In 2016, there were only six Nigerian money market funds managing N177 billion among them.
Fast forward two years and those numbers have nearly tripled, thanks to the high interest rate environment of the past two years and the paltry return on bank savings account.
A money market fund is an open-ended mutual fund that invests in short-term debt securities such as Treasury bills and commercial paper. Money market funds are widely regarded as being as safe as bank deposits yet providing higher yields.
According to data compiled by BusinessDay and sourced from the Securities Exchange Commission (SEC), the number of money market funds increased to 17 in 2018 compared to the 11 money market funds in 2017.
Not only have money market funds grown in number, they are also handling way more cash than they have since 2011, when the SEC started compiling data.
Their Net Asset Value (NAV) has climbed 175 percent in one year to N401.6 billion as at April 6, 2018 compared to N145.8 billion in April 2017.
In April 2016, money market funds had NAV of N177.7 billion.
The high yield environment in 2016 and 2017 made a compelling case to set up a money market fund, according to Ayodeji Ebo, the managing director at Afrinvest Securities Ltd.
“For investors, the flexibility of withdrawing cash and the yield promise of a money market fund was too big an attraction to pass on, especially when you compare the yields they offered to the average bank savings account rate of 4 percent or fixed income rate of 7 percent,” Ebo said.
Money market funds yielded anywhere around 18 percent last year. This year, that return has however adjusted downwards to about 14 percent.
In 2018, money market funds pulled the most cash of the various types of collective investment schemes or mutual funds in Nigeria, from bonds to equities, accounting for 74 percent.
That is up from 2016 and 2017, when they accounted for 61.3 percent and 56.23 percent of the total respectively.
The attraction of setting up a money market fund is likely to start dissipating on the back of falling yields on short term government treasury bills, Ebo observed. Investor demand will also cool in the coming months as a result.
The average yield on one month Nigerian Treasury Bills (NTB) was down 926 basis points to 10.732 percent as of Wednesday, April 18 from as high as 20 percent early last year, according to FMDQ data.
Interestingly, two one-month bills yielded single digits of 9 percent.
Yields have been in a free fall after the Federal government changed tack on its aggressive borrowing, choosing to favour external debt over domestic debt.
The move was intended to help manage ballooning domestic debt service costs for the government which has had to deal with falling oil revenues that would go on to induce the country’s first economic recession in a quarter of a century.
The recent rally in global oil prices and stable production has boosted public revenues, helping the economy expand for the first time since 2015.
On the implication of rapid inflows into money market funds on the banking sector, analysts say it means lenders will break sweat to mobilise deposits.
“Money market funds are the biggest competitors to bank deposits,” said Wale Okunrinboye, a former asset management executive, who now works for a Pension Fund Administrator (PFA).
“For now, investors in search of yields will pile cash into money market funds, until their yields cool in line with the yields on short term treasuries,” Okunrinboye said by phone.
The cumulative total deposits from customers of 12 lenders tracked by BusinessDay increased by 1.0 percent to N16.53 trillion in the nine month period of 2017.
That compares to the same period of 2016, when deposits from customers surged by 31.54 percent or N4 trillion to N16 trillion.
The high interest rate environment that proved a boon for money market funds was a disaster for bank deposits, as customers flocked to where they got better value for their cash.
One retail investor told BusinessDay that he has made a 14 percent return on his money market fund this year, and has cultivated the habit of sweeping idle funds from his bank account.
The Stanbic IBTC Money Market Fund (SIMMF), managed by the asset management arm of the Nigerian-based lender, accounts for more than half (53 percent) of the total net asset value of money market funds with a N213.6 billion NAV.
That amount represents a 223 percent increase compared to its net asset value of N66.1 billion in 2016.
Olubunmi Olagunju, the chief executive officer at Stanbic IBTC Asset Management, did not immediately respond to a text message seeking comment.
The Stanbic fund has yielded an average of 14 percent this year, according to FMDQ data.
The Stanbic fund has dethroned the FBN Money Market Fund, which until 2017 pulled the most cash of the lot.
The FBN fund accounted for only 24 percent of total net asset value as at April this year, with N99 billion.
That’s a 191 percent increase over the N34 billion it managed in 2017, when it accounted for 23 percent of the total. In 2016, the FBN fund accounted for as much as 53 percent of the total by managing some N94 billion.
The ARM Money Market Fund boasts the largest asset value after Stanbic and FBN, with funds worth N39.4 billion, as of April 2018. That comes to 9.8 percent of the total cash handled by the money market funds.
LOLADE AKINMURELE
