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#RecessionInNigeria and Type of Mutual-Funds to consider

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Friday, October 07, 2016 3.38 PM Taiwo Ologbon-ori, TheAnalyst  

As the adverse effects of economic recession continue to manifest, the Nigerian stock Market is now readjusting faster to the reality of economic outlook, moving away from a resilient and divergent posture recorded in Q2'16, posting 17% gain despite bearish fundamentals of the economy. An investment must grow or retain value- that is the bottom-line. The returns on investment must beat inflation rate but the chances during recession appears bleak for now. For retail investors who are considering mutual-funds as a better alternative, with the sole aim of preserving value, we implore you to take this article more serious for an informed decision.

Equities market is fast readjusting to the reality of economic outlook, moving away from a resilient and divergent posture recorded in Q2'16, posting 17% gain despite the bearish fundamentals of the economy. Stocks are now in a lacklustre mood, as sentiment is gradually shifting southwards.

Just as noted above, a cursory analysis revealed gradual contraction of DEMAND postures towards equities on the NSE, as recession had dampened investors risk appetite. The chances to beat/curtail the growing inflation via investment in equities during recession appears more bleak for now as volume and value turnover analysis revealed 42.35% and 9.40% contraction respectively.

The bottom-line is for an investment to grow or retain value. The return on investment must beat inflation rate, which stands above 17% at the moment.  This may further stoke the strong tendency from conservative investors to sustain lacklustre trading postures towards investment in equities.

For those retail investors who are considering mutual-funds as a better alternative, with a sole aim of preserving value, we implore you to take this article more serious for an informed decision. On this note, we found it more important than necessary to enlighten retail investors and highlight the type of mutual funds to be considered during this period. 

Though, there is no documented evidence that mutual funds perform better during recession but some well-diversified mutual funds offer reasonable level of safety against market volatility risk, which had so far in the year put the returns on investment above inflation figure.

Notwithstanding, the shortage of disposable income in recent time must have increased outflows from mutual-funds as our analysis indicates, which is understandable due to the on-going recession storm. As at June 2016, the Net Assets Value of Mutual Funds was on a steady decline to N275 billion from N296 billion recorded in March 2016.



In our opinion, the fall of Naira and surge in inflation figure during recession could not be isolated from the picture painted above.  To buttress this further, the Net Assets Value of mutual funds as at September 9th 2016 had slipped to N219billion from N275billion recorded in June 2016- this shows that more conservative investors are also moving money out of where was initially considered a safe-haven.

This article- a follow-up to our write-ups on recession, is not to scare investors away from mutual-funds but to guide, particularly during this economic turmoil, by revealing type of mutual-funds to consider. The performance table below puts this in proper perspective.



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