THE UNDER-GROWN MUTUAL FUNDS MARKET

AN OVERVIEW

SHAMSUL GHANI (shams_ghani@hotmail.com
Mar 17 - 23, 2008

With the stock market indices soaring to record heights, commercial and investment banks accounting for 38% of the total market capitalization of Rs.4.6 trillion, the under-performing mutual funds market, accounting for only 0.8% of the total market capitalization, is a tell-tale sign for the analysts. The market is managed by professional but not necessarily independent managers. Presently, 60 open-end funds, 18 open-end pension funds and 24 closed-end mutual funds are listed on Karachi Stock Exchange. By their dynamics, close end funds are more actively traded in the stock market. The market capitalization of close end funds was Rs.36,541 million as of March 11, 2008. as against commercial and investment banks cumulative market capitalization of Rs.1,743,242 million on the same date. This exposes the extent and scope of mutual funds market in Pakistan.

Mutual funds, besides being closed-end / open-end, are also categorized by their earning capacity and inherent risk factors. Income Funds are expected to generate regular income for the investors with a reasonably low market risk. On the basis of market price, PICIC Growth Fund tops the closed-end funds' list with its Rs.10/- share having a market value of Rs.30.75 and a net asset value (NAV) of Rs.49.75.

On the other hand, Equity Funds carry higher risk as they vie for higher returns and quick capital gains. Equity funds are also listed under the category of investment banks/companies/securities. The leaders under this category are, Jehangir Siddiqui Company, JS Capital Limited, Arif Habib Limited and Arif Habib Security Limited with their Rs.10/- shares being traded at Rs.660/-, Rs.420/-, Rs.310/- and Rs.176/- respectively.

CONGLOMERATE SYNDROME - THE BANE OF MUTUAL FUNDS

The below average performance of mutual funds can be attributed to the conglomeratic influence. Almost all existing mutual funds are owned / managed by commercial / investment banks, industrial giants or the big wigs of the stock exchange. The stock big wigs have set up their own commercial / investment banks. The focus of the managers of mutual funds is primarily on the group core business. The affairs of multi-billion primary business of banks demand much time and attention leaving too little for the mutual funds secondary business. The related party transactions risk also takes its toll on mutual funds when losses incurred somewhere else are reflected in the books of mutual funds.

So, gone are the days when mutual funds ( for example during the ICP era) were managed by professional and more importantly by independent managers. This all important segment of financial sector has now been left to live in the shadow of commercial and investment banks. No wonder if the funds have been raised as under-grown saplings.

The following table gives a view of the existing closed-end mutual funds market.

 

FUND

PAID UP CAPITAL (RS) IN MILLION

SHARE'S FACE VALUE

SHARE'S MARKET VALUE

MARKET CAPITALIZATION RS. IN MILLION

MANAGERS/
ADVISERS

Al-Meezan Mutual Fund

1,375.40

10

13.00

1,788.02

Almeezan Investments

Asian Stocks Fund

900.00

10

5.75

517.50

Asian Capital Mang.

Atlas Fund of Funds

525.00

10

9.25

485.63

Atlas Asset Mang.

BMA Princ. Guar. Fund

106.00

10

10.00

106.00

BMA Asset Mang.

Dominion Stock Fund

50.00

10

4.70

23.50

Dominion Inv.

First Capital Mutual Fund

300.00

10

8.90

267.00

First Capital Investment

First Dawood Fund

580.75

10

8.10

470.41

Dawood Capital Mang.

Golden Arrow

675.99

5

7.30

986.95

AKD Investment Mang.

Investec Mutual Fund

100.00

10

3.30

33.00

Investec Inv.

JS Growth Fund

3,180.05

10

14.85

4,722.37

Jehangir Siddiqui Invest.

JS Value Fund

1,185.75

10

18.60

2,205.50

Jehangir Siddiqui Invest.

Meezan Balanced Fund

1,200.00

10

9.10

1,092.00

Almeezan Investments

NAMCO Balanced Fund

1,000.00

10

7.60

760.00

National Asset Mang.

PICIC Energy Fund

1,000.00

10

8.45

845.00

PICIC Asset Mang.

PICIC Growth Fund

2,835.00

10

30.75

8,717.63

PICIC Asset Mang.

PICIC Investment Fund

2,841.25

10

14.00

3,977.75

PICIC Asset Mang.

Pak Oman Adv.Fund

1,000.00

10

8.10

810.00

Pak Oman Asset Mang.

Pakistan Premier Fund

1,698.05

10

12.80

2,173.50

Arif Habib Investment

Pakistan S. A Fund

3,000.00

10

9.40

2,820.00

Arif Habib Investment

Safeway Mutual Fund

544.50

10

12.45

677.90

Safeway Management

We Balanced Fund

200.00

10

8.50

170.00

We Investment Mang.

Tristar Mutual Fund

50.00

10

2.30

11.50

Tristar Inv.

UTP Large Capital Fund

3,295.50

10

8.70

2,867.09

JS Investments

Prudential Stocks Fund

60.00

10

2.15

12.90

Prudential Fund Mang.

Total

27,703.24

   

36,541.13

 

Mkt. Value as of 11-03-08

It will be observed that most of the funds are being managed by groups having sizeable stake in country's financial sector especially commercial and investment banks. The overall nominal appreciation in the equity value of mutual funds particularly in the soaring indices scenario is proof that the mutual funds market is a neglected and suppressed market.

MUTUAL FUNDS MARKET FAILED TO PERFORM ITS ECONOMIC ROLE

The past economic policies made a dent in the national savings. The present savings rate of 18% is far below the benchmark figure of 23%. The falling interest rates on saving schemes during the last 4-5 years dragged peoples' life-long savings to the speculative arenas. The commercial banks reaped windfall profits at the expense of their depositors who were made to accept a historically minimal return vis--vis a historically high bank spread. The mutual funds market could have come to their rescue by affording them an avenue to invest their dislodged savings by offering a reasonably good return in the then booming financial market. Unfortunately, this segment of financial sector failed to deliver. Perhaps it was by design that this sector was left neglected and under-grown to invest banks with monopolistic power.