Attractive return: Half of equity funds beat KSE 100-Share Index

Two top-performing funds post gains of over 14% against KSE’s 5.3%.

KARACHI: With fundamentals of the economy undergoing significant improvements in March, almost half of the equity-based mutual funds operating in the country outperformed the Karachi Stock Exchange (KSE) 100-Share Index last month.

Eleven out of 25 conventional equity funds posted a return higher than 5.3%, which was the month-on-month increase in the KSE-100 index during March, according to data compiled by the Mutual Funds Association of Pakistan.

The best conventional equity firm in terms of absolute returns was Safeway Mutual Fund. It posted a gain of 14.9% while outperforming the benchmark by a huge 9.6 percentage points during the month.

However, it should be noted that the asset management company had taken ‘overexposure’ in six blue-chip stocks, including Pakistan State Oil, DG Khan Cement and Bank Alfalah.



This was in violation of Regulation 55(5) of the Non-Banking Finance Companies and Notified Entities Regulations 2008, which says the exposure of a collective investment scheme to any single entity should not exceed the scheme’s 10% of total net assets.

The second-best conventional equity firm was Asian Stocks Fund, also managed by the same asset management company that runs Safeway Mutual Fund. It registered a gain of 14.3% while outperforming its benchmark by nine percentage points.

Once again, last month’s fund manager’s report for Asian Stocks Fund states that it invested more than 10% of its net assets in five blue-chip stocks.

Other top-performing mutual funds were National Investment Unit Trust (10%), JS Large Cap Fund (8.3%), ABL Stock Fund (6.9%), JS Growth Fund (6.4%), JS Value Fund (6.4%) and First Capital Mutual Fund (6.1%).

The KSE-100 index closed at 27,159.91 points on March 31, up 5.3% from February 28. The index posted a return of 29.3% in the first nine months (July-March) of the current fiscal year.

Shining macros

According to MCB-Arif Habib Savings and Investments, foreign investors remained net sellers in the KSE in March with net outflows amounting to $5 million in view of the tapering announced by the US government.

“The US Federal Reserve (central bank) in its last Federal Open Market Committee (meeting) declared it would scale back its existing quantitative easing programme by $10 billion to $55 billion a month. This is the third time in a row that the Federal Reserve has cut its bond buying programme by $10 billion a month,” it said in its fund manager’s report.

Average turnover in March remained at 215 million shares as opposed to 237 million in the preceding month. “Improvement in economic indicators, along with growth in earnings, is expected to keep investors’ interest alive in the market,” it added.

Other than improved macros, another major reason for the impressive performance of the equity-based mutual funds was the significant appreciation in the value of the rupee against the dollar.

ABL Asset Management anticipates the market will continue its upward journey, as improved fundamentals and investor road shows held by government officials – for Euro bond and secondary public offerings of banks – will generate foreign interest in coming months. Furthermore, the start of the results’ season is going to create excitement in the market.

The market is currently trading at the price-to-earnings multiple of 8.1 times (2014 estimated) and offers a dividend yield of 6%, which is fairly attractive in both absolute and relative terms, it said.

Published in The Express Tribune, April 8^th, 2014.

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