KARACHI: Money market and income funds, which mainly invest in low-risk debt instruments, beat their equity-focused counterparts by a wide margin in 2022-23, thanks to the rising interest rate environment amid record-high inflation.
Statistics compiled by the Mutual Funds Association of Pakistan (MUFAP) reflecting 365-day performance through June 28 show that equity funds — which traditionally outperform their competitors owing to their exposure to a high-risk stock market — posted either outright negative or nominal returns for their investors.
Average inflation in the first 11 months of 2022-23 remained 29.2 per cent versus 11.3pc a year ago. This led the State Bank of Pakistan to increase the key interest rate, which serves as a benchmark for the overall cost of money in the economy, from 13.75pc to 22pc during the outgoing fiscal year.
As a result, money market and income funds posted a stellar performance given that the returns on most debt instruments are linked to the benchmark interest rate. Better yields on treasury bills, Pakistan Investment Bonds and private-sector term finance certificates or bonds also encouraged investors to shift their holdings from equity funds to money market and income funds in the last 12 months.
At the end of May, total assets under management (AUM) of asset management companies (AMCs) amounted to almost Rs1.5 trillion. The latest breakdown of AUM available on the MUFAP website, which dates back to June 30, 2022, shows money market funds held a 53pc share, followed by income funds (23pc) and equity funds (14pc). The total number of funds operated by 18 AMCs was 313 at the time.
The best-performing money market fund for the 365 days through June 28 was AWT Money Market Fund with an annualised return of 18.11pc. The best performer among income funds remained JS Microfinance Sector Fund with a 19.7pc return over the same period.
In contrast, 23 of the 26 equity funds posted a negative return in the 365 days through June 28. The best performer was Lakson Equity Fund, which posted an absolute return of 7.1pc.
The underperformance by equity funds in 2022-23 was in line with the poor conditions that prevailed in the stock market throughout the outgoing fiscal year owing to a host of macroeconomic challenges. The benchmark index remained largely flat (-0.2pc) in 2022-23.
According to Arif Habib Ltd, the flat performance by top 100 stocks was because of a challenging economic situation as well as political uncertainty.
In dollar terms, the KSE-100 index posted a return of negative 29pc on a year-on-year basis.
The dull performance of stocks was accompanied by a substantial drop in the average daily traded volume and value in 2022-23, which went down 34pc (to 192 million shares) and 54pc (to $25m), respectively, on an annual basis.
Published in Dawn, June 29th, 2023
