January 13, 2020 (MLN): In a departed year, 2019, the Money Market Funds posted steady healthy returns by investing capital in possibly low-risk assets with a high scale of liquidity from a portfolio, constituting mostly money market instruments and placements. Due to the safe and sound approach, all of the money market funds generated positive returns in 2019.
During the year 2019, the money market showed volatility as the SBP raised the policy rate by 350 basis points to curb inflation. The market-based Exchange rate system which was the pre-conditionality for IMF program encouraged foreign investments in local debts instruments especially T-Bills. On average banks borrowed at 50-90 bps above the T-Bills yields, conditional to the banks’ rating profile. The money market funds remained attractive for investors during 2019 owing to expected growth in the equity market on likely easing policy rate in medium-term and improvement in economic parameters on account of contractionary policies.
Here, we look at the performance of the leading money market funds which have been assessed against an average benchmark rate; 70% 3-month PKRV and 30% 3-month average deposit rates of 3 ‘AA’ rated schedule banks as selected by MUFAP.
As per calculation, the 70% average of 3M PKRV rates came out as 8.58% whereas 30% 3M average deposit rate of 3 AA rated is 2.78%. Thus, the benchmark has been set at 11.36% for the year 2019.
On a related note, the three ‘AA’ rated scheduled banks selected by the Mutual Funds Association of Pakistan (MUFAP) are Sindh Bank, Faysal Bank and Bank of Punjab.
A performance chart shows that all twenty-one money market funds recorded their annual return within a range of 10.54%-12.63%.
According to data records maintained by Mettis Global Private Limited, 15 out of 21 money market mutual funds surpassed the benchmark rate, while only one, missed it out by a meagre margin. Alfalah GHP Cash Fund (AGHPCF) emerged as a winner amongst all other money market funds during 2019.
The fund gave an annual return of 12.63% as its adjusted Net Asset Value leapt from Rs.512 per share to Rs.531 per share in 2019.
The ten-year-old AGHPCF carries an extremely low-risk profile and has had its fund’s stability rated at ‘AA(f)’ by Pakistan Credit Rating Agency (PACRA) as of Oct 19, whereas fund’s management quality rated at ‘AM2’ by PACRA as of Aug 19.
The asset allocation of the fund changed significantly as the fund invested more in bank deposits, increasing allocation from 14.9% in Jan 2019 to 91.5% in Dec 2019 whereas the portion of Treasury Bills declined massively to 14.4% of total assets in Dec 2019 against 84.6% of total assets in Jan 2019.
JS Cash Fund came second in line with annual returns clocked in at 11.32%. Its NAV stood at Rs.102.23 per share in Jan 2019 which inched up to Rs.102.87 per share. With less risk, a significant portfolio investment of JSCF was observed in the form of cash, declined to 79.95% of total assets in Dec 2019 from 97.68% in Jan 2019.
Regarding the fund’s stability, Pakistan Credit Rating Agency (PACRA) rated its stability at ‘AA+’, while VIS (formerly known as JCR -VIS) rated its management quality at ‘AM2’, as of December 2018.
Following JSCF closely is ABL Cash Fund (ABLCF). Its NAV dropped to Rs.10.17 per share from Rs.10.22 per share with an annualized return of 11.98%. Around 86% of the net assets of the fund were in the form of cash in Dec 2019 against 47.80% in Jan 2019. This was trailed by NBP Money Market Fund (11.94%), Alfalah GHP Money Market Fund (11.92%).
Speaking of Asset under Management (AUM), in absolute terms Alfalah GHP Cash Fund witnessed the largest increase from Rs.20 million to Rs.6.5 billion in fund’s size amongst the top five funds.
Dividend wise, Atlas Money Market Fund gave the largest total payout of Rs 73.85 per unit in 2019, followed by Alfalah GHP Cash Fund, giving a total payout of Rs 42.65 per unit whereas Lakson Money Market Fund paid Rs.14.80 per unit during 2019.
The portfolio of Money Market funds is based on interest rate outlook and will remain cautious of any developments that influence investment strategy.
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