The State of the Nigerian Mutual Funds Industry

Though mutual funds are not as popular in Nigeria as stocks, a sizable number of investors have purchased and keep purchasing mutual funds in addition to or instead of buying individual stocks. That is the reason why the Net Asset Value of all mutual funds (including exchange-traded funds) in Nigeria keeps rising, week after week and is currently in the neighbourhood of N830 billion.

Why Buy Mutual Funds?

For those wondering why they or anyone should invest in mutual funds, there are good reasons to do so. Mutual funds provide the benefits of diversification and professional asset selection and management.

When one owns a basket of securities through investments in a mutual fund, instead of individual security, he or she is exposed to much less individual stock risk. However, the ownership of mutual funds does not insulate an investor from non-diversifiable risks, otherwise called market risk.

Current Total Fund Assets

As of August 2, 2019, the Nigerian mutual fund industry had a total asset value of N834.3 billion, an increase of 28.7% from the 2018-year end total asset value of N651 billion. Exactly one year ago, on August 2, 2018, the Net Asset Value (NAV) of mutual funds in Nigeria stood at N654.5 billion, meaning that there has been an increase of 27.47% since then.


Flow report as a measure of the state of the mutual fund industry

One of the ways to decipher the state of the mutual fund industry is through fund flows. Fund flow is a metric or statistic that analyzes whether investors are putting money into, or taking money out of, mutual funds over the course of a specified period. Nigerian mutual funds have recorded positive net flows for many weeks since 2015 although at a varying pace each week.

Since the beginning of the year, 2019, total inflows of about N265.4 billion have been recorded while the outflow for the corresponding period is about N77.2 billion. Though this is encouraging, it is slightly less impressive when compared with the flow report within a similar period in 2018. From January 1st, 2018 to August 2nd, 2018, the Nigerian mutual fund industry recorded a total inflow of N273.2 billion and total outflow of N47.7 billion. Understandably, the yield was higher in 2018 than in 2019.

Money Market Funds Fly High

The majority of the increase in net asset value came from money market funds, where rising yield during the first two quarters of the year and risk aversion by investors, combined to push the asset value of money market funds up. As has been the character of Nigerian mutual fund investors, much of the new investments in mutual funds were directed to money market funds.  Of that N265.4 billion inflow, N192 billion was directed to money market funds, which also suffered the highest outflow of N54 billion.

FBN Money market fund generated the highest inflow of N66.08 billion as well as the highest fund level outflow of N25.3 billion, followed by Stanbic IBTC money market fund with inflows totalling N56 billion and N7.2 billion in outflows.

Investors Fall in Love with Euro Funds

It appears that Nigerians’ love for anything imported is expanding towards the mutual fund industry. Eurobond funds generated the second-highest inflow, after money market funds, and surprisingly, higher than what bond or fixed-income funds attracted. Eurobond funds recorded a year to date YTD inflow of N41 billion, thanks to Stanbic IBTC Dollar Fund and United Capital Eurobond fund that attracted N30.2 billion and N8.4 billion respectively.

Eurobond funds

Collectively, however, the Eurobond funds suffered an outflow of N8.5 billion. The love for Euro bond funds may be as a realization by Nigerian investors that such investments could act as a hedge against a falling Naira and that investments in Eurobond funds have the potential of benefiting from price increase (unrealized capital gain) as well as changes in the exchange rate (exchange gain).

Bond and Infrastructure Funds Too

Bond funds, which recorded the third highest inflow of N12 billion, suffered outflow of N8.1 billion. Much of the inflow came from Stanbic IBTC Absolute fund and SFS Fixed income fund. Infrastructure fund category, a category that houses only Chapel Hill Denham Nigeria Infrastructure fund, saw  N11.8 billion flowing in with only N1.8 billion leaving the fund. This indicates that investors believe that there could be some hidden benefits to be gained from infrastructural investments.

Ethical and Exchange Traded Funds not as Good

Generally, every category of mutual funds recorded positive flows on a year to date basis except Ethical funds and Exchange Traded funds where the inflows were not big enough to compensate for the outflows.

Increase in Number of Mutual Funds

It was not only the Net Asset Value (NAV) that increased, the number of funds that are registered with the Security and Exchange Commission, SEC, increased by 7, according to the SEC NAV Summary Report. Among the funds that got added are GDL Money Market Fund, Lead Balanced Fund, Legacy Money Market Fund, PACAM Equity Fund, PACAM Eurobond Fund, Vantage Dollar Fund and Vantage Equity Fund.

That brings to 98, the total number of mutual funds in Nigeria per the SEC NAV Summary Report. 18 of those 98 are equity-based funds, 19 are bond funds, 20, money market funds, 3 Real Estate Investment Trusts, 14 Balanced funds, 5 Ethical funds, 9 ETFs, 2 Target Date funds, 7 Eurobond funds and 1 Infrastructure fund.

The Conclusion is that the state of the Nigerian mutual fund industry is strong and that strength and growth are expected to continue.

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