Dollar funds’ assets value nearly triple on naira devaluation

The net asset value of dollar funds rose to N1.67 trillion in the first nine months of 2024, from N550.5 billion reported in the corresponding period of 2023, according to BusinessDay analysis of a Securities and Exchange Commission (SEC) report.

This represents a 187 percent increase over the period, indicating the dominance of dollar funds in the mutual funds market over the period due to naira devaluation.

The total net value of all the assets jumped by 180.1 percent to N3.518 trillion in September 2024, from N1.93 trillion recorded in the same period 2023.

Abdulrauf Bello, investment researcher, said that the increase in the value is likely as a result of the foreign exchange devaluation impact due to higher exchange rates.

“We started the year with a N900/$ FX rate. Today, it is N1,600/$ – N1,700/$. This alone will translate to significant increase in the Naira value of dollar funds,” he said.

According to data from FMDQ Securities Exchange Limited, the naira declined from N768.00 on September 29, 2023, to N1668.97 on September 27, 2024 in the Nigerian Autonomous Foreign Exchange Market (NAFEM), previously known as the Investors and Exporters (I&E) forex window.

This means that the net asset value in dollar terms grew by 32.45 percent to $1 million in 2024 from $755, 000 in 2023.

Bello explained that the increase in dollar funds’ asset value can also be as a result of investors’ decisions to go for them due to persistent inflationary pressures.

“As things stand, no Naira asset (T.bills, bonds, CPs) can deliver returns ahead of inflation,

“Investors will most likely consider assets that demonstrate to be better stores of value. In this case, a USD is a better store of value. Thus, it may not be surprising to see investors doing a lot more USD investments,” he said.

Read also: Dollar share of global FX reserves drops by 1.46% in Q2

Money market funds

The Money Market Fund saw a 63.2 percent increase in its net asset value to N1.39 trillion in the first nine months of the year compared to N852.62 billion in the same period 2023.

Opeyemi Babalola, portfolio manager at Commercio Partners Asset Management, said most people gravitate towards money market funds as the yields are higher and they have capital depreciation risks.

High yields in the short term fixed income market, following a 850 basis points hike in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), contributed to the increase in returns and hence influx of funds to the money market during the period under review.

Bond and fixed income funds were the only securities that saw declines in their net asset values, dropping to N215.0 02 billion in the period under review, from N300.15 billion at the same time in 2023.

Babalola said that bond and fixed income funds like equity bond prices change every day, noting that it is at risk of depreciation, which explains why investors shy away from it.

The equities-based funds’ net asset value increased to N28.73 billion in the period under review from N22.35 billion in the same period 2023.

Notably, the All-Share Index (ASI), which measures the performance of the equities market, gained 31.7 percent in the first nine months of the year at 98, 458. 68 points.

Best performing Balanced Funds

Balanced funds

A balanced fund is a type of mutual fund that commonly includes both stocks and bonds within its portfolio.

These funds generally adhere to predetermined asset allocations, often maintaining fixed ratios of stocks to bonds, such as 70 percent stocks and 30 percent bonds.

The fund category recorded an average yield of 16.74 percent during the review period with a net asset value of N51.16 billion.

Best performing Money Market Funds

Money market funds are a type of mutual fund that invests in highly-rated, short-term debt securities such as treasury bills, commercial papers, government-issued bonds, fixed deposit accounts, and other bank placements.

The fund recorded an average year-to-date return of 18.95 percent with a net asset value of N1.39 trillion.

Best performing Bond/Fixed Income Funds

Fixed Income Funds

Bond or fixed income funds are funds that are allocated to a selection of long term debt instruments issued by various entities, including governments and corporations.

Examples of these instruments include: FGN Bonds, state government bonds, Eurobonds, corporate bonds, and potentially other assets such as commercial papers and treasury bills.

The fund recorded an average year-to-date return of 55.02 percent with an asset value of N215.02 billion.

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Best performing Dollar Funds

Types of Dollar Funds

Dollar funds are divided into the eurobond and fixed income instruments denominated in US dollars. These instruments may include: Eurobonds, US dollar bank deposits, and other similar assets.

The average returns for the review period stood at 4.95 percent (Eurobonds), 6.84 percent (Fixed income), with net asset value of N1.67 trillion.

Best Equity fund

An equity fund is an investment that combines capital from multiple investors to primarily trade a collection of stocks, commonly referred to as equity securities.

Equity based mutual funds recorded an average yield of 15.2 percent with a net asset value of N28.73 billion.

Ethical Fund

Ethical funds are mutual funds in which investment decisions are based on predetermined ethical criteria. These criteria may stem from religious, environmental, social, governance, or other moral perspectives.

The average returns for the review period was 23.08 percent with a net asset value of N5.37 billion. The Ethical fund has only three listings registered with the SEC.