Financial market: Will equity funds manage to attract investment again?

Hard sell: Rs52.2b was the value of assets under management of equity funds at end of FY12, just 1% more than the previous year.

KARACHI: 

Is the setback that mutual fund investors received following the closure of the Karachi Stock Exchange (KSE) for over three-and-a-half months in 2008 finally wearing off?

After all, statistics show investors have remained reluctant to increase their exposure to stock-based funds in the years following the financial meltdown despite a stellar performance of the KSE.

For example, assets under management of equity funds at the end of fiscal year 2011-12 stood at Rs52.2 billion, which translates into less than a 1% increase over the preceding fiscal year. In contrast, the benchmark index of the KSE increased by 10.4% during the same period, with many equity funds posting annual returns of up to 25%.

However, the trend appears to be changing lately as per the Mutual Funds Association of Pakistan (MUFAP) Yearbook 2012-13, which was released last week. “The equity market witnessed growth of over 50% (in 2012-2013). Hence a shift was seen from fixed income securities to equity securities, resulting in a 30% increase in the equity funds category,” according to MUFAP Chairman Rehan Nabi Shaikh.

Assets under management of stock funds amounted to Rs69.1 billion at the end of 2012-13, up 32.2% from the preceding year. This clearly marks a break from the recent past when investors shied away from putting their money into the hands of stock fund managers. The numbers speak for themselves: assets under management of equity funds increased at an annualised rate of 10.4% in the first three years after the financial meltdown. But the average rate of increase in the assets under management of equity funds in the three years leading up to the financial meltdown of 2008-09 was 16.8%.

And yet, the assets under management of equity funds at the end of 2012-13 were less than 65% of the corresponding figure at the end of 2006-07.

“The returns posted by the equity mutual funds (in 2012-13) reflected the upside movement. Unfortunately, investors of mutual funds failed to capitalise on the same, as they continue to shy away from investing in equity funds,” MUFAP CEO Mashmooma Majeed said.

On an aggregate basis, equity-based open-end mutual funds posted a staggering 56.42% return in 2012-13. This is the first time that the aggregate return of equity funds has surpassed 50% since 2005.

Some of the top-performing mutual funds in 2012-13 that invest primarily in the stock market were Golden Arrow Selected Stock Fund (84.3%), AKD Opportunity Fund (72.8%), IGI Stock Fund (66.4%), JS Value Fund (64.3%), Asian Stock Fund (63%) and Safeway Mutual Fund (63.1%), according to the MUFAP yearbook