yield from money market funds and flight to quality arising from deteriorating equity prices.
While money market funds recorded net inflows of N31.3 billion, Equity, bond, and Ethical funds each recorded net outflows within the period under review. Exchange traded funds, Balance Based Funds and Real Estate funds all received moderate inflows. The implication of the inflows is that investors are still in love with mutual funds, although much of that love is in money market funds.
Investor Demand for Nigerian Mutual Funds
Investor demand for mutual funds is influenced by many factors, one of which is funds’ ability to assist investors in achieving their investment objectives. Nigerian investors, both individual, high net worth and institutional investors, use money market funds for cash management purposes because such funds provide a high degree of liquidity and competitive short-term yields, especially for those that are not able to invest in government treasury bills. In addition, changing demographics and increase in investors education and awareness have played important roles in shedding some light on how demand for specific types of mutual funds—and for mutual funds in general—evolves.
The majority of Nigerian mutual fund assets are largely in short-term funds, with money market funds alone comprising 42.9 percent of total Nigerian mutual fund assets . Real Estate funds are the second-largest category, with 22.7 percent of assets while Equity market funds (14.9 percent) and Bond funds (8.4 percent) follow after Real Estate Funds. The remainder of the assets are held in Balanced Based funds (4.7 percent), Ethical funds (2.5 percent) and Exchange Traded Funds (2 percent) and Umbrella Funds (1.4 percent). The sector funds category, the only category with just one fund, takes the rear with just 0.5 percent of the total mutual funds assets.
As at July 31 2015, 68.2% of the total mutual fund assets are being managed by the first 3 largest fund managers, ( those with asset under management, AUM of more than N30 billion), while 14,7% of assets are managed by medium AUM fund managers ( those with asset under management, AUM of more than N10 billion but less than N30 billion). Though 15.7% of the total assets are managed by 11 fund managers whose AUM range between N1 billion and N9 billion, about 1.6% of the assets are being managed by smaller sized fund managers with AUM of between N0.2 billion and N0.9 billion.
Granular analysis shows that Stanbic IBTC controls 30.39%, FBN Capital Management, 21.31%, while FSDH Asset Management controls 16.49%. Others are Asset and Resources Management (ARM) Ltd, 7.85%Union Homes Saving and Loan, 6.75%. The remainder is controlled by the rest of the fund managers.
In line with the risk characteristics of Nigerian Mutual Fund investors and to hedge against the losing trend in the equity market, most mutual fund assets were allocated to money market instruments as at July 31 2015. Our analysis reveals that 56.43% is allocated to money market related asset types, while 18.04 is in Real Estate assets and 14.59% in Fixed income. While cash accounts for 3.85%, gold accounted for only 0.15%