If you are an investor in Nigerian money market funds here are the top and worst performers!
Data obtained from the website of the Fund Managers Association of Nigeria (FMAN) and Businessday analysis shows that of the 14 money market funds registered by SEC as at May 12 2017, fund managers could generate positive inflation-adjusted returns for only 7, stoking fears that quality managers that could preserve investors’ wealth in Africa’s biggest economy are few.
Abacus Money Market Fund, the 6th largest money market fund by asset value registered by the Nigerian Securities and Exchange Commission (SEC), led the pack of funds that generated positive inflation-adjusted return (IAR) for the period, earning IAR of 7.60 per cent for the period.
Cordros Money Market Fund and Stanbic IBTC Money Market Fund followed Abacus closely, posting IAR of 7.13 per cent and 5.86 per cent. AIICO Money Market Fund, Axa Mansard Money Market Fund, and FBN Money Market Fund also improved investors’ wealth as they earned IAR of 5.28 per cent, 5.05 per cent, and 1.86 per cent. Greenwich Trust Money Market Fund generated IAR of 1.04 per cent to complete the league of wealth-boosting funds.
Inflation in Africa’s biggest economy, which has remained at single digit since January 2013, rose to double digits in February 2016, data from the CBN revealed. Inflation reached highest levels to 18.72 per cent in January 2017, beginning to moderate only in February.
Source: FMAN; SEC; Businessday Analysis
Yields on government bonds and bills have been rising recently as the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) have flooded the market with bills and bonds in a bid to raise money to fund a record government budget deficit for two years running. Analysts say that the oversupply of the instruments to the financial system has dried-up liquidity, sending yields to unprecedented highs as investors became price makers in the market.
Return data for Chapel Hill Denham Money Market Fund, EDC money Market Fund Class A and EDC Money Market Fund Class B were not available as at press time.
Money market funds are mutual funds that invest primarily in short-term securities having maturities below 1 year such as Nigerian treasury bills, certificates of deposits, and corporate commercial paper; they are usually securities representing high-quality, liquid debt and monetary instruments.
FMAN return data revealed that United Capital Money Market Fund earned an inflation-adjusted return of -33.93 per cent; PACAM Money Market Fund generated IAR of -16.42 per cent; Meristem Money Market Fund earned IAR of -9.51 per cent; ARM Money Market Fund posted IAR of -9.40 per cent.
Inflation-adjusted returns reflect the return on an investment without the effects of inflation. Stripping quoted returns of inflation effects enables investors to properly evaluate the actual earnings potential of any security minus external economic forces.
The Net Asset Value (NAV) of Nigerian money market funds stood at N166.77 billion as at week ended May 12, 2017, according to information from the SEC. Money market funds comprise over 58 per cent of the Nigerian mutual fund industry that is valued at N284.79 billion as at the aforementioned date.