Performance comparison of mutual funds in Ghana

mutual funds performance

Why mutual funds?

Many reasons can be assigned to why people choose mutual funds’ investment over other investment products. Surely, the advantages of mutual funds can be a lot. First, most mutual funds are affordable in the sense that individual investors can start with less amount of money. Second, mutual funds are generally managed by licensed professionals, making them one of the ideal choices for individuals with even limited investment knowledge. Investors can therefore open mutual funds accounts and sit back, trusting these professionals to deliver good results. In addition, mutual funds are more liquid, meaning they can be easily converted into cash as compared to other investment products such as stocks. Note that it takes a relatively longer time to sell stocks on the Ghana Stock Exchange than to redeem your money from a mutual fund scheme.

Mutual funds selection

The growing interest in mutual funds of late has led to a rise in various fund schemes in the country. As such, selecting mutual funds to buy, in particular, best mutual funds, can be time-consuming. Of course, every investor would prefer mutual funds giving more returns. Currently, there are over 30 licensed mutual fund schemes in Ghana. While a few of them are as old as Methuselah, others are as new as new-born babies. All types of mutual funds have their own investment goal(s) and therefore diversify their assets to suit such goals. The varying forms of mutual funds therefore make it easier for different types of investors to choose their suitable preferences. Choosing or investing in more than one particular fund is also a good decision to reduce the risks posed by a fund’s failure.

Ideally, one needs to consider certain key factors before selecting from the numerous available funds to invest with. These factors include, but not limited to, fees and commissions (which is separately dealt here), track record of the fund managers as well as past performance of the fund.

See also: Performance of stocks on the Ghana Stock Exchange

The past performance of a mutual fund can be used to assess how stable (or unstable) the fund has been over that period. This can then be used as guidance, although not always, in depicting how the fund would perform in the future (For current mutual funds’ rates, click here). Most mutual fund managers publish their annual returns to the public which can then be compared with the returns of their peers.

Assessing a fund’s performance in reference to that of its benchmark and peers is very useful. Almost all equity mutual funds (including balanced funds) are benchmarked against the Ghana Stock Exchange returns (All Share Index) Money market funds also benchmark their returns against the average Bank of Ghana Treasury bill rate for the year, usually the 91-day term. In the table below, we compare the performance of past returns (where available) for the popular mutual funds in Ghana. We also tend to determine their average performance for the period. However, since not all the fund schemes have available data for the years under review, we rather compare their average performance for the past five (5) years where all data is available for the mutual funds analysis. It is important to note that the calculated average returns do not take any compounding effect into account.

Fund

Return, %

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 5-Year Average
Equity Funds
Databank Epack 51 -3.68 -5.11 33.36 -12.21 17.37 83.95 39.58 0.65 -3.44 27.62
HFC Equity Trust -19.94 25.12 2.85 0.11 70.43 8.23 14.49 7.35 20.12
FirstBanc Heritage Fund *20.90 58.06 12.39 4.23 -0.4 18.57
SAS Fortune Fund 52.06 -6.68 21.21 89.2 14.4 -0.71 5.29 25.88
GSE return (Benchmark) 31.21 58.16 -46.58 32.25 -3.1 23.81 78.81 5.4 -11.77 -15.33 16.18
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016   5-Year Average
Money Market Funds
Databank Mfund 11.99 18 28.06 17.23 12.18 14.81 22.11 26.31 21.94 24.97 22.03
HFC Unit Trust 12.75 18.7 23.5 12.49 11.24 13.24 23.07 22.38 25.76 24.76 21.84
FirstBanc Firstfund 19.87 20.26 32.73 34.58 37.38 37.86 36.27 35.76
EDC Fixed Income Unit Trust 8 23.4 24.9 27.3 20.90
Avg. 91-day Treasury bill rate (Benchmark) 9.91 17.92 25.39 13.95 10.69 18.63 21.94 23.97 22.9 22.16   21.92
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016   5-Year Average
Balanced Funds
EDC Balanced Fund 4.8 18 45.3 18.1 15.9 24.33
Databank Arkfund *2.50 38.23 5.88 16.39 46.59 16.04 20.42 12.59 22.41
Databank Bfund 18.11 -4.61 37.71 7.33 16.79 53.89 16.31 13.08 9.27 21.87
HFC Future Plan Trust *10.42 40.21 2.88 18.19 31.37 12.14 19.86 18.55 20.02
NTHC Horizon Fund 0 25 -8 24.88 10.38 25.17 35.16 11.42 5.43 12.68 17.97
GSE return (Benchmark) 31.21 58.16 -46.58 32.25 -3.1 23.81 78.81 5.4 -11.77 -15.33   16.18
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016   5-Year Average
Real Estate Funds
HFC Real Estate Investment Trust 17.5 28.97 35.59 15.89 13.51 22.87 23.01 23.61 24.26 18.01 22.35

NB. Performance figures with asterisk (*) reflect half year returns as these funds launched their IPO’s in July.




Analysis & Conclusion

What conclusions can we draw from the data of the mutual funds comparison?

Equity funds

In general, all equity mutual funds exceeded the GSE benchmark in most of the years under review.

For instance,

  1. Out of the 10 years under review, Databank’s Epack performed better than the GSE in 7 years.
  2. HFC equity trust also exceeded the GSE benchmark in 6 out of 10 years.
  3. Similarly, SAS Fortune fund exceeded the GSE benchmark in 6 out of 10 years.

In terms of average performance for the past 5 years (2012-2016), Databank‘s Epack performed much better than all equity funds under review. It posted an average return of 27.62% against the GSE benchmark of 16.18%. This could be attributed to the fact that Databank’s Epack invest not only in the Ghana Stock Exchange, but also in about nine other African stock markets. SAS Fortune fund comes close with a 5-year average return of 25.88%. It should also be noted that the calculated returns on most equity mutual funds take into account the dividend earnings from their respective invested stocks. However, the GSE returns (used by the equity fund managers as benchmarks) exclude such dividends.

Money market funds

For the money market funds, FirstBanc‘s Firstfund posted a splendid 5-year average of 35.76% against the average Treasury bill benchmark of 21.92%. It is not surprising that it has consistently won ‘best performing money market fund’ for about six consecutive years. As to how they do their magic, we will try to find out later. Databank’s Mfund follows with a 5-year average return of 22.03%. Apart from Firstfund and Mfund, none of the 5-year average returns of the other funds exceeded the 5-year Treasury bill average. Nevertheless, returns for the individual years generally exceeded their Treasury bill counterparts. For instance,

  1. HFC Unit Trust exceeded the Treasury bill benchmark in 6 out of 10 years.
  2. EDC Fixed Income Unit Trust exceeded the Treasury bill benchmark in 3 out of 4 years.

Although most money market funds exceed the Treasury bill benchmark, the difference is not that significant considering the commissions and fees that investors pay. For example (deducing from the table), with exception of Firstfund, the rest of the money market funds hardly exceeded the Treasury bill by even 3% for all the years under review. Bear in mind that investing in Treasury bills is free of commissions and fees while mutual funds come with various fees and commissions.

Balanced funds

Over the past five years, all balanced [mutual] funds have averagely performed better than the GSE benchmark. Assessing the individual years,

  1. EDC Balanced Fund exceeded the GSE benchmark in 3 out of 5 years.
  2. Databank Arkfund exceeded the GSE benchmark in 6 out of 8 years.
  3. Databank Bfund exceeded the GSE benchmark in 6 out of 9 years.
  4. HFC Future Plan Trust exceeded the GSE benchmark in 6 out of 8 years.
  5. NTHC Horizon Fund exceeded the GSE benchmark in 6 out of 10 years.

Real estate funds

HFC real estate investment trust, the sole real estate mutual fund in Ghana, posted a 5-year average return of 22.35% as well as a 10-year average return of 22.32%.

 



Non-resident accounts: Bank accounts for Ghanaians living abroad

non-resident accounts

With the increasing trend of Ghanaians travelling overseas, a number of business institutions never stop to tailor their products and services to suit Ghanaians living abroad. One of such institutions is the banking sector. Most banks in Ghana already provide accounts in foreign denominated currencies in the form of foreign bank accounts. Beyond foreign accounts, selected number of Ghanaian banks provides ‘specialised’ bank accounts, a sort of expat banking, solely for Ghanaians living abroad. These accounts, often referred to as non-resident accounts, aim to provide banking services geared towards Ghanaian expatriates elsewhere. In other words, the non-resident accounts provide options for non-resident Ghanaians (living outside the country) to have access to banking services back home, while overseas. You may be staying and working in the Europe, Asia, in the Middle East or even in other parts of Africa. You may also be residing in the United States, thinking of opening and managing a bank account back home while you’re not in Ghana. If you’re in this category of people, you may consider opening a non-resident account.

Non-resident accounts: How they differ from ‘traditional’ bank accounts

Before one switches from one option to another, he usually expects something different, something better, or something peculiar to the newly proposed option. Undoubtedly, many Ghanaians who travel abroad usually have their traditional bank accounts still active before leaving. If you belong to this group and would like to know how different the non-resident accounts are from the ‘traditional’ ones, you may find it useful to go through the list below:

  1. Usually, the ‘traditional’ bank accounts (both Current and Savings) become inactive after long period of inactivity (no transactions) on the part of the account holder. Most banks, to some extent, ‘freeze’ accounts which have not been actively used by clients for a while. For example, Ecobank Ghana Ltd. temporarily freezes (suspends) accounts held with them, if inactive for six months. Imagine travelling back home (after a long stay overseas) and been told by your bank that you cannot withdraw money from your account because it’s suspended. Even though suspended accounts can be reactivated, the frustrations you go through coupled with the time involved do not make it convenient. Non-resident accounts, on the other hand, may save you from such instances of account freeze. Since the banks know your present non-residential status, most do therefore not impose suspension on non-resident accounts.
  1. Some of the banks promise dedicated relationship officer for clients (Ghanaian expats) of non-resident accounts.
  2. Other general benefits include free electronic banking services (internet banking, transaction E-alerts, E-statements etc.) and no monthly service (maintenance) charges.

 Non-resident accounts: Opening and managing accounts from overseas

Non-resident accounts can be opened through electronic means at most banks. These banks provide electronic copies of account opening forms on their websites. The forms can be downloaded, completed, scanned and emailed (together with a scanned
copy of your Passport) to the official email addresses provided on their websites. Your bank account details, which consist of account
number and branch name, would then be emailed to you.

The banks further provide various electronic means to allow clients in the diaspora make deposits in their accounts back home. Money transfers are mostly done by Telex process, usually SWIFT wire transfer. Every bank has a unique SWIFT code which permits it to receive funds from overseas. Certain banks (for example Unibank) even allow money transfer services through their affiliated money transfer companies such as Small World/Choice Money Transfer and Xpress Money.

With electronic banking services such as internet banking, non-resident Ghanaians can make almost all transactions while abroad. Besides, clients can further send requests and authorise their banks (via email communications) with signed authorisation letters for most bank transactions.




List of banks providing non-resident accounts for Ghanaians

In the table below, you will find a list of banks that provide the services of non-resident accounts for Ghanaians living abroad. In addition, a summary of benefits and features related to the accounts are given.

 
Bank
Name of non-resident account
Benefits & Features
1 ADB bank ADB Home-link account Available for Ghanaian citizens working abroad as well as their spouses who are not necessarily Ghanaian citizens; Allows a range of online or electronic transactions; Option of investing outstanding balance in fixed deposits/Treasury bills
2 GN Bank

 

GN Bank Diaspora Account Access to banking relationship in Ghana whilst abroad; Have funds in your account available in Cedis, Instant notifications on transactions.

 

3 Fidelity Bank Fidelity Bank Non-Resident Ghanaian Account Inflows at the discretion of clients; Account can be denominated in Cedi, Euro, US Dollar or Pound Sterling; No monthly service charges; Access to E-banking products; Access to Safe Deposit Boxes

 

4 United Bank for Africa UBA Non Resident Ghanaian Account Ability to operate your account from your foreign base; Ability to issue instructions to the bank virtually; Gain interest on your savings; Access flexible loans for your projects at home

 

5 Unibank Ghana Unibank Efie ne Fie Account Two types of accounts offered- Cedi and foreign currency denominated accounts; No transaction fees; dedicated relationship manager to assist client in managing his/her account; Free electronic banking services; Access to preferential investment rates
6 Prudential bank Prudential bank Home Base Account

 

Two types of accounts- personal savings account and time deposit investment account; Interest rate on savings account is linked to the Bank of Ghana policy rate (savings up to GHS 5,000 attract interest rate of [BOG policy rate – 8] %, savings above GHS 5,000 attract interest rate of [BOG policy rate – 6.5] %. Interest rate of time deposit investment account is linked to Treasury bill rate.
7 National Investment Bank National Investment Bank Home Bound Account

Designed for Ghanaians living in the United Kingdom; Cedi-denominated account, with the option of opening foreign currency account under the same dispensation.




Investment diversification: Smart means to diversify your assets

investment diversification

Diversification can be considered as a major important aspect of personal finance and investment. Even though it has received some criticisms from a few noted investors and financial analysts, the positive outcomes of it is still emphasised globally. This has therefore drawn the interest of many personal finance writers and bloggers to include diversification in their topics list. Diversification has similarly been mentioned in a number of write-ups on sikasem.org. In the post about Treasury bill vs. mutual fund, the importance of diversification and how mutual funds offer diversification opportunity was highlighted. The significance of diversification has also been covered in the following posts:

4 DUMB financial decisions I had made in the past

What is the ‘best’ investment product in Ghana?

Wealth tracking: Manage your wealth with Spf wealthTrack

Diversification approach

With the availability of abundant information and varying perceptions, following an effective and practical diversification approach can be challenging. Nevertheless, all diversification methods intend to reduce investment risks and volatilities by investing in a variety of assets classes or categories. At least, reducing investment risk, to some extent, can give you some peace of mind

Determining your assets mix

The main concept behind assets mix is that the growth of different assets categories can progress independently in different directions. For example, the growth of stocks is usually based on the prospects of companies. On the other hand, Treasury bills and bonds are mostly affected by prevailing interest rates. In a way, you hold different kinds of assets whose values neither grow nor fall at the same time. Thus, when stocks perform poorly, one may be cushioned by Treasury bills or bonds. The list of assets categories can be many. The common ones are stocks, mutual funds (equity, balanced, money market), Treasury bills, fixed deposits, bonds, savings accounts, cash, commodities, real estates (properties) and businesses.

 What is a good mix?

Arguably, there is no ideal formula when it comes to assets mix in diversification. How one chooses and mixes his assets ultimately depends on factors such as his financial goal, financial situation, age and level of risk he can cope with. Your financial goal could be building long-term wealth or an alternate retirement fund. With such a goal, your assets mix would be inclined towards long-term assets such as stocks and equity [mutual] funds. In other words, you would require an asset mix made up of a high percentage of long-term investment products.  On the other hand, if your goal is to create a source of regular income for the immediate to medium term, you may find it useful to have a mix comprising greater percentage of fixed income products. While focusing on your financial goals, you also consider how much risk you’re prepared to take to achieve those goals. For instance, if you’re the type who easily panics after losing some investments, then you may not be in the right position to allocate greater portion of your assets to risky investment products.

It is also noteworthy to consider mixing assets within the same category. That is, you don’t only diversify across different assets categories but also within the same category. In doing so, you diversify within stocks category by investing in different stocks on the market. This must also cover different industrial sectors such as banking stocks, manufacturing stocks and insurance stocks. Considering foreign stocks, beyond just the Ghana Stock Exchange could even be more helpful. This is because different markets don’t normally grow in the same direction. When Ghana Stock Exchange performs poorly, Johannesburg stock market may be performing better. The easiest way to invest in foreign stocks is to purchase equity funds that invest beyond the GSE. A typical example is Databank Epack fund as well as SEM All-Africa fund.

In addition, you diversify within fixed income securities by purchasing T-bills, bonds and probably fixed deposits. Similarly, you diversify within mutual funds by investing in equity funds, balanced funds and money market funds. You may even consider other alternative investments such as gold and antiques if you have the means.

Rebalancing your assets mix

As your assets keep growing, the original mix may become distorted due to the different growth rates of the different assets categories. Furthermore, your investment goal may change at any point in time. Thus, it would be necessary to regularly monitor and rebalance your assets mix. Stay abreast with current market updates and make use of the information to help rebalance your assets. The use of Spf wealthTrack can also guide you to know which assets categories require adjustments.



Avoiding over diversification

As earlier stated, a few seasoned investors have had their criticisms on diversification. For example, Warren Buffett, an American business magnate and investor, made a remark concerning people’s obsession about investment diversification. He argued:

Wide diversification is only required when investors do not understand what they are doing.”

Deducing from the above statement, Warren Buffett does not entirely consider diversification as a bad practice. Rather, his concern centres on over diversification and the notion that diversification is the ‘Messiah’ of investment growth. Yes, too much of everything can be bad too. In fact, over diversification can even hold you back from potential earnings. For instance, anyone who might be precisely utilising the GSE Composite Index (used to track all stocks on the exchange) for his diversification approach may not be making more returns as the one who rather focus on a few profitable stocks on the market. This is because even though the stock market records negative returns in some financial years, a few individual stocks make huge gains in the same financial years.

It may similarly be needless to invest in numerous mutual funds in the name of diversification. Don’t forget that the investment strategies of most collective investment schemes in Ghana follow similar patterns. At least, a look at our previous post on foundational stocks can give you a clue. Selecting a few good schemes based on past fund performance and reputation of fund managers can be a good way to go. Essentially, get to know your mutual funds so as to have a vivid picture of what they invest in. In that way, you avoid stashing your money in repeated portfolios.

To conclude, diversification of investment can be very useful in reducing one’s exposure to market volatilities and other investment risks. However, it must not be like spreading your tentacles everywhere with no focus. The main point is to focus on a few and manageable number of assets in different categories while considering your financial goals.

Rates on mutual funds decline due to market losses

mutual funds decline

The poor performance of the stock market seems to be having negative effects on the returns of mutual funds. Until the 6th of September 2017, major mutual funds in the country had been riding on the Ghana Stock Exchange for their continuous gains. This increasing trend ceased to continue following the recent drop in share prices on the stock market. The year-to-date return of the Ghana Stock Exchange, which peaked at 45.53% on 6th September 2017, continuously dropped to 35.67 as of 22nd September 2017. Due to this downward trend, rates on mutual funds decline in response. Major equity and balanced funds have since registered some losses.

The year-to-date return of Databank Epack, for example, has dropped from 35.32% (recorded on 6th September 2017) to 29.37% as of 22nd September 2017. In the same period, Databank’s Bfund dropped from 31.50% to 28.37%. Similarly, SAS Fortune fund (an equity fund managed by Strategic African Securities) declined from 41.20% as of 5th September 2017 to 37.15% on 22nd September 2017.

Other investment funds experiencing decline in their rates include FirstBanc Heritage fund, HFC Equity Trust and Gold Fund Unit Trust. The rate on FirstBanc Heritage fund has slightly declined from 34.89% as of 4th September 2017 to 32.68% on the 22nd of September 2017. Rate on HFC Equity Trust also declined from 26.89% as of 7th September 2017 to 23.72% on 22nd September 2017. Finally, rate on Gold Fund Unit Trust dropped from 34.56% (recorded on 4th September 2017) to 33.60% as of 20th September 2017.


Wealth tracking: Manage your wealth with Spf wealthTrack

wealth tracking _sikasem.org

Wealth tracking and monitoring can be very useful in reviewing your financial situation and determining how successful you are at growing your wealth. By tracking and updating the performance of your investments on a regular basis, you can be able to estimate the stage or status of your financial independence. Over time, you will notice the gradual growth of your wealth. Watching the steady growth of your wealth alone can be motivating. Even if this growth is observed to be in the negative direction, it could still guide you to make the necessary corrections in your financial planning. Wealth tracking can therefore make you accountable and responsible in your investment decisions. In addition, tracking your wealth makes you take control of whatever you own. At a particular stage in life, your assets may be broadly spread out especially if you take particular attention to investment diversification. During this stage, wealth tracking remains a practical option to keep proper inventory of the numerous assets.

About Spf wealthTrack

Spf wealthTrack is a Spreadsheet template simply designed for wealth tracking. It can be used to track various asset categories and compute some metrics related to one’s wealth. Spf wealthTrack can be edited to suit the needs of different individuals. Due to the frequent ups and downs on the market (which reflects on personal investments), it may be appropriate to update the Spreadsheet less frequently, at least every month. Basically, Spf wealthTrack comprise of two main parts- assets’ columns and metrics’ columns. Data in the assets’ columns are to be manually entered by the user. The input data are then computed in the metrics’ columns to yield useful information for decision making. For easy identification and differentiation, all data that are manually entered by a user are colour-coded BLACK (with exception of liabilities which is coloured in RED). On the other hand, data that are computed by the software are colour-coded GREEN.

Spf wealthTrack is available on our downloads page. Click on this link to download.

Assets’ columns of Spf WealthTrack

The assets’ columns cover the various asset categories (and liabilities) usually owned by an investor. These are, but not limited to, fixed deposits, Treasury bills, mutual funds, stocks, bank accounts (Savings and Current), cash, and real estate. Asset could also be the value of one’s business or any venture with earning potential. Liabilities include loans, credit card debts, pending taxes, pending insurance premium payments, pending rentals to your landlord, etc. Different liabilities can be add up and entered as a whole in the liability column.

Figure 1: A snapshot displaying assets’ columns of Spf wealthTrack

As noticed from Figure 1, various asset categories are already listed. However, the names of these assets can be edited to suit the needs of the user. For example, instead of Stock 1, Stock 2, Stock 3, etc., the user may rename them as GCB stock, CAL stock, GOIL stock, etc. Similarly, a user may edit rental property 1 and rental property 2 as Kasoa land, Adenta store, etc.

In wealth tracking, what really counts as an asset can sometimes be debatable. For instance, while many consider their personal belongings such as wardrobes, electronics, etc. in their assets list, I personally don’t support this idea due to their depreciating nature. That is, the values of such possessions keep decreasing over time instead of growing. Besides, it would not be in one’s interest to sell and generate money from his personal belongings. On the other hand, some personal belongings (such as personal car) can however be so valuable that it makes sense to include in one’s assets, in particular if it forms a major percentage of the person’s valuable list.

The issue of whether personal property (primary residence) can be classified as an asset or not is similarly arguable. We usually spend money to maintain our primary residence without earning  cash from it. It should be noted that primary residence or any form of personal residence can only generate cash when turned into rental property or sold out. If you don’t intend to sell your personal residence, why would you then list it as an asset? As you may agree, many would prefer not to sell (liquidate) their primary residence. Nevertheless, in a dire situation, one may be forced to sell it for survival. The computed total assets in Spf wealthTrack is therefore categorised into two- The first computation (TOTAL ASSETS) exclude the value of primary residence while the second computation, (ASSETS, BANKER’S VIEW) adds up the value of primary residence.

Metrics’ columns of Spf WealthTrack

The metrics’ columns consist of total assets, net worth, month-on-month gain, and various portfolio percentages.

wealth tracking _sikasem.org
Figure 2: A snapshot showing metrics’ columns of Spf wealthTrack

The net worth computation in column W (see Figure 2 above) excludes primary residence while that of column X (bankers’ view) considers primary residence.

The month-on-month gain (or loss), as shown in column Y refers to the net worth increment between the current and the previous month. This can be positive or negative depending on the overall performance of your assets. The portfolio % refers to how the net worth is distributed over the various assets categories. The portfolio percentages can guide you to rebalance your assets to suit your financial goals. For example, in the snapshot above (Figure 2), real estate contributes to at least 91% of the investor’s net worth. The investor may therefore decide to increase his investment in other asset categories such as fixed income or equity mutual fund in order to reduce his exposure in real estate.