Volume of transactions in mutual funds, otherwise known as Collective Investment Scheme (CIS), dropped by 12.2 percent in 2021.
Specifically, investors’ commitment in the asset class fell to N1.3 trillion from N1.49 trillion in the previous year, 2020.
On a Year-to-Date (YtD) basis, the investment in the asset class also fell by 12.8 per cent from N1.49 trillion in January, 2021, reflecting increased investors’ apathy towards mutual funds.
Breakdown of performance in the different classes of the CIS showed that Bonds Funds outperformed the Equity-based Funds and the Money Market Funds. The Bonds Funds recorded the highest patronage with 12.6 percent Year-on-Year (Y/Y) growth in asset value to N534.14 billion from N474.30 billion a year ago.
Money Market Funds fell 25.1 percent to N536.39 billion from N743 billion, while Equity-based Funds declined by 7.2 percent to N28.34 billion from N30.54 billion in the previous year.
Financial experts attributed the development to low rate of returns recorded in some of the Funds as well as lack of understanding of the benefits by retail investors.
Consequently, sector operators have called for more awareness campaign on the part of the regulators and the fund managers in order to acquaint investors with the benefits while assuring them of safety and better regulatory environment.
They further emphasised the need for a downward review of the minimum entry fund in order to give opportunity for more retail investors to subscribe to the funds.
According to them, the introduction of fee structure where the SEC announced annual supervisory fees of 0.2 per cent on the Net Asset Value (NAV) of the CIS would further weigh badly on the performance of the funds.
Commenting, Ola Oladele, Senior Vice President, Global Market, Parthian Partners, said that two major reasons are responsible for the lack-luster performance of the mutual funds.
She attributed the decline to lack of awareness/understanding of the benefits of funds and how they work as well as the low returns on the funds. “So, even investors that know of them are not interested given the high inflationary environment,” she further explained.
To improve attractiveness, Oladele said that investor education on the advantages of the Funds over individual retail assets needs to increase.
She stated: “Asset managers also need to improve on their skill in asset selection so that fund performance can improve. The moment people feel they can do better by investing themselves than investing in a Fund, it is less likely that they’ll opt for Funds.”
Also speaking, David Adonri, Vice Chairman, Highcap Securities, said: “Low patronage of CIS by investors may be due to low investors’ confidence in them because of past events that left sour taste in their mouths. Several CIS failed in the past before recent introduction of strict rules by the Securities and Exchange Commission (SEC). Stanbic IBTC Asset Management led the new wave of CIS and many banking institutions have also keyed in.
‘‘However, it will take more time to restore investors’ confidence once more in the scheme.
“Secondly, the number of retail investors in the capital market has generally dwindled after the calamity of the global meltdown. Consequently, the target market for the scheme has declined considerably.”
Continuing, he said: “To reawaken the interest of investors in CIS will require showing them that CIS are more capable of meeting the differentiated goals of investors. There must be a value proposition that is stimulating.
“Further enlightenment of retail investors is necessary to sell the benefits to them and also assure them that the space is now better regulated leaving no room for schemes to fail.”
In his own views, Patrick Ajudua, National Chairman, New Dimension Shareholders, said: “The low appetite for CIS by investors is because of its aggregate low yield when compared to returns on other high yield investment classes. As a result, most investors prefer to make their individual investment decisions with their market advisers rather than subscribe to CIS.”
He called for a downward review of the minimum entry amount in order to give opportunity for more retail investors to embrace the scheme.
Moses Ayodele Ogundeji, a member of Independent Shareholders Association of Nigeria (ISAN), also attributed the decline to lack of confidence on the part of the would-be investors, saying that many investors are a bit cautious not to be caught in the election aftermath.
He said: “Government policy somersault is another factor. For investors, the safety of their investment is paramount. More sensitisation needs to be done; there should be confidence building campaign and investors should be assured that their investment is safe under the scheme.”
Going forward, analysts at Afrinvest Securities said that the introduction of new fee structure in collective investment scheme by the SEC late last year would likely impact negatively on the performance of funds.
They said: “The SEC had on December 27, 2021, introduced annual supervisory fees of 0.2 per cent of the Net Asset Value (NAV) of Collective Investment Schemes (CIS) to be computed and accrued daily for each CIS. For Fund/Portfolio managers, SEC mandated an annual regulatory fee of 0.25 per cent of the NAV of all discretionary and nondiscretionary funds/portfolios (other than CIS) under the management for retail investors and 0.01 per cent for qualified investors.
“The new fee structures would somewhat weigh on the volume of secondary market transactions, and the additional cost would likely trigger market participants to demand higher yields to keep transactions attractive.”
Original story on Vanguard