KARACHI: A majority of equity-based conventional and Islamic mutual funds underperformed their respective benchmarks in 2020-21, data from the Mutual Funds Association of Pakistan (MUFAP) shows.

Only nine of the 27 conventional equity funds posted a return of more than 37.6 per cent, which is the rate by which the benchmark 100-share index grew in the last fiscal year. Three funds posted growth rates just below the benchmark.

MUFAP data showed the increase in net asset values of these funds over preceding 365 days, although the validity dates ranged between June 28 and July 2. Fiscal year ends on June 30.

The best-performing equity fund was Golden Arrow Stock Fund by AKD Investment Management, which grew 111.6pc in 365 days through July 2. It was followed by AKD Opportunity Fund, which rose 99.1pc over the same period. The third-best performer was Faysal Stock Fund, which posted an increase of 79.4pc in 365 days through July 1.

The three conventional stock funds to post the lowest gains were UBL Financial Sector Fund, NBP Financial Sector Fund and HBL Energy Fund. They rose 21.5pc, 21.3pc and 18.3pc, respectively, in the 365 days through July 2.

As for Islamic equity funds, the top performer was AKD Islamic Stock Fund with 63.3pc growth in 365 days through July 2. It was followed by Atlas Islamic Stock Fund (36.6pc) and AWT Islamic Stock Fund (34.9pc), with data validity dates of June 30 and June 28, respectively.

The 365-day growth rate for Faysal Islamic Stock Fund, which was ahead of others in the preceding 270 days, was unavailable on the MUFAP website.

Meanwhile, the KMI-30 index rose 39.3pc in 2020-21. This means only one of the 19 Shariah-compliant stock funds beat the primary benchmark in Islamic equities.

Total assets under management (AUM) amounted to Rs982.3 billion at the end of May, according to MUFAP.

“Our mutual funds have high expense ratios, which hurt investors’ returns. What’s the point in investing through professional asset managers if they can’t even beat the benchmark?” said Ammar H. Khan, a Karachi-based economist.

According to Al Meezan Investment Management CEO Mohammad Shoaib, mutual funds in more developed economies have lower expense ratios because of many reasons. “They charge a fixed rate and separately collect a performance-based fee out of the profit they make for their investors. Our regulators don’t allow that,” he told Dawn in a recent interview.

Mr Shoaib said the expense ratio tends to decrease as the size of a fund grows. Citing the example of money-market funds that currently manage more than one-fourth of the industry-wide assets, he said their expense ratios have dropped to around 0.7pc per annum from 1.5pc about five years ago mainly because of the overall increase in AUM.

Published in Dawn, July 6th, 2021