Collective Investment Schemes Grow By N581bn In 10 Months

Nigerian mutual funds, also known as Collective Investment Scheme, have generated an estimated gain of N581 billion from January to October 2023.

Data obtained from the Security and Exchange Commission (SEC) showed that net asset value of mutual funds rose by N581 billion or 41.18 percent from N1.411 trillion on December 30, 2022 to N1.992 trillion to close on October 27, 2023.

All the categories of Mutual Funds from January to October, 2023 appreciated except Bond/Fixed Income Funds, which declined by N50.316 billion. 

Equities Based Funds grew by N6.19 billion; Money Based Funds rose by N252.023 billion, while Dollar Funds grew by N292.413 billion.

Real Estate Funds, Balanced Funds, Ethical Funds and Shari’ah Compliant Funds appreciated by N47.466 billion, N8.988 billion, N0.9 billion and N23.342 billion respectively in the period under review.

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Mutual fund is a pool of funds brought together by a professional fund manager from several investors to invest in selected underlying securities. 

The underlying securities can be one or a combination of the following: stocks, fixed income securities, real estate and commodities. A mutual fund portfolio is structured and maintained to match different investment objectives. 

The type of mutual fund an individual invests in depends on their financial objectives and appetite for risk.

Nigeria is the third largest investment management zone in sub-Saharan Africa, after South Africa and Morocco according to Agusto & Co. 

The growth in the period under review was driven in part by increased investor confidence following the gradual rise in the yields offered on naira-denominated investments and growth in dollar-denominated portfolios as discerning Nigerians hedge against the persistent devaluation of the naira.

Nonetheless, analysts noted that despite Nigeria’s sub population of 220 million people and the high foreign exchange remittance inflows from Nigerians living in the diaspora, the asset management industry continues to underachieve.

Agusto & Co, in its report titled, ‘The Nigerian Asset Management Industry: Segregated Portfolios Take Centre Stage,’ stated that investors have shown a growing inclination towards privately-managed portfolios rather than the often more restrictive and conservative collective investment schemes, as they seek to gain relatively higher yields from investments.

“In addition, many asset managers have focused more on fostering the growth of segregated portfolios through their investment advisory services, while also improving product distribution and enhancing customer experience. 

“Furthermore, segregated portfolios have continued to account for a large portion of the Industry’s AuM due to the large volume of funds invested by high-net-worth individuals (HNIs) and corporations seeking exposure to specific investment vehicles (in many cases regional Eurobond issuances). 

“These specific investment options typically offer relatively higher returns and provide a currency hedge, which may not be widely accessible with collective investment schemes,” it stated.

Going forward, Agusto & Co. said growth is expected to be driven by various factors, including increased investments from pension fund administrators and institutional clients.

It continued: “The unification of exchange rates is anticipated to result in the repatriation of funds formerly invested in international money markets and reignite foreign interest in naira-denominated assets.

“Furthermore, the anticipated growth trajectory is likely to be fuelled by an increase in the size of segregated portfolios, infrastructure funds and REITs, amongst others. The prolonged deterioration of macroeconomic fundamentals, which might severely reduce discretionary income and the marginal inclination to save, remains a risk to the growth forecast.

“Financial economist and Professor of Capital Market at the Nasarawa State University, Keffi, Prof. Uche Uwaleke explained that “Mutual Funds represent the best vehicle of investment for retail investors who do not have the time or knowledge/skill for direct investment in the capital market.”

It added that given the huge population, size of the economy and mobile penetration, the outlook for the Mutual Fund Industry in Nigeria is very bright, calling for a coordinated approach to investor education and using technology as much as possible to increase the reach will enhance participation.

Also, the chief operating officer of InvestData Consulting Limited, Ambrose Omordion, said over the years, there has been a significant increase in the number of mutual funds, as investors’ interest increases, saying that mutual funds have become a vehicle used by both advisors and institutions to access investible funds and diversify portfolios.