MUTUAL FUND REVIEW
THIRD QUARTER PERFORMANCE WAS IN LINE WITH THE CYCLIC TREND
SHABBIR H. KAZMI
May 21 - 27, 2012
Calendar year 2012 started on a positive note as the overall size of mutual funds grew by 19 per cent in January and five per cent in February but recorded a decline of eight per cent during March. This brought down the size of overall asset under management to Rs330 billion (US$3.63 billion) from Rs360 billion (US$3.96bn) a month ago. Major erosion in value was witnessed in the size of income funds and money market funds categories, which went down by 16 per cent and 13 per cent month on month (MoM) respectively.
In March, major decline/redemption was witnessed in the size of ABL Asset Management, falling by Rs18.1 billion (down 28.3 per cent MoM), followed by Askari Investment Management by Rs7.4 billion (down 35.5 per cent MoM) and UBL Fund Managers by Rs3.4 billion (down seven per cent MoM).
Out of the industry's total decline of Rs29.9 billion during March, Rs28.9 billion or 97 per cent was contributed by these three players. Excluding these specific funds, industry size showed a marginal decline of Rs980 million or 0.3 per cent MoM during March. This decline was not unusual. It is believed to be consistent with the 'quarter-end factor' when banks/financial institutions pullout/redeem their investments to shape up their balance sheet and returns before March end.
Since bulk of the investment of mutual funds is in equities, it is necessary to look at the behavior of stock market during March. During the month, stock market remained in upward trajectory as KSE100 index grew by 6.9 per cent to close at 13,762 l. The index breached psychological barrier of 13,000 and showed steady march towards 14,000. The activities also remained on higher side breaching the 4-year high level on intraday basis averaging 336 million shares (up 82 per cent MoM) valued at US$78 million (up26 per cent MoM). Mid and small-cap stocks contributed the most to total volumes. Though local investors remained the market drivers on the back of capital gains tax (CGT) and amnesty scheme, foreign investors also emerged net buyers and injected sizeable liquidity into the market amounting to US$8.4 million during the month which was 11-month high of net buying of foreigners in local stock market.
KSE-100 index also maintained an upward momentum during 3QFY12 (Jan-Mar) as appreciation of 21.3 per cent to 13,762 level was witnessed. Average daily traded volumes also showed remarkable growth of 227 per cent quarter on quarter (QoQ) to 196 million shares as compared to only 60 million shares during the previous quarter.
As the new CGT regime was finally implemented during the last week of April, investor's interest shifted towards the FY13 federal budget. However, intensified political rift between the government and the judiciary put negative impacts on the investor's confidence. The re-initiation of mergers and acquisitions in banking sector coupled with corporate results in major sectors are expected to support the activity in the market in coming months.
Since major decline was witnessed in income funds and money market funds categories, it is also necessary to understand factors that could have possibly led to this decline. The short-term money market rates remained on a higher side as was witnessed in February due to relatively liquidity crunch in the system. The central bank remained supportive to the market by providing adequate amount of liquidity to keep the rates stable during March.
During the month, the central bank conducted two treasury bills auctions and accepted bids of Rs187 billion as against a target of Rs225 billion. The cutoff yields of 3-month, 6-month and 12-month bills closed at 11.87 per cent, 11.94 per cent and 11.94 per cent (up by 14bps, 14bps and 5bps) respectively.
The KIBOR of these tenors moved in a narrow range and showed an increase of 4bps, 3bps and 4bps to reach at 11.91 per cent, 11.97 per cent, and 12.33 per cent respectively, while one month KIBOR remained flat at 12.05 per cent during the month.
Going forward, analysts believe that the low liquidity in the market will keep the upward pressure on interest rates, whereas aggressive government borrowing target of Rs1.0 trillion during 4QFY12 (Apr-June) will further make the liquidity position worse unless sizable amounts from foreign sources come in.
Money market funds declined by 13 per cent MoM in March to settle at Rs120 billion as compared to Rs138 billion a month ago. Amongst funds, major redemption was witnessed in ASK-CF, ABL-CF and ULPF, which fell by 41 per cent, 22 per cent and 12 per cent on MoM basis to reach at Rs11 billion, Rs20 billion and Rs26 billion, respectively. However, during 3QFY12, the size of the money market funds' category rose 14 per cent while during 9MFY12, the category still stood with a cumulative jump of 55 per cent from June 2011 figure of Rs77 billion.
Despite 6.9 per cent upward movement in the KSE-100 index during March, the size of the equity funds' category slightly went down by one per cent MoM to Rs49 billion, while category's accumulated decline was recorded at five per cent during 9MFY12. However, during 3QFY12, the overall size of equity funds category was appreciated by a decent 12 per cent QoQ.
Against benchmark KSE-100 and KSE-30 returns of 6.9 per cent and 1.8 per cent, respectively during March, equity funds earned an average return of 5.6 per cent during the month, showing underperformance against the KSE-100 of 1.3 per cent while an outperformance against KSE30 index by a heavy margin of 3.8 per cent.
Amongst funds during the month, highest returns of 16 per cent were earned by the AKD Opportunity Fund (AKDOPF), which was its second consecutive month with outperformance against the index as well as peer performance by a heavy margin.
On QoQ basis, during 1HFY12, the KSE-100 index remained negative and earned negative return of 9.2 per cent. However, during 3QFY12, (Jan-Mar) the KSE-100 index recovered strongly and surged by 21.3 per cent. The equity funds category also replicated behavior of the equity market and earned average return of 22.4 per cent during 3QFY12.
AKDOPF earned highest return with 39 per cent during the quarter and emerged the top performer in equity funds category. However, during 9MFY12, the equity funds earned an average return of 12.8 per cent, outperforming the KSE-100 index return of 10.1 per cent and KSE-30 index return of 4.6 per cent.