Mutual Funds Factsheet May 2022 Click to add text
Description: Mutual Funds Factsheet May 2022 Click to add text GLOBAL The key macro drivers during the month included, monetary policy actions by global central banks, continued lockdown restrictions in some provinces in China due to the spread of the
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slide1. Mutual Funds Factsheet May 2022 Click to add text<br>
slide2. GLOBAL
The key macro drivers during the month included, monetary policy actions by global central banks, continued lockdown restrictions in some provinces in China due to the spread of the covid-19 and the lingering tension between Russia and Ukraine.
The geopolitical tensions in Europe appear with no end in sight with the recent sanctions placed on Russian seaborne oil amidst elevated gas prices. The US FED raised benchmark interest rates by 50 basis point at its meeting in the month of May, in its quest to address the rise in inflation. Although headline inflation moderated to 8.3% y/y (March - 8.5% y/y), it came in above expectations. In China, further outbreak of the omicron variant resulted in Beijing and Tianjin provinces tightening restrictions.
Financial markets took a breather from the losses recorded in the prior month with the MSCI All Country World index rising by 0.2% in May, with value stocks outperforming their growth counterparts with a return of 2.2%. Similarly, global bonds recorded a positive gain of 0.30% driven by increased demand.
DOMESTIC
According to data from the Nigerian Bureau of Statistics, Nigeria’s economy grew 3.11% y/y in Q1 2022, recording the sixth consecutive quarter of growth. The economic expansion was anchored by the 6.08% y/y growth of the non-oil sector, on the back of increased output across agriculture, manufacturing, telecoms, trade and financial services subsectors.
On the other hand, the oil sector contracted for the eight consecutive quarter declining 26% y/y – the worst quarterly performance on record. The sector’s performance continued to be impacted negatively by the low oil production volumes. For context, oil production for the period was 1.49mbpd compared with Q1 2021 – 1.72mbpd.
Headline inflation jumped 92 basis point to 16.82% y/y in April (March – 15.90%), the highest rate since August 2021, driven by an increase in both food (+117bps) and core inflation (+27bps) respectively. Food inflation rose to 18.37% y/y on the back higher global food prices due to the Russia-Ukraine tensions and higher transportation cost. Similarly, core inflation rose to 14.18% y/y driven by higher energy prices, rising raw material costs and scarcity of foreign exchange. MACRO ECONOMIC UPDATE FINANCIAL MARKET UPDATE EQUITIES
The equities market maintained an upward trend in May consolidating further on the gains recorded the prior month. Market recorded a gain of 8.05% for the month, whilst quarter to date gain stood at 14.21%. Consequently, the year-to-date performance of the market improved to +25.57%
Demand for equities witnessed in the prior month, remained sturdy for most of May as investors continued to react positively to the impressive first quarter financial performance. Specifically, the rally in the large cap stocks drove market performance northward. However, following the decision of the CBN’s MPC to increase benchmark interest rate by 150bps, investors began to take profit.
Precisely, the market’s performance was on the back of gains recorded by Airtel Africa (+27.49%), Seplat (+9.27%), Okomuoil (+46.26%), Presco (+12.97%) and MTN (+7.23%) despite the losses recorded by Nestle (-0.98%), Guinness (-2.69%), Stanbic (-5.63%) and Vitafoam (-7.01%)./ FIXED INCOME
The fixed income market was largely bearish during the month on the back of lower maturities and hawkish move by the CBN’s monetary policy committee. As a result, money market indicators – Open Buy Back and Overnight rates rose by an average of 110 basis point and 96 basis point to 9.35% and 9.73% respectively.
The MPC at its third meeting of the year increased benchmark interest rates (monetary policy rate) by 150 basis points to 13% whilst keeping all other parameters constant. This move marks the first hike since 2016 and was premised on the need to address the uptick in inflation rate and the likely sustained price pressures in the near term.
Consequently, at the primary market auctions for Treasury Bills, average stop rate rose by 56 basis points to 3.72%. While stop rate increased on the three tenors offered, the 364-day paper had the most significant jump of 179 basis points. Also, average yield at the secondary market for Treasury Bills rose by 33 basis points to 3.76%.
At the monthly bond auction held before the MPC meeting, average stop yield across maturities was up by 2bps closing at 11.82%, with a 10bps increase on the 2042 maturity. At the secondary market, average yields rose slightly by 3 basis points to 11.06%<br>
slide3. FUND STRUCTURE
The ARM Aggressive Growth Fund is an open-ended fund with a permissible investment limit exposure of 70% - 100% in stocks of companies quoted on the Nigerian Stock Exchange. The ARM Aggressive Growth Fund is constituted by a trust deed and duly authorized and registered in Nigeria as a unit trust scheme under the Investments & Securities Act 1990.
FUND OBJECTIVE
The mix of assets in the Fund is aimed at providing long term capital growth opportunities for investors with a high-risk tolerance. KEY FACTS FUND ASSET ALLOCATION Equities Fixed Income FUND PERFORMANCE ARM AGGRESSIVE GROWTH FUND<br>
slide4. FUND STRUCTURE
The ARM Discovery Balanced fund seeks to maximize return by investing in a broad spectrum of asset classes that comprises of equities and fixed income securities. The Fund Manager is required to maintain a minimum equity position of 40% and a maximum of 60%. It is not the objective of the Fund to replicate the performance of the Nigerian equity market; rather, it has a primary objective to deliver competitive returns over the long term.
FUND OBJECTIVE
The mix of assets in the Fund is aimed at providing long term capital growth opportunities for investors with a medium risk tolerance. KEY FACTS FUND ASSET ALLOCATION Equities Fixed Income FUND PERFORMANCE ARM DISCOVERY BALANCED FUND<br>
slide5. FUND STRUCTURE
The ARM Ethical Fund is an open-ended fund designed to enable ethical investors to invest in line with ethical Islamic investment principles the principles of Shari’ah laws will be upheld whilst managing the Fund, specifically the Fund is designed to exclude all forms of “riba or interest” from all its investment operations and prohibits investments in businesses that are inconsistent with Islamic principles, such as gambling, tobacco, alcohol, ammunition, sale or purchase of pork and all forms of adult entertainment.
The Fund is structured to have an Advisory Board and an Investment Committee with expertise in shariah investing.
FUND OBJECTIVE
The primary objective of the Fund is to achieve long-term capital appreciation and income distribution through investments in a select portfolio of securities and assets in accordance with the principles of Islamic finance and ethical values. The Fund is suitable for investors who:
Wish to achieve long-term capital growth on their investments.
Have a medium investment risk appetite. KEY FACTS FUND ASSET ALLOCATION Alternatives Equities FUND PERFORMANCE The ARM Ethical Fund is a Shari’ah compliant open-ended Islamic Fund. ARM ETHICAL FUND<br>
slide6. FUND STRUCTURE
The ARM Fixed Income Fund is an open-ended fund authorized and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act 2007. The Fund is regulated by the Securities & Exchange Commission (SEC). The fund can invest a minimum of 70% and maximum of 100% in bond instruments.
FUND OBJECTIVE
The primary objective of the Fund is to help investors achieve their medium to long-term investment goals by investing in investment grade fixed income securities such as FGN, corporate bonds, and short-term fixed income instruments. KEY FACTS FUND ASSET ALLOCATION FUND PERFORMANCE MATURITY PROFILE ARM FIXED INCOME FUND<br>
slide7. FUND STRUCTURE
The ARM Eurobond Fund is an open-ended fund that invests in US Dollar denominated fixed income instruments. The Fund is authorised and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act 2007 and is regulated by the Securities & Exchange Commission (SEC). The fund can invest a minimum of 70% and maximum of 100% in bond instruments.
FUND OBJECTIVE
The main objective of the fund is to help investors achieve their long -term investment goals by investing in a broad range of US Dollar denominated instruments and hereby managing local currency devaluation risk. KEY FACTS FUND ASSET ALLOCATION FUND PERFORMANCE MATURITY PROFILE ARM EUROBOND FUND<br>
slide8. FUND STRUCTURE
The ARM Money Market Fund is an open-ended fund, authorized and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act 2007. The Fund is regulated by Securities & Exchange Commission (SEC).
FUND OBJECTIVE
The primary objective of the Fund is to provide a steady stream of income to investors by investing in high-quality short-term money market instruments and government securities, which include; Banker’s acceptances, certificates of deposits, commercial papers, Fixed Deposits with eligible financial institutions; Short term debt securities issued or guaranteed by the Government of Nigeria, Other instruments introduced and approved by the Central Bank of Nigeria (CBN) from time to time, Other money market or fixed income instruments in which the Fund is permitted to invest under the Trust Deed. KEY FACTS FUND ASSET ALLOCATION FUND PERFORMANCE Government Securities Short-term Instruments ARM MONEY MARKET FUND MATURITY PROFILE Commercial Papers<br>
slide9. GLOBAL MARKETS
Global central banks would continue to grapple with inflation whilst being conscious of the risk of lower growth which remain more prominent in Europe. Consumer income is likely to remain pressured given the negative real wage growth resulting from the elevated inflationary environment despite the strong labor market. We believe investors will be watching the outcome of the FOMC meeting for an expectation of a rate hike, this would likely drive another bout of volatility across financial markets whilst investors continue to seek the catalyst for a rebound in the stock market.
DOMESTIC MARKETS
EQUITY
We expect investors in the equity market to be cautious in the coming month given the expectation of an increase in fixed income yields as indicated by the rate hike action of the CBN’s monetary policy committee. Retail speculative investors may likely book profits on positions in anticipation of more attractive fixed income instruments. Furthermore, the demand for fungible stocks by foreign portfolio investors is expected to persist and this should likely provide support for the market.
FIXED INCOME
We expect a gradual uptick in yields on fixed income instruments bolstered by the rate hike action of the MPC, lower maturities and increased supply of fixed income instrument by the federal government. Furthermore, given the northward trend in inflation, we expect investors’ bid rate at auctions to tick higher as they continue to seek compensation for real returns.
MONEY MARKET
Going into the new month, we expect rates in the money market space to remain on the rise on the back of recent increase in the monetary policy rate from 11.5% - 13% by the Central Bank of Nigeria. OUTLOOK<br>
slide10. ARM Investment Managers
1, Mekunwen Road,
Off Oyinkan Abayomi Drive, Ikoyi, Lagos
01 270 1096, 01 448 8282
www.arm.com.ng www.arminvestmentcenter.com Disclaimer: Notwithstanding the proper and reasonable care that has been exercised in the preparation of this report, no responsibility or liability is accepted by ARM Investment Managers Limited, its employees not its affiliates for any error, omission or opinion expressed herein. This report is not intended to serve as an investment or research recommendation and should not be regarded as such. The information provided herein should by no means whatsoever be treated as a basis on which to make an investment decision.<br>
slide2. GLOBAL
The key macro drivers during the month included, monetary policy actions by global central banks, continued lockdown restrictions in some provinces in China due to the spread of the covid-19 and the lingering tension between Russia and Ukraine.
The geopolitical tensions in Europe appear with no end in sight with the recent sanctions placed on Russian seaborne oil amidst elevated gas prices. The US FED raised benchmark interest rates by 50 basis point at its meeting in the month of May, in its quest to address the rise in inflation. Although headline inflation moderated to 8.3% y/y (March - 8.5% y/y), it came in above expectations. In China, further outbreak of the omicron variant resulted in Beijing and Tianjin provinces tightening restrictions.
Financial markets took a breather from the losses recorded in the prior month with the MSCI All Country World index rising by 0.2% in May, with value stocks outperforming their growth counterparts with a return of 2.2%. Similarly, global bonds recorded a positive gain of 0.30% driven by increased demand.
DOMESTIC
According to data from the Nigerian Bureau of Statistics, Nigeria’s economy grew 3.11% y/y in Q1 2022, recording the sixth consecutive quarter of growth. The economic expansion was anchored by the 6.08% y/y growth of the non-oil sector, on the back of increased output across agriculture, manufacturing, telecoms, trade and financial services subsectors.
On the other hand, the oil sector contracted for the eight consecutive quarter declining 26% y/y – the worst quarterly performance on record. The sector’s performance continued to be impacted negatively by the low oil production volumes. For context, oil production for the period was 1.49mbpd compared with Q1 2021 – 1.72mbpd.
Headline inflation jumped 92 basis point to 16.82% y/y in April (March – 15.90%), the highest rate since August 2021, driven by an increase in both food (+117bps) and core inflation (+27bps) respectively. Food inflation rose to 18.37% y/y on the back higher global food prices due to the Russia-Ukraine tensions and higher transportation cost. Similarly, core inflation rose to 14.18% y/y driven by higher energy prices, rising raw material costs and scarcity of foreign exchange. MACRO ECONOMIC UPDATE FINANCIAL MARKET UPDATE EQUITIES
The equities market maintained an upward trend in May consolidating further on the gains recorded the prior month. Market recorded a gain of 8.05% for the month, whilst quarter to date gain stood at 14.21%. Consequently, the year-to-date performance of the market improved to +25.57%
Demand for equities witnessed in the prior month, remained sturdy for most of May as investors continued to react positively to the impressive first quarter financial performance. Specifically, the rally in the large cap stocks drove market performance northward. However, following the decision of the CBN’s MPC to increase benchmark interest rate by 150bps, investors began to take profit.
Precisely, the market’s performance was on the back of gains recorded by Airtel Africa (+27.49%), Seplat (+9.27%), Okomuoil (+46.26%), Presco (+12.97%) and MTN (+7.23%) despite the losses recorded by Nestle (-0.98%), Guinness (-2.69%), Stanbic (-5.63%) and Vitafoam (-7.01%)./ FIXED INCOME
The fixed income market was largely bearish during the month on the back of lower maturities and hawkish move by the CBN’s monetary policy committee. As a result, money market indicators – Open Buy Back and Overnight rates rose by an average of 110 basis point and 96 basis point to 9.35% and 9.73% respectively.
The MPC at its third meeting of the year increased benchmark interest rates (monetary policy rate) by 150 basis points to 13% whilst keeping all other parameters constant. This move marks the first hike since 2016 and was premised on the need to address the uptick in inflation rate and the likely sustained price pressures in the near term.
Consequently, at the primary market auctions for Treasury Bills, average stop rate rose by 56 basis points to 3.72%. While stop rate increased on the three tenors offered, the 364-day paper had the most significant jump of 179 basis points. Also, average yield at the secondary market for Treasury Bills rose by 33 basis points to 3.76%.
At the monthly bond auction held before the MPC meeting, average stop yield across maturities was up by 2bps closing at 11.82%, with a 10bps increase on the 2042 maturity. At the secondary market, average yields rose slightly by 3 basis points to 11.06%<br>
slide3. FUND STRUCTURE
The ARM Aggressive Growth Fund is an open-ended fund with a permissible investment limit exposure of 70% - 100% in stocks of companies quoted on the Nigerian Stock Exchange. The ARM Aggressive Growth Fund is constituted by a trust deed and duly authorized and registered in Nigeria as a unit trust scheme under the Investments & Securities Act 1990.
FUND OBJECTIVE
The mix of assets in the Fund is aimed at providing long term capital growth opportunities for investors with a high-risk tolerance. KEY FACTS FUND ASSET ALLOCATION Equities Fixed Income FUND PERFORMANCE ARM AGGRESSIVE GROWTH FUND<br>
slide4. FUND STRUCTURE
The ARM Discovery Balanced fund seeks to maximize return by investing in a broad spectrum of asset classes that comprises of equities and fixed income securities. The Fund Manager is required to maintain a minimum equity position of 40% and a maximum of 60%. It is not the objective of the Fund to replicate the performance of the Nigerian equity market; rather, it has a primary objective to deliver competitive returns over the long term.
FUND OBJECTIVE
The mix of assets in the Fund is aimed at providing long term capital growth opportunities for investors with a medium risk tolerance. KEY FACTS FUND ASSET ALLOCATION Equities Fixed Income FUND PERFORMANCE ARM DISCOVERY BALANCED FUND<br>
slide5. FUND STRUCTURE
The ARM Ethical Fund is an open-ended fund designed to enable ethical investors to invest in line with ethical Islamic investment principles the principles of Shari’ah laws will be upheld whilst managing the Fund, specifically the Fund is designed to exclude all forms of “riba or interest” from all its investment operations and prohibits investments in businesses that are inconsistent with Islamic principles, such as gambling, tobacco, alcohol, ammunition, sale or purchase of pork and all forms of adult entertainment.
The Fund is structured to have an Advisory Board and an Investment Committee with expertise in shariah investing.
FUND OBJECTIVE
The primary objective of the Fund is to achieve long-term capital appreciation and income distribution through investments in a select portfolio of securities and assets in accordance with the principles of Islamic finance and ethical values. The Fund is suitable for investors who:
Wish to achieve long-term capital growth on their investments.
Have a medium investment risk appetite. KEY FACTS FUND ASSET ALLOCATION Alternatives Equities FUND PERFORMANCE The ARM Ethical Fund is a Shari’ah compliant open-ended Islamic Fund. ARM ETHICAL FUND<br>
slide6. FUND STRUCTURE
The ARM Fixed Income Fund is an open-ended fund authorized and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act 2007. The Fund is regulated by the Securities & Exchange Commission (SEC). The fund can invest a minimum of 70% and maximum of 100% in bond instruments.
FUND OBJECTIVE
The primary objective of the Fund is to help investors achieve their medium to long-term investment goals by investing in investment grade fixed income securities such as FGN, corporate bonds, and short-term fixed income instruments. KEY FACTS FUND ASSET ALLOCATION FUND PERFORMANCE MATURITY PROFILE ARM FIXED INCOME FUND<br>
slide7. FUND STRUCTURE
The ARM Eurobond Fund is an open-ended fund that invests in US Dollar denominated fixed income instruments. The Fund is authorised and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act 2007 and is regulated by the Securities & Exchange Commission (SEC). The fund can invest a minimum of 70% and maximum of 100% in bond instruments.
FUND OBJECTIVE
The main objective of the fund is to help investors achieve their long -term investment goals by investing in a broad range of US Dollar denominated instruments and hereby managing local currency devaluation risk. KEY FACTS FUND ASSET ALLOCATION FUND PERFORMANCE MATURITY PROFILE ARM EUROBOND FUND<br>
slide8. FUND STRUCTURE
The ARM Money Market Fund is an open-ended fund, authorized and registered in Nigeria as a Unit Trust Scheme under Section 160 of the Investment and Securities Act 2007. The Fund is regulated by Securities & Exchange Commission (SEC).
FUND OBJECTIVE
The primary objective of the Fund is to provide a steady stream of income to investors by investing in high-quality short-term money market instruments and government securities, which include; Banker’s acceptances, certificates of deposits, commercial papers, Fixed Deposits with eligible financial institutions; Short term debt securities issued or guaranteed by the Government of Nigeria, Other instruments introduced and approved by the Central Bank of Nigeria (CBN) from time to time, Other money market or fixed income instruments in which the Fund is permitted to invest under the Trust Deed. KEY FACTS FUND ASSET ALLOCATION FUND PERFORMANCE Government Securities Short-term Instruments ARM MONEY MARKET FUND MATURITY PROFILE Commercial Papers<br>
slide9. GLOBAL MARKETS
Global central banks would continue to grapple with inflation whilst being conscious of the risk of lower growth which remain more prominent in Europe. Consumer income is likely to remain pressured given the negative real wage growth resulting from the elevated inflationary environment despite the strong labor market. We believe investors will be watching the outcome of the FOMC meeting for an expectation of a rate hike, this would likely drive another bout of volatility across financial markets whilst investors continue to seek the catalyst for a rebound in the stock market.
DOMESTIC MARKETS
EQUITY
We expect investors in the equity market to be cautious in the coming month given the expectation of an increase in fixed income yields as indicated by the rate hike action of the CBN’s monetary policy committee. Retail speculative investors may likely book profits on positions in anticipation of more attractive fixed income instruments. Furthermore, the demand for fungible stocks by foreign portfolio investors is expected to persist and this should likely provide support for the market.
FIXED INCOME
We expect a gradual uptick in yields on fixed income instruments bolstered by the rate hike action of the MPC, lower maturities and increased supply of fixed income instrument by the federal government. Furthermore, given the northward trend in inflation, we expect investors’ bid rate at auctions to tick higher as they continue to seek compensation for real returns.
MONEY MARKET
Going into the new month, we expect rates in the money market space to remain on the rise on the back of recent increase in the monetary policy rate from 11.5% - 13% by the Central Bank of Nigeria. OUTLOOK<br>
slide10. ARM Investment Managers
1, Mekunwen Road,
Off Oyinkan Abayomi Drive, Ikoyi, Lagos
01 270 1096, 01 448 8282
www.arm.com.ng www.arminvestmentcenter.com Disclaimer: Notwithstanding the proper and reasonable care that has been exercised in the preparation of this report, no responsibility or liability is accepted by ARM Investment Managers Limited, its employees not its affiliates for any error, omission or opinion expressed herein. This report is not intended to serve as an investment or research recommendation and should not be regarded as such. The information provided herein should by no means whatsoever be treated as a basis on which to make an investment decision.<br>