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Mutual fund value loses N197.5 billion in 8 months as real estate fund outperforms others

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The total net asset value of the entire mutual funds registered with the Securities and Exchange Commission (SEC) recorded a decline of N197.49 billion in the first 8 months of the year, between January and August 2021.

However, despite the huge decline recorded by the entire mutual fund market, the real estate fund category outperformed others with a gain of N8.57 billion in the same period.

This is according to the analysis of data obtained from the website of the Securities and Exchange Commission (SEC) on the performance of Nigeria’s mutual funds.

The total net asset value which stood at N1.57 trillion as of 31st December 2020, has recorded a 12.6% drop to N1.37 trillion by the 27th of August 2021. This represents a N197.49 billion decline.

The analysis of the data shows that 5 fund categories recorded positive growth in the review period against 4 which printed negative growth. Despite, an aggregate positive performance in terms of category, the massive N226.16 billion decline recorded for money market funds, ensured the market lost N197.49 billion.

The real estate fund was the highest gainer among the lot, with a 20.3% increase from N42.31 billion to N50.87 billion, which represents an increase of N8.57 billion gain in the 8 months period. On the other hand, the exchange-traded funds recorded the highest decline of 39.3% in the review period.

Noteworthy is the growth recorded by the fixed-income funds, which houses dollar-denominated mutual funds, as it gained N358.73 million in the period under review.

It is also worth noting that the market subscription declined despite the increase in the number of registered funds in the period. As of December 2020, there were 116 listed funds on the website of the Securities and Exchange Commission, which had increased to 128 funds as of 27th August 2021.

A look at the pensions industry data shows that the total pension assets under management increased from N12.31 trillion in December 2020 to N12.78 trillion as of July 2021. However, its allocation to mutual funds declined from N161.39 billion to N116.26 billion in the same period.

As of December 2020, the allocation to local mutual funds accounted for 1.31% of the total pension fund, which dipped to 0.91% by the end of July 2021. This gives a grim picture of investors sentiments towards mutual fund instruments so far in the year.

The huge decline in the net asset value is largely attributed to more withdrawals made by investors compared to the number of subscriptions, which is not too surprising considering the current level of economic hardship in the country, volatility in various markets coupled with the low yield on investments.

Real estate as a viable investment option

Given the recent dearth of investment opportunities that are capable of hedging against the high inflationary pressure, Nigerian investors are looking into investing in real estate, owing to its intrinsic value and unlikelihood of value depreciation.

In a recent real estate and property symposium organised by This Present House last weekend, a number of moderators and panellists spoke about the importance of investing in real estate and the abundance of opportunities for investors in the sector.

During the conference, Mr Ugochukwu Obi-Chukwu, the founder of Nairametrics maintained that Nigerians will be looking for safer investment options such as real estate and dollar-denominated investments due to the level of inflationary pressure and instability in Nigeria’s exchange rate.

Note that Nigeria’s inflation rate for the month of August 2021, stood at 17.01%, according to data made available by the National Bureau of Statistics (NBS). This indicates that the prices of goods and services grew by at least 17.01% in August 2021 compared to the corresponding period of 2020.

In the same vein, Ayo Ibaru, the COO and Director of Research at Northcourt Real Estate reiterated the advantage of investing in real estate as he posited that land purchases in nascent and emerging areas are in demand and is projected to continue being so.

What you should know about net asset value

The net asset value (NAV) represents the net value of an entity. This is the price at which investors buy fund units from a fund company or sell it back to the fund house. It is calculated by dividing the total value of all the assets in a portfolio, minus all its liabilities.

The performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value (NAV). In simple words, NAV is the market value of the securities held by the scheme.

Bottom line

The mutual fund market has recorded a downturn, year-to-date in terms of net asset value, despite only few investment opportunities being available for Nigerian investors as the equities market is still printing a negative year-to-date growth. However, data shows that investments in real estate and fixed-income funds have picked up, as a means of hedging against the double-figure inflation rate in the country.

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