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Industry update: a deceptive fall

At first glance, it appears that the mutual fund industry once again suffered from a decline in AUM of 4% over the last month. On further observation however, we see that this decline is largely attributed to the liquidation of the NIT (LOC) Fund which was redistributed to respective banks. This redistribution resulted in a substantial outflow from the mutual fund industry and a significant decrease in AUM of Equity Funds.

National Investment Trust (NIT), the largest AMC in Pakistan, faced a 26% decline in AUM, from PKR61bn to PKR45bn. With the exception of the NIT however, the remaining Asset Management Companies in Pakistan actually benefitted from an increase in size of 7%, from PKR126bn to PKR135bn. The key players for this increase were last month’s losers. Going from the largest percentage decline just last month, MCB and ABL Asset Management witnessed an increase in size of 21% and 25% respectively. Atlas AMC in a similar manner benefited from a 23% increase in AUM this month. The strong growth is a result of a reversal of the December effect on AUM due to banking targets.

Equity Funds AUM fell by 25% due to the redistribution of the NIT fund. Independent of the NIT fund, Equity Funds saw no significant change.
Income Funds and Islamic Income Funds remained at stable levels with a mere 2% increase for both categories over Dec09.
Cash Funds with the introduction of the Atlas Money Market Fund and an increase in AUM for most funds in this category reported a 43% MoM increase in AUM.
Government Securities Funds both in the income and cash categories remained strong with an increase in AUM of 40% this month, from PKR9.6bn to PKR13.5bn.
Government Security Cash Funds were the best performing fund category, averaging returns of 10.62% this month.
Cash Funds maintained consistent returns between 10%-11%.
Government Security Income Fund weighted average returns fell from 13.42% to 9.30% over the month
Income Funds once again outperformed Islamic Income Funds on 1M; 6M and 12M returns basis.
Equity Funds returns fell short of the KSE100 MoM return by a meager 0.84%.

Investment in Funds with major allocations to TDR and Bank Deposits
Banks offer high rates with the year end banking deposit targets. Funds which have managed to lock in rates in Dec09 are likely to yield consistent and high returns.

Cash: New fund; Atlas money market fund
Returns*: Resilient and Consistent
AUM in Cash Funds, with the introduction of Atlas MMF in Jan10, grew by 43% to PKR18.7bn. MCB CMOP and BMA ECF recorded the highest 1M returns, with the other funds close behind. Cash funds benefit from both low credit and low interest rate risk. Investors with excess liquidity for short tenures have the option of making consistent returns on their investments through such funds.

Government securities-cash:41% rise
in Aum
Returns*: Driven by PKRV rates
This category includes Money Market Funds which primarily invest in T-Bills. Compared to the conventional cash funds, the funds in this category may have lower credit risk but as a consequence inherently contain higher interest rate risk. Growth in AUMs for this category was close behind that of Cash Funds with 41% MoM increase.

Fixed income: diverse set of returns
Returns*: AUM stagnant at PKR64bn
With a modest 1% rise in AUM, we infer that investor confidence in Income Funds is low. Due to high volatility in TFC prices, income funds returns remain under fire.

Government securities — income: Aum rise by 39%
Returns*: Under Pressure from Rising PKRV Rates
Government Security Income Funds yielded lower returns over this month due to increasing PKRV rates. Returns went from 13.42% last month to 9.30%. AHI MSF and NIT GBF are currently the only two funds in this category. Despite a fall in MoM returns, AUM increased by almost 40% (from PKR3.9bn to PKR5.5bn)
ISLAMIC INCOME: AUM rise by a modest 2% Returns*: NPA Sukuks exhibit negative returns Fund size of Islamic Income Funds rose by 2% MoM and closed at PKR7.1bn in Jan10, compared to a decline of 17% in Dec09. Volatility in Sukuk prices along with provisioning on select Sukuks kept returns under pressure. Industry’s 1M returns declined to -2.52% in Feb10 from 7.12% in Jan10.

EQUITY: Yielding -1.06% in Jan10
Returns*: Still waiting for the next rally
1M returns for Equity Funds posted negative performance of -1.06% falling close behind the benchmark index which was at -0.22%. 12M returns declined to 56.56% as compared to 76% last month.
Disclaimer
All investments in Mutual Funds are subject to market risk. The NAV based prices of units, dividends, and returns are dependent on forces and factors affecting in the capital markets and as such these may go up or down on market conditions. BMA Financial Services Limited, its sponsors, partners, directors, affiliates or any group company neither take any responsibility nor guarantee results and performance for the third party investment products being offered through BMA
Financial Services Limited. Past performance is not necessarily indicative of future results. Investors are advised to read the relevant sections of the respective Trust Deeds and Offering Documents.
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. All such information and opinions are subject to change without notice. All information is provided without warranty and BMA Financial Services Limited makes no representation of any kind as to the accuracy or completeness of any information hereto contained.
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