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, especially when it comes to mutual funds vs. stocks. 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  27.3 22.18
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  10.35 21.53
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. EDC fixed income follows with a 5-year average return of 22.18%. Apart from HFC Unit Trust, the 5-year average returns of the other funds exceeded the 5-year Treasury bill average. Also, returns for the individual years of most funds 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 4 out of 5 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 4 out of 6 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%.




Get to know your mutual funds: HFC Equity Trust

HFC equity trust

HFC equity trust was established in July 2004 by HFC Bank (Ghana) Limited. The fund is managed by HFC Investment Services Limited, a subsidiary of HFC bank. Just like most other funds, HFC equity trust is an open-ended investment scheme with a long-term investment goal. Started with an initial capital of about GH¢700,000 in 2004, the fund’s value currently stands at GH¢5.32milion as of the end of 2016.

Nature and investment strategy of HFC equity trust

Due to its long-term investment objective, HFC equity trust invest most of its portfolio in stocks on the Ghanaian market. Part of its portfolio is however invested in fixed income instruments to enhance liquidity of the fund. According to the portfolio composition displayed on its website, the fund mainly invest in 70-80% equities, 5-10% money market, 10-15% other schemes and 5% as cash in the bank. This composition however varies depending on the prevailing conditions of the economy, in particular, whenever there is a dramatic change in the performance of the exchange. In fact, there have been occasions when investment in equities was remarkably reduced to favour that of the fixed income instruments. Typical examples were the 2015 and 2016 financial years. At the end of 2015, equity portion of the fund constituted 31.30% (a reduction from 63.38% in 2014) while fixed income instruments formed a whopping 62.66%. Of the 62.66% fixed income allocation, corporate bonds constituted 17.05% while investment in other short-term instruments made up 45.61%. Likewise, in 2016, the fund’s assets portfolio was skewed in favour of the money and fixed income market. The fund’s portfolio allocation, during this period, was 23.18% equities, 54.42% money market instruments and 14.42% corporate bonds (Refer to the pie chart below).

HFC Equity Trust portfolio mix 2016
Portfolio allocation of HFC equity trust as of 31st December 2016. Source: HFC equity trust 2016 annual report




According to the fund’s 2016 annual report, HFC equity trust invested in 16 out of the about 40 companies listed on the GSE. This was a reduction from the 21 listed stocks it had previously invested in 2015. Some of the fund’s top equity holdings in the same period (2016) were GCB Bank Limited (GCB), Ghana Oil Company Limited (GOIL), Total Petroleum Ghana Limited (TOTAL), Enterprise Group Limited (EGH) and Fan Milk Limited (FML). This was not much different from its top equity holdings in the preceding year. At the end of 2015, the fund’s top five equities were GCB (constituting 5.59% of the fund’s value), GOIL (4.14%), TOTAL (3.85%), EGH (3.79%) and ETI (2.94%).

Performance of HFC equity trust

The price of HFC equity trust is updated by the fund manager on a regular basis, usually after each business day. The price of the fund reflects its net asset value which in turn depends on the performance of its portfolio on the market (For current prices of HFC equity trust and other mutual funds, click on this link). At the end of each financial year, the annual return of the fund is similarly published. In the past decade (since 2005), HFC equity trust’s best performance has been 70.43%, recorded in 2013. On the other hand, its worst performance in the same period is -21.25%, which was recorded in 2005. As noted earlier, HFC equity trust alters its investment mix (in favour of fixed income instruments) whenever the equity market performs poorly. This, in some way, cushions the fund from the effects of huge market losses. For example, when HFC equity trust reduced its equity portfolio to 31.3% in 2015, it recorded an annual return of 14.49% even though the GSE lost by -11.77%. Similarly in 2016, HFC equity trust recorded 7.35% as against GSE return of -15.33%. The fund, by then, had as low as 23.18% of its portfolio in stocks. The table below shows the annual performance trend of HFC equity trust since 2005, compared with GSE returns over the same period. For performance comparison of HFC equity trust and other investment funds, refer to this link.

Performance trend of HFC equity trust
Year HFC equity trust return, % GSE return, %
2005 -21.25 -29.72
2006 12.46 5.21
2007 34.19 31.21
2008 38.89 58.16
2009 -19.94 -46.58
2010 25.12 32.25
2011 2.85 -3.1
2012 0.11 23.81
2013 70.43 78.81
2014 8.23 5.4
2015 14.49 -11.77
2016 7.35 -15.33

(Credit: Compilation of HFC equity annual returns was partly contributed by ARG)

HFC equity trust’s awards

HFC equity trust is recognised for the following awards:

·         Equity fund of the year, 2013 (Ghana Investment Awards)

·         Portfolio manager of the year, 2013- Genevieve Abban, HFC equity trust’s portfolio manager (Ghana Investment Awards)

Investing in HFC equity trust

HFC equity trust is opened to both individuals and groups. Prospective clients can contact the fund manager, HFC Investment Services Limited, through the various HFC bank branches across the country. Opening an HFC equity trust account attracts no charges. However, withdrawals made before one year attract a fee of 2.5%. For details on investment fees and commissions, refer to this link.