Investors flock to mutual funds as assets jump 39%

Investors piled into mutual funds in five months to May 2024, pushing up their net asset value by 39 percent.

High returns drove the appetite for mutual funds and other collective investment schemes (CISs) over the period, with average yield on money market funds standing at 17.19 percent by end of May 2024 as against 10.2 percent by January this year.

Collective investment schemes are investments in which two or more investors contribute money or other assets to and hold participatory interests. The investors share the risk and benefit of investment in proportion to their participatory interests in a portfolio, according to the Securities and Exchange Commission (SEC). Most mutual funds represent CIS.

The net asset value of Nigeria’s CISs stood at N2.894 trillion as at May 31, 2024, representing an increase of 38.93 percent or N811billion when compared with N2.083trillion assets seen in December 31, 2023. Net assets represent a company’s total assets minus its total liabilities.

Month-on-month (MoM), the CISs’ net assets grew by 7.69 percent from N2.60trillion recorded in April, according to SEC’s monthly update on mutual funds.

As at May 31, 2024, net asset value of SEC-regulated equity-based fund had risen by 4.91 percent to N27.745billion from N26.446billion in April. The assets’ value stood at N24.813billion as at December 31, 2023.

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In their September Wealth Management report, analysts at Lagos-based Meristem said that in seeking to achieve any fund’s objectives, fund managers often set the target asset allocation within identified risk levels.

The distribution of funds between asset classes, according to them, may be an important factor in determining the investment performance over time. Likewise, in the event of extreme market conditions, the fund manager may decide to revise the asset allocation to preserve the value of the funds for the benefit of unit-holders.

Understanding Net Asset Value and Unit price

In calculating the net asset value of CISs, liabilities are subtracted from total assets. This amount is then divided by the total number of shares to give the unit price.

Money Market Funds’ net asset value rose by 7.70 percent to N1.009trillion in May, from N937.44 billion in the preceding month. As at December 31, 2023, the asset value of money market funds stood at N877.054billion.

“Nigeria’s Naira-denominated mutual fund industry grew by 7percent in the first five months of 2024, the good news being that Money Market funds grew,” Coronation Research analysts said in their note in the first half of the year entitled, ‘The return of the Money Market Fund.’

According to them, “Much of the money invested in Money Market funds is used to purchase T-bills; and T-bill yields strongly influence the yields of other securities and deposits which Money Market Funds invest in. Historically, high market interest rates have been good for Money Market Funds as savers are attracted by yields.

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“This matters to Nigeria’s fund management industry because Money Market fund make up the biggest slice of its Naira-denominated assets under management (AUM), accounting for 63 percent of the total.”

Bonds/fixed Income funds’ net asset value decreased by 7.37 percent to N246.55 1billion from preceding month’s high of N266.177billion. It was N289.597billion as at December 31, 2023.

Fixed income funds asset value increased to N1.409 trillion in May, up 12.83 percent from N1.249billion recorded in April. As at December 31, 2023 it was N704.147billion.

The SEC report shows that the net assets of Real Estate Investment Trust Fund (REITS) decreased by 3.08 percent to N96.780billion as against N99.856billion in April from N94.621 billion by December 2023.

Also, the net asset value of SEC-regulated balanced funds stood at N48.750 billion as at May 31, 2024 from N42.357 billion as at December 31, 2023. This was a 2.35 percent month-on-month increase from N47.633billion in April 2024.

In five months to May 2024, the net asset value of SEC-regulated Ethical Funds grew by 5.71 percent to N4.904billion, from N4.639 billion in April. It was N4.407billion as at December 31, 2023.

Shari’ah Complaints funds were not left out in the growth seen in May as its assets grew by 5.29 percent to N51.241 billion, from preceding month’s low of N48.664billion. As at December 31, 2023 their net asset value stood at N46.592billion.

“The net asset value represents a fund’s market value… When the value of the securities in the fund goes up, the net asset value goes up. Conversely, when the value of the securities in the fund goes down, the NAV goes down,” said the Corporate Finance Institute.