Investors are dropping out of the Collective Investment Scheme (CIS), popularly known as mutual funds, on a daily basis due to the low rate of return recorded in some of the funds, Business Hallmark can reveal.

The mad rush for the exit door comes just sixteen months after mutual funds became the bride of choice as investors ditched the volatile stock market and fixed-income securities for the more profitable collective investment.

BH recalled that in August 2021, the value of mutual funds rose to 107% after investors who embarked on withdrawals from the loss-making stock market and low-yielding fixed income securities turned to him .

While investors have seen huge losses with a massive drop in total equity market value, the CIS has seen massive gains with an acceleration in investment volume and value in 2020.

For example, investments in mutual funds increased from N671 billion in January 2020 to N1.4 trillion in August of the same year, representing an increase of approximately 107.5% in net asset value.

The shift to mutual funds has been led by large institutions such as pension fund administrators and insurance companies that have taken large investment positions in mutual funds in an effort to stem continued stock market losses and low interest rates for money market deposits.

According to the National Pensions Commission (PenCom), PFAs invested N24.8 billion in mutual funds in May 2020, an increase by 2020.

The good run continued in 2021 with the bullish stance of mutual fund investors pushing its net asset value to N2 trillion despite the negative impact of the COVID-19 pandemic on the economy.

However, the tide has swung significantly, with mutual fund trading volume dropping 12.2% in 2021.

According to BH findings, investor engagement in the asset class fell to N1.3 trillion in December 2021 from N1.49 trillion in the previous year, 2020.

Investor apathy towards mutual funds in 2021 has fallen sharply, with total investment in the asset class on a yearly basis (YtD) falling 12.8% from N1.49 trillion in January 2021.

The results revealed that while bond funds outperformed equity-based funds and money market funds, bond funds benefited the most with a 12.6% year-on-year (Y/Y) growth in value. assets at 534.14 billion naira from 474.30 billion naira. in 2020.

Money market funds, on the other hand, fell 25.1% to N536.39 billion from N743 billion, while equity funds tumbled 7.2% to N28.34 billion. naira against 30.54 billion naira in 2020.

Speaking on the development, some financial experts who spoke to our correspondent in Lagos blamed it on the low rate of return recorded in some of the funds and a lack of understanding of the benefits by investors.
Senior Vice President, Parthian Partners, Ola Oladele, blamed the decline on low fund returns as well as a lack of understanding of the benefits of mutual funds and it works.

“Even investors who know them aren’t interested given the high inflationary environment.

“Asset managers also need to improve their asset selection skills so that fund performance can improve. As soon as people feel they can do better investing themselves than investing in a fund, they are less likely to opt for funds,” Oladele explained.

In his own remarks, New Dimension national shareholder chairman Patrick Ajudua blamed weak investor appetite for IRCs on low yields.

“Investor’s low appetite for mutual funds is due to their low overall yield compared to the yields of other high-yield investment classes.

“As a result, most investors prefer to make their individual investment decisions with their market advisers rather than subscribing to UCITS,” Ajudua said, while calling for the revision of the minimum entry amount to give opportunities to more retail investors.

Highcap Securities Vice President David Adonri revealed that investors are abandoning mutual trusts because they no longer have confidence in them.

“Investors’ low confidence in mutual trust is due to past events that left a sour taste in their mouths. Several mutual funds have failed in the past before the recent introduction of strict rules by the Securities and Exchange Commission (SEC). Stanbic IBTC Asset Management led the new wave of CIS and many banking institutions also took over.

”However, it will take longer to restore investor confidence in the program.
“Secondly, the number of retail investors in the capital market has generally declined after the calamity of the global collapse. Therefore, the target market for the program has decreased significantly.

“To arouse investors’ interest in UCIs, it will be necessary to show them that UCIs are better able to meet the differentiated objectives of investors. There must be an exciting value proposition.

“There is a need to further enlighten retail investors to sell them the benefits and assure them that the space is now better regulated, leaving no room for projects to fail,” he said.

Meanwhile, a member of the Independent Shareholders Association of Nigeria (ISAN), Moses Ayodele Ogundeji, attributed the cooling of appetite to lack of confidence from new investors who are wary and hedge against financial losses.

“The government policy tumble is another factor. For investors, the security of their investment is paramount. We need to raise awareness; there should be a confidence building campaign and investors should be assured that their investment is safe under the program,” he said.

Afrinvest Securities analysts also argued that the introduction of a new fee structure in the collective investment system by the SEC towards the end of 2021 would likely have a negative impact on fund performance.

BH has learned that the Securities Exchange Commission (SEC) on December 27, 2021 introduced an annual monitoring fee of 0.2% of the net asset value (NAV) of undertakings for collective investment (UCI) to be calculated and to be accumulated daily for each UCI.

The SEC had imposed an annual regulatory fee on fund/portfolio managers of 0.25% of the net asset value of all discretionary and non-discretionary funds/portfolios (other than mutual funds) under management for retail investors and 0. 01% for qualified investors.