NAFA STOCK FUND (NSF)

COMPANY PROFILE

MULAZIM ALI KHOKHAR
Research Analyst, PAGE
Mar 17 - 23, 2008

NAFA is a Non Banking Financial Institution with a license to perform Asset Management Services as per the NBFC-Rules, 2003. The main sponsors of NAFA are National Bank of Pakistan, NIB Bank Limited and Alexandra Fund Management P. Ltd., (a member of Fullerton Fund Management Group, Singapore, which in-turn is a wholly owned subsidiary of Temasek Holdings, Singapore).

NAFA's main area of business is Investment Management; more specifically floating and managing mutual funds and discretionary management of institutional portfolios.

FUND (NSF) PROFILE

The NAFA Stock Fund (NSF), an Open-end Equity Fund, was launched on 22nd Jan FY07, listed on Lahore stock exchange. It has a minimum subscription of Rs.10 thousands for Growth Fund and Rs.1 Lakk for Income Fund. Fund works with front end load of 3% and no back end load.

Initial fund size was Rs.795.8mn and 88% of the fund was invested on the second day of the start of the fund due highly favorable technical and fundamental look of the Stock Market. Now the fund has achieved 67.22% growth till Feb FY07, as against 37.14% growth of its benchmark (KSE-30) to mark the total fund size of Rs.2524mn with NAV of Rs.14.045.

NSF PERFORMANCE

The fund has been out performing its benchmark most of the times since its inception which reflects the strongness of its management and research.

The fund achieved the NAV growth of 4.25% for the last month Feb FY07 and listed total returns of 67.22% since inception to Feb FY08. The net asset value has increased during last few months as compared to September FY08 where it stood at Rs.12.49/unit.

Unit price of the NSF stands at 14.045 while offer price stands at Rs.14.4658 (as on 13th March FY08) as compared to initial price of Rs.10.

The Fund (Net Assets) grew from Rs.1.46 billion to Rs.1.62 billion during the 1QFY08 (from July FY07 to September FY07), registering a growth of 10.76%. But the net assets per unit decreased by 13% to Rs.12.49 as compared to Rs.14.35 as on June FY07. However now the NAV has regained its position as mentioned above.

The fund size has grown at an impressive 12 month CAGR of 8.91% and 12 month average growth rate of 10.47% (from Mar FY07 to Feb Fy08) to stand at Rs.2524mn as compared to Rs.825 million at the start of the business (Jan FY07).

The Fund registered impressive half yearly growth of 170% in Net Income accounting to Rs.102.5mn as on September FY08 as compared to Rs.38mn as on March FY07. But the 112% hike in expenses

ASSETS ALLOCATION

The management of the fund has increased the diversification to avoid risk and guard the return and the management has been successful so far as in this regard.

We have witnessed increased volatility and risks in the Stock market for the last few months, due to political turmoil and terrorist insurgence, and keeping pace in the market was really a hard task. But the NSF has proved its metal and diversification has paved way to reduce her losses in the time period.

Initially the fund was less diversified with investment in only 7 to 8 sectors and more concentrated in Commercial Banks and Oil and Gas Exploration. It completely ignored Cement, Telecom & Textile Composites, but now it includes almost all major sectors.

During Feb FY08 the company's assets allocation of investment consisted Commercial Banks 28%, Oil & Gas Exploration 12.38%, while others contained average 6 to 7% allocation.

FUTURE OUTLOOK

There are total 28 Equity Funds of which 14 are Open-ended while others are Close-ended funds. NSF's performance has been one of the best in the industry and there are likely more chances of the fund to improve its performance as the political scenario settles down and

Today, in Pakistan, mutual funds account for about 5.3% of GDP, 8% of Bank deposits and 16% of national savings as on June FY07.

The sector has cataloged notable growth during the last 5 years, where its total assets have increased 10 fold from around Rs.25bn (in June FY02) to more than Rs.250bn (in September FY08). The industry has gained popularity due to its improved and disciplined behavior, government support, development of specialized innovative products and investment friendly environment.

But still there is a vast gap due to lack of awareness and if this gap is reduced then surely the next phenomenally growing industry is Mutual Funds and NSF being highly competitive participant of the industry will grow rapidly.

TABLE 1

PROFIT & LOSS ACCOUNTS

INCOME

MARCH FY07

SEP. FY08

%AGE

Profit on bank deposits

2,738

3,446

25.86%

Loss on investments

17,614

(10,123)

-157.47%

Dividend income

3,813

5,071

32.99%

Unrealized gain*

20,163

87,803

335.47%

 

44,328

86,197

94.45%

Total expenses

7,419

15,714

111.81%

As % of Total Income

17%

18%

 

Operating Profits

36,909

70,483

90.96%

As % of Total Income

83%

82%

 

I & CG less Redeemed**

1,029

32,027

3012.44%

Net Income

37,938

102,510

170.20%

As % of Total Income

86%

119%

 

Net Assets

1,460,323

1,617,409

10.76%

No of Units

101,784,945

129,495,028

27.22%

NAV per unit

14.3471

12.4901

-12.94%