Economic slowdown leads to asset size contraction in mutual fund industry

[Naveed Yaseen]

By Tanveer Ahmed

KARACHI: The asset size of mutual fund industry dropped to Rs 204 billion in the last financial year against Rs 337 billion a year ago due to economic slow down and liquidity crunch.

The mutual fund industry witnessed a wonderful period of remarkable growth during the last five years when it recorded 53 percent growth in terms of assets. The industry faced hard times during 2008-09 as growth turned negative in the last fiscal, analysts said.

Mutal fund industry started experiencing decreasing trend in growth since June 2008, however, the pace of the fall in asset size accelerated with as the bears tighten their claws on the stock markets and touched the lowest level of Rs 174 billion in January 2009 after the removal of floor in the market.

However with the improvement in the market, mutual fund industry also recovered to some extent and in the last five months of previous fiscal it gained 17 percent increase.

Mazhar A Sabir, analyst at InvesCap Research, said that if one assumes the downward interest rates scenario then the equity market could show a rally in near future. “If the market shows upward rally than the heavy exposure of equity portfolio’s funds can get the benefits and earn better returns,” he felt.

The breakup of figures indicated that the open-ended and closed-end funds declined by 40 percent and 39 percent during 2008-09 to close at Rs 176 billion and Rs 28 billion, respectively. The Income and money market funds category contributing around 46 percent to the total open-ended mutual fund industry had recorded substantial growth for the last 5 years. However, during 2008-09, amid liquidity crunch in the market, the income and money market funds category reached Rs 79 billion, showing a decline of 44 percent from June 2008 figure of Rs 140 billion.

The withdrawal of money from income and money market funds started after November 2008 when the SECP took the step to revise downward the prices of the TFCs, thus discounted the NAVs.

During 2008-09, the income and money market funds earned negative average annualised return of 4.7 percent, with the Pakistan Income Enhancement Fund (PIEF) earning the highest annualised return of 18.6 percent. The fund was launched in August 2008, followed by ABL Income Fund (ABL-IF) (launched in Sep-08) earning an annualised return of 14.6 percent. The worst performers during last fiscal were Reliance Income Fund (RIF), Dawood Money Market Fund (DMMF) and AKD Income Fund (AKDIF) posting annualized return of -35.0 percent, -19.4 percent and -12.1 percent, respectively.

In June 2009, asset allocation of the Income and money market funds category depicts that the fund managers of the fixed-income funds are now looking for the long term papers and increased their exposure in the government securities. Analyst said that in case of declining interest rates scenario, better returns of fixed income funds on the basis of improving their asset prices could be expected. When KSE100 index touched the highest level of 15,676 in April 20008, the equity funds category’s fund size stood at Rs 121 billion. The equity funds category reached at Rs 61 billion in June 2009, showing a decline of 41 percent from June 2008 figure of Rs104 billion.

The KSE 100 index tumbled down 54 percent from its peak level to close at 7,162, whereas during 2008-09, the KSE 100 index decline by 41.7 percent. Meanwhile the equity funds category fund size decreased by 8 percent during the same period under review.

http://www.dailytimes.com.pk/default.asp...2009_pg5_5