May 31, 2022 (MLN): While liquidity and convenience bring the investors to park cash and savings, the returns on money market mutual funds are their main selling point. In April 2022, all 24-money market mutual funds delivered attractive returns.
For the unversed, the money market funds are investment products that allow investors to earn interest in a less risky environment than the equity market.
In April 2022, the State bank of Pakistan (SBP) held an emergency monetary policy meeting and raised the policy rate by 250 basis points (bps) to 12.25% in order to safeguard external account and price stability amid a surge in commodity prices.
High commodity prices amid heightened political uncertainty and tight liquidity conditions resulted in a sharp rise in secondary market yields in all tenors. 3m, 6m and 1year rates increased by 265bps, 236bps and 213bps respectively while the yield for 3years and 5years also increased by 112bps and 65bps respectively.
In April 2022, SBP conducted three T-Bill auctions with a target of Rs1,700 billion against the maturity of Rs1,558 billion.
In the first T-Bill auction, bids worth Rs644 billion were accepted at cut-off yields of 12.80%, 13.25% and 13.30% for 3-month, 6-month and 12-month tenures. In the second T-Bill auction, an amount of around Rs. 579 billion was accepted at a cut-off yield of 13.50% and 13.85% for 3-month and 6-month & 12-month tenures while in the third T-Bill auction, bids worth Rs629 billion were accepted at cut-off yields of 14.79%, 14.99% and 14.81% for 3-month, 6-month and 12-month tenures.
On the PIB front, bids worth Rs387 billion were realized for 3-years, 5-years and 10-years tenures at cut-off yields of 13.30%, 12.95% and 13.15% whereas no bids were received for 15-years, 20-years and 30-years in the auction.
Based on the data compiled by Mettis Global, all 24 funds generated positive returns in April 2022 due to a pragmatic yet safe approach. It is pertinent to note that only two out of them outperformed the benchmark.
To get a clearer picture, we have compared the returns of the leading money market funds in the chart below against an average benchmark rate; 70%- an average of 3-month PKRV and 30% 3-month average deposit rates of 3 ‘AA’ rated schedule banks as selected by MUFAP which has been set at 11.45% for April 2022.
On a side note, the three ‘AA’ rated scheduled banks selected by the Mutual Funds Association of Pakistan (MUFAP) are Samba Bank, Faysal Bank Limited and Askari Bank Limited.
As evident from the chart above, NBP Money Market Fund (NBPMMF) emerged as a victor amongst all other money market funds that earned an annualized return of 12.1% during the month, exceeding the benchmark return of 11.45%.
This out-performance is net of management fee and all other expenses. To maintain liquidity, the fund, at the end of the month, had exposure of about 18% in T-Bills, 59.4% in bank deposits and 21.8% in Money Market Placements (LOP).
Regarding the fund’s stability, Pakistan Credit Rating Agency (PACRA) rated its stability at ‘AA’, signifying a very strong capacity to maintain relative stability in returns and very low exposure to risks.
Alfalah GHP Cash Fund (AGHPCF) came second in line, depicting a competitive net return of 11.77%. With a ‘low' risk profile, AGHPCF’s net asset value (NAV) stood at Rs513.34 in April 2022. The fund was assigned an ‘AA(f)’ stability rating by PACRA as of October 08, 2021. At the end of April 2022, the fund held 34% assets in T-Bills, around 19% was placed in banks/DFIs while to the tune of 30.87% out of total assets was accumulated in cash.
Going by the data, Alfalah GHP Money Market Fund (AGHPMMF) appeared as the third lead with an annualized return of 11.31% against the benchmark return of 11.45%. The asset allocation in cash decreased to 42.1% from 76% while placements with banks and DFIs were recorded at 19.3%. The fund had exposure of about 26% in T-Bills from 22.3% in March 2022.
Regarding the total Asset Under Management (AUM) of the mutual fund industry, it fell by 5% MoM to Rs1.07 trillion in April 2022. Category-wise analysis showed that the AUM of Money Market Funds dropped by 14% MoM to Rs317bn in April 2022.
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