Equity market: Good year for mutual funds as profits soar

10 out of 25 funds outperform benchmark: MUFAP.


Our Correspondent March 18, 2014
According to a study carried out by KASB Securities, average exposure to equities across 10 top mutual funds was 86% during February. CREATIVE COMMONS

KARACHI: With improving fundamentals of the economy in recent weeks, mutual funds are getting more comfortable in allocating a larger portion of their assets to equities, latest data on leading stock funds shows.

The Karachi Stock Exchange (KSE)-100 Index has risen 27.5% since the beginning of the fiscal year. As many as 10 out of a total of 25 equity funds available in Pakistan have posted a year-to-date return of more than 27.5%, according to the data compiled by the Mutual Funds Association of Pakistan (MUFAP). In other words, 40% stock-based funds available in the country have outperformed their benchmark since July 1.

With a favourable investor sentiment based on an improvement in macros, coupled with emerging clarity on economic policy at the national level, mutual funds are gradually increasing their exposure to the stock market. While equity funds are allowed to invest their 100% assets in equities, they must maintain at least 70% exposure to stocks on a quarterly average basis.

According to a study carried out by KASB Securities, average exposure to equities across 10 top mutual funds was 86% during February. Removing one outlier, the average improves to 89%. This highlights an overweight stance on the equity market, as these funds can reduce their exposure to a minimum of 70%.

Seven funds have increased their equity allocation, two have reduced it, and one has kept it unchanged since November, according to their latest fund manager reports. “The general sense we have is that fund managers are a lot more comfortable with their equity allocation now than they were a few months ago. That’s because most macro indicators have moved in the right direction, creating an expectation of a market re-rating,” said Farrukh Karim Khan of KASB Securities.

In terms of sector weights, average allocations to the banking and oil and gas sectors in February were 18% and 21%, respectively.

Khan noted that equity funds now seem to prefer capital gains to dividend yield, which is evident from the rising investment in shares of Pakistan State Oil, Engro and Oil and Gas Development Company, as opposed to high-yielding stocks, like Hubco, Pakistan Oil Fields Limited and Fauji Fertilizer Company.

The reason, according to Khan, is that the dividend sustainability of some high-yielding stocks, like Hubco and FFC, is questionable besides the fact that these have reported disappointing results. Moreover, he says the overall risk appetite has increased with the improvement in economic fundamentals. “This marks quite a significant change from the trend of the last few years in which high-yielding stocks formed the bedrock of portfolios,” Khan said.

Published in The Express Tribune, March 19th, 2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS

Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ