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Awareness of the mutual funds sector rising gradually; Govt and SECP support necessary

Interview with Dr Amjad Waheed — CFA, Chief Executive Officer, NBP Fullerton Asset Management Limited (NAFA)

PROFILE:

Dr Amjad Waheed holds a doctorate in Investments & Finance from Southern Illinois University, USA, and is also a Chartered Financial Analyst. For last eleven years, he is CEO of NBP Fullerton Asset Management Ltd (NAFA), which is a subsidiary of National Bank of Pakistan, with Fullerton Fund Management Company of Singapore as the other joint venture partner. NAFA is presently managing twenty mutual and pension funds, and several portfolios. Total assets under management of NAFA are presently about Rs102 billion. NAFA is among the largest and highest rates Asset Management Companies in Pakistan. Before joining NAFA, Dr Amjad was Head of Equity Mutual Funds & Portfolios at Riyad Bank, Saudi Arabia, for about 5 years where he was managing US$7.5 billion invested in 22 mutual funds. Prior to that Dr Amjad was Head of Investments at NIT, and Chief Operation Officer of FC-ABN AMRO Equities for several years. Before moving back to Pakistan, Dr Waheed was Assistant Professor of Finance at Tennessee State University, USA. He has published several articles in top journals of the world such as Journal of Banking & Finance and Financial Management. Dr. Amjad has served on the Board of various companies including Siemens, Nishat Mills, PICIC, Askari Bank, Millat Tractors, Fauji Fertilizer, Pakistan Tobacco Company, Treet Corporation, Gul Ahmed Textile and Bata Pakistan.
ABOUT NAFA: NBP Fullerton Asset Management Limited (NAFA) is a subsidiary of National Bank of Pakistan (NBP), with Fullerton Fund Management Group (Singapore) as the Joint Venture partner of NBP. NAFA is rated AM1 by PACRA (very high quality), thus counted among the top two rated Asset Management Companies (AMCs) in the country. NAFA is managing 22 open-end Funds, 2 Pension Funds and several discretionary portfolios with total Assets under Management of over Rs100 billion.

PAGE: YOUR VIEWS ON MUTUAL FUNDS SECTOR:

DR AMJAD WAHEED: The size of the Mutual Funds industry has grown from Rs400 billion to around Rs600 billion over the last three years. The awareness among investors of Mutual Funds is rising gradually, and they can see the benefits of professional management and one-window operations offered by Mutual Funds. Mutual Funds are providing healthy returns to its investors and in general have been able to outperform their respective benchmarks. Our NAFA Stock Fund, which is amongst our flagship funds, is one of the best performing stock funds of FY 2017. It provided a 33.7 percent return to its investors in FY 2017 versus a 23.2 percent rise in the stock market (KSE 100 Index), and an average return of 29 percent on other stock funds in the country. NAFA Islamic Stock fund, NAFA Islamic Asset Allocation Fund, and Islamic Pension Fund (equity) are also among the best performing funds in the country.

PAGE: WHAT HAS BEEN DONE SO FAR FOR AWARENESS OF THE MUTUAL FUNDS SECTOR?

DR AMJAD WAHEED: In Pakistan, the total size of Mutual Fund industry is around Rs600 billion (US$5.7 billion), which is around 2 percent of Pakistan’s GDP (size of economy), and have been stagnant at this level for the last decade. In India, the total size of the Mutual Fund industry is US$293 billion, which is 13 percent of India’s GDP. If the Mutual Funds industry in Pakistan had grown at the same pace as in India, the total size of the Mutual Funds industry would have been US$39 billion rather than US$5.7 billion. This would have helped our savings and investments to grow, and resultantly our economic growth rate would have been higher. To help increase the size of the Mutual Funds industry, government needs to facilitate and remove impediments in the industry’s growth. Securities and Exchange Commission of Pakistan (SECP) is already playing a key role in bringing the industry in terms with the international best practices, enabling it to increase its penetration in the masses by growing its retail network. We expect SECP to further liberate the pricing of Mutual Funds, in line with international norms, thus enabling us to further expand our retail network. As the reach and awareness about the industry increases, the size of the industry in terms of percentage of GDP will converge towards that of regional peers, helping in improving the savings and investment rate of the country, hence fostering economic growth.

PAGE: YOUR VIEWS ON THE NUMBER OF FUNDS BEING OFFERED AND TO BE LAUNCHED:

DR AMJAD WAHEED: Variety of Mutual Funds are available for investor who can select funds based on their risk/return profile and investment horizon. Investors with low risk profile and short term horizon should generally invest in money market/income funds which invest in relatively safe investment avenues. Those investors with medium risk profile may prefer balanced and asset allocation funds, which invest about half of their money in the stock market. For investors having a long term horizon, it may be desirable to invest in stock funds where expected return along with the risk is higher than other investment avenues.

 

This is because equities show volatility in the short term but generally outperform inflation, bank deposits and fixed income securities in the long run. Further, as the industry evolves and investors’ awareness increases more sophisticated products like Exchange Traded Funds, Infrastructure Funds, Currency Funds, REITs and Private Equity Funds can be launched to increase the depth of the Mutual Funds industry.

PAGE: HOW COULD THE MASSES BE EDUCATED FOR THE BENEFITS OF MUTUAL FUNDS? 

DR AMJAD WAHEED: Awareness about the Mutual Funds industry is the key to convincing masses to invest in our industry. They will gradually understand the benefits the industry has to offer to them, which are not just limited to the superior returns the industry has offered to its investors over the years. Mutual Funds are managed by professional investment managers who after thorough and careful research select suitable investment avenues to achieve their investment objectives. They offer advantage of diversification to investors as they invest in a variety of investment avenues. Further, Mutual Funds provide liquidity which allows investors an easy exit at any point in time. And to top it all, investing in Mutual Funds offer attractive tax benefits to individual investors who by investing in Mutual Funds can reduce their tax liability by upto 20 percent, and can additionally reduce it by up to 30 percent by investing in Voluntary Pension Schemes (VPS).

PAGE: YOUR COMMENTS ON REGULATION AND TAXATION FOR AMCS?

DR AMJAD WAHEED: SECP is already playing a key role in bringing the industry regulations in line with international standards, and has recently introduced measures to enable retail sales growth. However, pricing restrictions on charging of management fee and sales load are excessive, not allowing the industry to have sufficient resources to grow its retail network. Further, consistent policies are required for the industry to develop and grow.

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