Investors flock to mutual funds
Investors are turning their attention away from the stock exchange and have developed a healthy appetite for fixed income securities and treasury bills for high yields.
The appetite for high-yielding securities is as a result of rising interest rates, persistent general price increases and drop in the value of the Ghana Cedi. Real returns on their investments have become marginal.
The macroeconomic instability has taken a bit of the shine off the equity market which has so far posted a year-to-date (YTD) return of 9.66 per cent, compared with the 11.2 per cent return in the first quarter.
The country currently has about 27 mutual funds which have returned an average of 25 per cent for the first half of the year.
Chief Investment Officer at Databank, Nii Ampa Sowah, whose company has the largest mutual fund of close to 70 per cent in the industry, said it was a good time to invest in fixed income securities.
“The benchmark Ghana Stock Exchange (GSE) Composite Index has returned only 5.34 per cent as of August 12, 2014. Based on this, it could be said that mutual funds have offered better returns so far this year,” he said in an email to the GRAPHIC BUSINESS.
“Yes, we believe it is a good time to invest because in order to realise appreciable returns over the long term, it is best to invest consistently over a period of time, regardless of the amount one has to invest.”
He said fixed income securities had the potential to outperform the market because of the inherent active fund management component.
“Through this, investors are assured that the fund manager is constantly evaluating investment opportunities with a view to achieving the highest risk-adjusted return possible for the investor,” he explained.
At the moment, yield on the benchmark 91-day treasury bill has increased to 25.1 per cent as of August 13 this year from 19.23 per cent as of January, while yields on the 182-day bill, 1-year note and the 2-year note have increased respectively to 26.25 per cent, 22.50 per cent and 23.0 per cent.
Analysts say negative effects of the difficult economic conditions have been more pronounced on the stocks of the fast moving consumer goods sector of the stock market.
Stocks such as Unilever Ghana returned a negative 3.88 per cent, Guinness Ghana also returned negative 16.13 per cent and PZ Cussons a negative 29.11, posting significant capital losses which weighed down on the broad market performance.
The weak performance of consumer stocks occurred on the back of high inputs costs and a lower consumer spending environment, leading to a weak first quarter earnings.
To be sure, the banking stocks, on the other hand, are riding on a higher interest rates environment to grow earnings, reflecting in the strong share price performance of their shares.
The financial stock index closed the half year at 17.68 per cent, driven mainly by the strong performances of banks such as Ecobank which posted 31 per cent, Ecobank Transnational, recording 26.84 per cent, HFC Bank, accumulating 61 per cent, and Standard Chartered Bank Ghana, also posting 21.15 per cent.
For now, analysts expect the performance of the GSE Composite Index to remain sluggish for the second half of 2014 due to concerns about the economy and the currency’s weakness that have created uncertainties in the stock market.
There are also worries about the outlook of the consumer sector which continues to bear the brunt of the difficult macroeconomic conditions.
It is expected that the grim investor sentiments on consumer stocks will persist as the timing of recovery remain uncertain. High cost pressures emanating from the upward revisions of fuel and utility prices, as well as the free fall of cedi, will continue to hurt the profit of consumer companies.