BusinessDay 07 Jan 2019

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Monday 07 January 2019 www.businessday.ng www.facebook.com/businessdayng @businessDayNG @Businessdayng BUSINESS DAY BD Money Analysis Gainers & Losers: A review of mutual funds in 2018 A review of the performance of mutual funds between January and November 2018 showed that Abacus Money Market Fund, Nigeria International Debt Fund and SFS Fixed Income Fund, rewarded investors with the most superior returns. Page 61 OPINION The perilous art of state intervention It must feel good to be a farmer in Nigeria today, or textile factory owner, airlines operator, power generator or distributor, real sector operator or maybe a small business Page 62 owner. Cover Story A Fixed income guide for Nigeria in 2019 Fixed income investors, from retail to institutional buyers like the banks and pension funds, can look forward to a rewarding year in 2019. Pages 63-64 Investing What you need to know about bank penny stocks in 2019 A 16 percent depreciation in banking stocks on the floor of the Nigerian Stock Exchange (NSE) in 2018 puts investors on the edge, especially new stockholders seeking to take positions in penny stocks in 2019 as analysts see performance driven by banking blue-chips. Page 65 Commodities Cocoa investors cheery as 2018 gains lift earnings by 30% Cocoa rounded off 2018 as a resilient and top performing major commodity on the global scene, gaining about 28 percent in the first month of the 2018/2019 season and investors in local cocoa market are cheery as the price appreciation promises at least 30 percent in earnings. Page 67
Monday 07 January 2019 www.businessday.ng www.facebook.com/businessdayng @businessDayNG @Businessdayng BUSINESS DAY 61 Gainers & Losers: A review of mutual funds in 2018 Analysis Endurance Okafor & Oluwasegun Olakoyenikan A review of the performance of mutual funds between January and November 2018 showed that Abacus Money Market Fund, Nigeria International Debt Fund and SFS Fixed Income Fund, rewarded investors with the most superior returns. A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds therefore afford investors to invest in a portfolio of different forms securities which could help mitigate risks. Investment in mutual funds could be done with any of the licensed mutual fund managers available of NSE website, of which some are owned by banks. BusinessDay did a survey on seventy-four (74) funds dis- ‘ The fixed-income asset class is probably the only one where smart money can demonstrate differential value at this time. Positioning by local portfolio managers ahead of when hot money returns after hopefully peaceful polls might be one strategy ’ tributed over six broad portfolio classes traded on the Security and Exchange Commission (SEC). The survey revealed that majority of the funds suffered losses while a few others reported the same unit price as the year before. The returns posted by some of the mutual funds in 2018 reflect their abilities to withstand the economic headwinds in the global market which negatively impacted emerging economies including Nigeria. Abacus Money Market, a Fund managed by Investment One Fund Management Limited, took the lead among money market funds, posting 9900 percent return in 2018, and its Net Asset Value, which opened the year at N4.1 billion, rose to N8.59 billion. The average return of the class however stood at -0.22 percent. This placed the fund over thirteen others in the asset class with unchanged prices, United Capital Money Market Fund shed 9.50 percent and Kedari Investment Fund grew its return by 6.25 percent. Rafiq Raji, chief economist at Macroafricaintel, said asset management is very difficult in these parts, and as such advised that fund managers should look in direction of fixed-income, blue-chips stocks, and flowspositioning. “The fixed-income asset class is probably the only one where smart money can demonstrate differential value at this time. Positioning by local portfolio managers ahead of when hot money returns after hopefully peaceful polls might be one strategy,” Raji recommended. Omotola Abimbola, a research analyst at Ecobank said “multi assets or balanced funds are likely going to continue to overweight fixed income over equities.” He however explained that “for fixed income, tightening external financing conditions and CBN policy tightening will keep interest rates elevated and sustain investor apathy for duration.” Unlike the money market funds, bond funds recorded an impressive performance for the year as the funds in the class grew their returns. In all, Nigeria International Debt Fund, managed by Afrinvest Asset Management Limited, was the best performing fund in the category with 15.20 percent gain. The fund’s performance was significant when compared to Kedari Investment Fund, its closest rival that grew return by 5.85 percent. Johnson Chukwu, MD of Cowry Assets Limited said ordinarily, any good fund manager should have a good performance, because a portfolio investor will first identify the instrument that qualify for investment in their portfolio, that is those instruments that have very good fundamentals. “The selectiveness of investors in picking instruments into their portfolio is such that any good portfolio or fund manager should ordinarily outperform the market index, because their choices will largely be on the good performers,” Chukwu said. On the way to go for fund managers in 2019, Abimbola said “for equities, due to the fragility of the economic recovery and external sector pressures styming portfolio capital flows, investors will likely continue to prefer value stocks with strong fundamentals and stable cash flow over cheaply priced speculative stocks.” Data by the stats bureau revealed that Nigeria’s economic expansion remained sluggish in Q3, as it was below analysts’ expectation at 1.81 percent growth rate from 1.50 percent recorded for the previous quarter. In 2018, Nigeria equities lost 18 percent as foreign capital fled emerging markets on the back of rising interest rates in the United States and slower global growth concerns. “Unless we have exciting IPOs like MTN’s during the course of the year, we might have another boring year on the NSE,” Raji mentioned. A further analysis of the asset classes revealed that the performance of the fixed income funds was less impressive compared to the bond funds. However, the fixed income asset class was very competitive in 2018. In spite of the tussle, SFS Fixed Income Fund, managed by SFS Capital Nigeria Limited, emerged the best performer in the class, recording 12.84 percent growth in return from N1.48 per unit to N1.67 per unit as at November 2nd. Just as the names implies, the performance of mixed funds in the year under review reported mixed returns; losses and unchanged prices. Coronation Balanced Fund, under the management of Coronation Asset Management, gained the most in 2018; this is after posting 12.09 percent return to hit N1.20 per unit. Ayo Akinwunmi, Head of Research at FSDH Merchant Bank said the investment strategy and the investment time of the fund manager are important determinants of their return. “The ability of the fund manager to select stocks of investment instrument is an important factor in determining the return on that fund. Some fund managers are aggressive while some are a little bit conservative,” Akinwunmi said. Ethical funds did not have a great year as performance of funds was generally poor just like the equity based funds. All funds in this asset class declined in 2018 but ARM Ethical Fund, a fund managed by Asset & Resources Management Company Limited, posted the lowest lost, making the fund the best performer for the year. The fund lost marginally by 0.67 percent to N28.20 per unit from N28.39 per unit it opened with at the beginning of the year. “Although stocks are cheap with market valuation multiples at multi year lows and dividend yield at a record high, investor sentiment is likely to remain weak in the short term due to elevated domestic and external sector risks,” Abimbola said. From a high position of third best performing market in 2017 with 42 percent rally, the Nigerian stock market dropped 17.47 percent in 2018 and 0.43 percent as at the close for the week Friday, 04 January 2019, pushing year to date return to -2.52 percent.
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