Balanced Fund
The Balanced Fund is an actively managed open-ended unit trust scheme whose primary objective is to provide investors and or beneficiaries with income (dividends and interest) as well as total returns (interest and capital gains) in the medium to long term.
As of December 31, 2013, the fund’s total asset size was N1.18 billion. A breakdown of the asset composition of the fund revealed that 63 percent of the fund’s asset was invested in available for sale securities, 29 percent in trading securities, while the balance of 8 percent was invested in cash and cash equivalents.
The fund opened the financial year with an offer price of N1.40 and closed at N1.49, after adjusting for the payment of N1.5 kobo dividend. The gross return of the fund for the nine-month period under review was 17.14 percent (including dividend payment).
The fund outperformed peers and benchmark for balanced funds, due largely to the significant portion of the fund’s exposure to equities in the financial year.
Unit holders of the fund were told at its seventh annual general meeting that the high exposure to equities was deliberate, given the fund manager’s conviction in the attractive returns and upside of the equity market earlier in the year under review.
“While the low returns on the bond exposure marginally weighed down the overall performance of the fund, the money market instrument delivered appreciable returns. Thus, the fund manager will further optimise asset allocation and specific asset selection within each asset class to ensure a substantial excess returns to contributors in the years ahead,” says Modupe Mujota, managing director, UBA Capital Asset Management.
She notes that the funds financial year has changed from March 31 to December 31 every year, to realign them to that of their peers and the benchmarks for the different asset classes to facilitate comparison of their performances
Bond Fund
The Bond Fund is an actively managed open-ended unit trust scheme whose main objective is to achieve consistent income stream through investment in bond and money market securities. As of December 31, 2013, the fund had total asset size worth N390.28 million.
A breakdown of the asset composition of the fund as indicated in the 2013 annual report and accounts revealed 64 percent of the fund’s asset was invested in bonds, while the balance of 36 percent was invested in money market securities.
The fund opened the nine months period to December 31, 2013, with an offer price of N1.28 and close at N1.31, after adjusting for the payment of 10 kobo dividend. Thus, the gross return of the fund for the period under review was 10.16 percent including the dividend payment.
“The fund’s relatively low performance is largely due to the hold to maturity strategy, which was adopted to minimise interest rate risk on the fund’s portfolio. Precisely, most of the assets were low yield instruments that will start maturing in 2014,” says the fund manager, adding that they aim to have a more active strategy that will ensure long positions in higher yield instruments going forward, “as new contributions are used to lock in currently high yields in the market.”
Equity Fund
UBA Equity Fund is an actively managed open-ended unit trust scheme whose primary objective is to achieve long-term capital appreciation of its assets by investing between 60 percent and 90 percent in select equities of Nigeria quoted companies and 10 percent to 40 percent in quality money market securities to enhance liquidity. As of December 31, 2013, 62 percent of the fund’s assets were invested in quoted equities while the balance of 38 percent was invested in money market securities. The fund opened the period under review with an offer price of N1.16 and closed at N1.23. It paid a final dividend of 15 kobo. Thus, the gross return of the fund for the period under review was 19 percent (including the dividend payment).
“The performance of the fund was largely affected by the lower return on fixed income assets, contrast to the strong bullish run in the equity market over the period. While we were conservative in our allocation in line with the investment policy objectives, our selection with the equity market and investment in high yield, quarterly grade money market notes ensured the appreciable performance of the fund,” Mujota further notes.
Money Market Fund
UBA Money Market Fund is an actively managed open-ended unit trust scheme whose primary objective is to provide investors with regular income and capital appreciation in the short to long term. The fund invests a minimum of 60 percent and maximum of 75 percent of its assets in money market instruments and minimum of 25 percent and maximum of 40 percent in Nigerian government securities.
As of December 31, 2013, the fund had total asset size worth N186.7 million. A breakdown of the asset composition of the fund revealed that 94 percent of the fund’s asset was invested in treasury bills, while the balance of 6 percent was invested in cash and cash equivalents. The fund opened the financial year with an offer price of N1.17 and closed at N1.25 in December, after adjusting for the payment of 10 kobo dividend. Overall, the gross return of the fund for the period under review was 15.38 percent (including dividend).
The fund manager believes that the fund’s stable performance largely mirrors the performance of money market instruments that averaged between 10.5 percent and 11 percent for the most part of last year. The fund manager aims to have a more active strategy that will ensure long positions on more high yielding instruments going forward.
Summary
The bond and money market funds were classified by the fund manager as conservative funds, thus they did not perform as well as the balanced and equity funds.
“The investments that we make in these funds are relatively low risk, albeit with lower return,” the fund manager says, while defending the bond and money market funds performance.
The fund managers of these funds are moderately positive on equities in 2014, “given the fact that political uncertainty will limit foreign investors’ activities in the market.” Also, they believe that security issue will continue to hamper the outlook on some companies.
“However, no major shock is expected and we expect that domestic participation will cushion the effect of capital outflow. In all, we expect the market to post positive returns for the year 2014,” the fund managers add.
For the fixed income market, the fund managers say that as the 2015 general election draws closer, we expect a moderate uptick in yields in second half of 2014, as investors move out their funds in their flight to safety. “We look out for a 100-150 basis points (bps) increase in yields over current levels at the end of the year.
Iheanyi Nwachukwu
