The report on expenses ratio for the second quarter ended June 30, this year showed that only 10 mutual funds expended more than one per cent of their net assets as running costs. The report covered 51 mutual funds registered with SEC.
The report however generally showed that the expenses of all mutual funds remained well below the 5.0 per cent ceiling set by SEC as fund managers continued to look for ways to further reduce expenses.
According to the report, BGL Nubian Funds, managed by BGL Asset Management, has the highest expense-to-net asset ratio of 3.22 per cent. BGL Nubian Funds is an equity-based fund. Kakawa Guaranteed Income Fund, under the management of Kakawa Investment Management Limited, has the second highest ratio of 2.97 per cent.
Anchor Fund, an equity-based fund being managed by FBN Capital Asset Management Limited, has the third highest expenses of 2.68 per cent while Lotus Halal Investment Fund, a Shari’ah-compliant ethical fund being managed by Lotus Capital, placed fourth with 1.81 per cent. Lotus Halal Investment Fund has been trading below its offer price and it has not made return to investors since the fund was floated six years ago.
Other funds within the highest category included Stanbic IBTC Ethical Fund, with 1.63 per cent; Stanbic IBTC Nigerian Equity Fund, 1.56 per cent; FBN Capital Asset Management’s Bedrock Fund, 1.55 per cent; FSDH Asset Management Limited’s Coral Growth Fund, 1.12 per cent; and UBA Money Market Fund and Stanbic IBTC Guaranteed Investment Fund, which recorded 1.10 per cent each.
Meanwhile, Stanbic IBTC Iman Fund, a Shari’ah-related ethical mutual fund being managed by Stanbic IBTC Asset Management, was the least expensive fund during the period with expense to net asset ratio of 0.15 per cent while UPDC Real Estate Investment Trust (UPDC Reits), being managed by FSDH Asset Management Limited, followed with 0.17 per cent.
The report highlighted concerted efforts by fund managers to reduce expenses with a view to enhancing the attractions and returns of mutual funds. Most fund managers considerably reduced their expenses in the second quarter compared with expenses recorded in the first quarter.
For instance, Stanbic IBTC Nigerian Equity Fund’s expenses totalled 2.61 per cent of its net assets in the first quarter while Frontier Fund, being managed by Sterling Capital Markets Limited, reduced expense ratio from 1.21 per cent in the first quarter to 0.71 per cent in the second quarter.
Total net asset value of all mutual funds stood at N185.39 billion by the close of trading on August 22, 2014. Money market fund was the largest segment with net asset value of N60.45 billion. Equity funds and real estate funds followed with N43.97 billion and N42.2 billion respectively.
On fund-by-fund basis, UPDC Reits, a real estate fund, was the largest mutual fund with net asset value of N28.49 billion. Stanbic IBTC Money Market Fund placed second with N27.78 billion while FBN Money Market Fund was the third largest fund with N27.43 billion.
Mutual funds, otherwise known as collective investment schemes (CIS), are joint investment vehicles through which investors can pool funds and invest in chosen basket of securities under a professional management with a view to optimise returns and reduce risks.
Net asset value is determined by subtracting total liabilities of a fund from its total assets. The net asset value can further be divided by the total number of units of the fund to determine the unit price.
A mutual fund is usually categorised by the class of assets that forms the primary focus of its investments. Thus, there are equity funds, money market funds, bond funds, real estate funds, ethical funds and balanced funds, among others.
SEC has said it would review the cost structure and expenses of mutual funds with a view to ensuring that more returns accrue to investors.
Director, Collective Investment Scheme (CIS), Securities and Exchange Commission (SEC), Mrs Louisa Eni-Umukoro, said the commission was concerned about the expenses and costs relative to fund management.
According to her, SEC is considering introducing a multi-fee class structure for the mutual funds alongside other measures to reduce costs.
“We are looking at introducing a multi-fee class structure whereby the more you subscribed, the less you pay. It’s something we are going to work out with the fund managers,” Eni-Umukoro said.
She said the commission has noticed a high expense ratio on the part of some fund managers.
She said SEC might review downward the expense ratio ceiling of five per cent to discourage frivolous expenses by some managers.
Eni-Umukoro said the apex capital market regulator had amended its rules to cut expenses in relation to to fund management.