Performance comparison of mutual funds in Ghana

mutual funds performance

Why mutual funds?

Many reasons can be assigned to why people choose mutual funds over other investment instruments. First, most mutual funds are affordable in the sense that individual investors can start with fewer amounts. 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 sit back, trusting these professionals to deliver good results. In addition, mutual funds are more liquid (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. 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. Each fund has its 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

Past performance of mutual funds

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 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 mutual funds have available data for the years under review, we rather compare their average performance for the past four (4) years where all data is available. 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 4-Year Average
Equity Funds
Databank Epack 51 -3.68 -5.11 33.36 -12.21 17.37 83.95 39.58 0.65 35.39
HFC Equity Trust -19.94 25.12 2.85 0.11 70.43 8.23 14.49 23.32
FirstBanc Heritage Fund *20.90 58.06 12.39 4.23 24.89
SAS Fortune Fund  23.03  42.54  -22.78 52.06 -6.68 21.21 89.2 14.4 -0.71 31.03
GSE return (Benchmark) 31.21 58.16 -46.58 32.25 -3.1 23.81 78.81 5.4 -11.77   24.06
 2007  2008 2009   2010  2011  2012  2013  2014  2015  4-Year Average
Money Market Funds
Databank Mfund 11.99 18 28.06 17.23 12.18 14.81 22.11 26.31 21.94 21.29
HFC Unit Trust 12.75 18.7 23.5 12.49 11.24 13.24 23.07 22.38 25.76 21.11
FirstBanc Firstfund 19.87 20.26 32.73 34.58 37.38 37.86 35.64
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   21.86
 2007 2008  2009  2010   2011  2012  2013  2014  2015  4-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 24.86
Databank Bfund 18.11 -4.61 37.71 7.33 16.79 53.89 16.31 13.08 25.02
HFC Future Plan Trust *10.42 40.21 2.88 18.19 31.37 12.14 19.86 20.39
NTHC Horizon Fund 0 25 -8 24.88 10.38 25.17 35.16 11.42 5.43 19.30
GSE return (Benchmark) 31.21 58.16 -46.58 32.25 -3.1 23.81 78.81 5.4 -11.77   24.06
 2007 2008   2009  2010  2011  2012  2013  2014  2015  4-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 23.44

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 these data?

Equity funds

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

For instance,

  1. Out of the 9 years under review, Databank’s Epack performed better than the GSE in 6 years.
  2. HFC equity trust also exceeded the GSE benchmark in 4 out of 7 years.
  3. Similarly, SAS Fortune fund exceeded the GSE benchmark in 4 out of 6 years.

In terms of average performance for the past 4 years (2012-2015), Databank‘s Epack performed much better than all equity funds under review. It posted an average return of 35.39% against the GSE benchmark of 24.06%. 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 4-year average return of 31.03%. It should also be noted that the calculated returns on most equity 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 4-year average of 35.64% against the average Treasury bill benchmark of 21.86%. It is not surprising that it has consistently won ‘best performing money market fund’ for five consecutive years. As to how they do their magic, we will try to find out later. Apart from Firstfund, none of the 4-year average returns of the other funds exceeded the 4-year Treasury bill average. Nevertheless, returns for the individual years generally exceeded their Treasury bill counterparts. For instance,

  1. Databank’s Mfund exceeded the Treasury bill benchmark in 7 out of 9 years.
  2. HFC Unit Trust exceeded the Treasury bill benchmark in 5 out of 9 years.
  3. 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 four years, EDC Balanced Fund, Databank Bfund and Databank Arkfund have averagely performed better than the GSE. However, the 4-year average returns of HFC Future Plan Trust and NTHC Horizon Fund were lower than that of 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 5 out of 7 years.
  3. Databank Bfund exceeded the GSE benchmark in 5 out of 8 years.
  4. HFC Future Plan Trust exceeded the GSE benchmark in 5 out of 7 years.
  5. NTHC Horizon Fund exceeded the GSE benchmark in 5 out of 9 years.

Real estate funds

HFC real estate investment trust, the sole real estate mutual fund in Ghana, posted a 4-year average return of 23.44% as well as a 9-year average return of 22.8%.

 

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