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%.

 



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.



Could these listed companies be classified as foundational stocks?

If you have keenly been following the series on ‘get to know your mutual funds’, you would realise that in each post, the top 5 equity holdings of the fund’s portfolio are highlighted. Interestingly, of the few mutual funds covered so far, there appears to be much similarity in their various top 5 equity holdings. In other words, most of the mutual funds list similar companies as their top 5 equities. Out of curiosity, other mutual funds were also looked into to find out if the similarity trend would remain unchanged. To achieve this, some of the most recent annual reports (where available) of major mutual funds were examined. In all, 19 annual reports were studied, which covered 7 different mutual funds (both equity and balanced funds). The main purpose was to figure out if the topmost equities repeating more frequently in the various mutual funds could be considered as foundational stocks. In doing so, these stocks could become a sort of principal, key or foremost stock picks for investment portfolios. Many would agree, to some extent, that mutual funds are managed professionally by fund managers. Hence, following in the footsteps of these fund managers by replicating some of their top stock picks can be useful.

Why foundational stocks?

Investing in stocks is one of the most proven means to build wealth. However, picking the right stocks from the market can be challenging, especially for the novice investor. One requires a good portfolio mix comprising the right stocks in order to be successful. Just like building a house requires strong foundation to ensure its robustness, building wealth with stocks may equally require careful selection of stocks, in particular, starting with good foundational stocks. A poor foundation can cause your building to tremble or worse, topple down, so do poor foundational stocks can cause to your investment portfolio. Arguably, maintaining strong foundational stocks in your investment portfolio comes with some benefits such as good investment returns. Moreover, strong foundational stocks can somehow protect an investor from the impacts of market falls.

Summary procedure for selecting foundational stocks

As stated earlier, the top 5 equity holdings of seven (7) different mutual funds were compared. The mutual funds were Databank Epack, Databank Bfund, SAS Fortune Fund, HFC Equity trust, HFC Future Plan, CDH Balanced Fund and FirstBanc Heritage Fund. To ensure the use of up-to-date data for decision making, data covering the latest three years (2016, 2015 and 2014) were utilised. The topmost equities frequently appearing in the various mutual funds were preliminary grouped, followed by brief background study of their performances. The table below provides comparison between the top 5 equity holdings of the seven different mutual funds. For detailed (raw) data of the top equity holdings compilation, click on this link: Top five equity holdings of selected mutual funds.

 

Table 1: Comparison of top 5 equity holdings of selected mutual funds

 

Mutual fund

Top 5 Ghanaian equity holdings

2016

2015

2014

1 Databank Epack EGL, FML, GCB, SCB, MAC EGL, FML, GCB, SCB, TOTAL EGL, FML, GCB, SCB, SOGEGH
2 Databank Bfund EGL, FML, GCB, SCB, GOIL EGL, FML, GCB, SCB, GOIL EGL, EGH, GCB, SCB, TOTAL
3 SAS Fortune Fund EGL, FML, GCB, SCB, GOIL EGH, FML, GCB, SCB, GOIL EGH, FML, GCB, SCB, GOIL
4 HFC Equity Trust EGH, FML, GCB, TOTAL, GOIL EGH, ETI, GCB, TOTAL, GOIL EGH, HFC, GCB, EGL, TOTAL
5 HFC Future Plan EGL, FML, GCB, SCB, GOIL EGL, ETI, TOTAL, SCB, GOIL EGH, HFC, GCB, SCB, CAL
6 *CDH Balanced Fund CAL, FML, GCB CAL, FML, GCB Fund was not yet established
7 FirstBanC Heritage Fund Annual report not available EGL, EGH, GCB, SCB, SOGEGH EGL, SOGEGH, GCB, TOTAL, GOIL

*CDH invested in only three (3) stocks.

Observations and analysis

From the table above, GCB bank Ltd. (GCB) occurs 18 times out of the 19 studied annual reports. This is followed by Standard Chartered Bank (GH) Ltd. (SCB) which can be counted 13 times out of the 19 annual reports. The rest, in descending order, are Fan Milk Limited (FML), 12 times; Enterprise Group Limited (EGL), 12 times; Ghana Oil Company Limited (GOIL), 10 times; Ecobank Ghana Limited (EGH), 8 times; Total Petroleum Ghana Limited (TOTAL), 7 times; Societe Generale Ghana Limited (SOGEGH), 3 times. CAL Bank Limited (CAL), 3 times; Ecobank Transnational Incorporated (ETI), 2 times; HFC Bank (Ghana) Limited (HFC), 2 times; Mega African Capital Limited (MAC), once.

In total, 12 different stocks could be found in the top five equity holdings of the mutual funds. However, considering the comparatively low occurrences of SOGEGH, CAL, ETI, HFC and MAC, they were delisted, leaving the rest of the seven stocks as the preliminary group for further studies.

 

Table 2: Preliminary group of foundational stocks

Stock Number of occurrences in top 5 holdings
GCB 18
SCB 13
FML 12
EGL 12
GOIL 10
EGH 8
TOTAL 7

To study further on the above stocks, their historical performance trends were looked into. Simply, two main performance indices were examined- annual returns and dividend yields. It must be noted that stocks with fairly good returns can be indication of investors’ confidence in the companies. Furthermore, while dividend pay-outs provide regular income source, they also signal financial stability of companies. The latest 5-year annual returns and dividend yields of the stocks can be seen in the tables below.

Table 3: Latest 5-year performance results

Company Trading symbol Return, %
2012 2013 2014 2015 2016  Average
1 Enterprise Group Limited EGL 26.3 291.7 -6.9 37.1 0 69.6
2 Fan Milk Limited FML 50.4 86.5 -20.7 40 51.7 41.6
3 Ghana Oil Company Limited GOIL 93.8 43.5 19.1 33.3 -21.4 33.7
4 GCB Bank Limited GCB 13.5 131 13.4 -34.9 -6.1 23.4
5 Ecobank Ghana Limited EGH -6.3 87 35.5 7.6 -8.6 20
6 Standard Chartered Bank (GH) Ltd. SCB -74.7 29.9 36.2 -19.9 -25.2 -10.7
7 Total Petroleum Ghana Limited TOTAL 18.5 N/A 20.6 -16.4 -61.2 -9.6
GSE all-share-index 23.81 78.81 5.4 -11.77 -15.33 16.18

 

Table 4: Latest 5-year dividend yield

Company Trading symbol Dividend yield, %
2012 2013 2014 2015 2016 Average
1 Enterprise Group Limited EGL 3.33 0.00 1.43 1.04 2.1 1.58
2 Fan Milk Limited FML 1.13 0.00 1.71 0.00 1.4 0.85
3 Ghana Oil Company Limited GOIL 2.26 1.61 1.52 0.00 1.8 1.44
4 GCB Bank Limited GCB 3.33 2.94 3.96 8.44 8.7 5.47
5 Ecobank Ghana Limited EGH 8 5.18 5.66 11.27 12 8.42
6 Standard Chartered Bank (GH) Ltd. SCB 26.52 3.14 5.65 0.00 2.3 7.52
7 Total Petroleum Ghana Limited TOTAL 2.81 13.72 1.61 2.25 2.3 4.54

In terms of annual performance, with the exception of Standard Chartered Bank (SCB) and Total Petroleum Ghana Ltd. (TOTAL), the rest of the stocks show impressive positive results. Moreover, their average returns exceed that of the GSE (all-share index) in the same period. Enterprise group limited (EGL) beats the GSE index in 4 out of 5 years. Fan Milk and GCB similarly perform better than the market index in 4 out of 5 years while Ecobank and GOIL both exceed the index in 3 out of 5 years.

For dividend yields, Ecobank Ghana and Standard Chartered Bank lead with impressive average yields of 8.42% and 7.52% respectively.

It may also interest you that five of these stocks had even been commended in an earlier article recently. In the article by Kofi Busia Kyei (a financial analyst), EGL, EGH, FML, GOIL, and GCB were highlighted together with UNIL and BOPP as the few listed stocks that had offered great returns to investors in the past 10 years (Refer to the chart below).

foundational stocks _performance
Figure 1: 10-year return of selected stocks on the GSE Credit: Kofi Busia Kyei (a financial analyst)

Even though the performance trend of SCB doesn’t look so good, the high extent of its occurrence in the top five holdings of the various mutual funds may be due to positive future projections. The fund managers may have realised from their analysis, good earning or growth expectations of SCB, thus chasing its shares. Don’t forget that SCB is one of the few stocks that have recorded impressive returns in the current year so far. In fact, since the beginning of the year, its share price has appreciated by 115.52% as of 8th August 2017. Hence, considering it in our foundational stocks can be worth it. Unfortunately, because of the comparative low performance of TOTAL, in addition to its least number of occurrences in the top five holdings of the funds, delisting it from the group may be helpful for now. As a result, GCB, SCB, FML, EGL, GOIL and EGH can be finally listed as our proposed foundational stocks- six foundational stocks made up of three banking stocks, one insurance stock, one manufacturing stock and one petroleum stock (see Figure 2 below).

Foundational stocks
Figure 2: Proposed foundational stocks comprising six listed companies

Conclusion

The similarities between top 5 equity holdings of various mutual funds gave rise to this write-up. Through comparison and further background studies, six listed companies have been proposed as foundational stocks. These can be useful to investors in building their stock portfolios.

If you’re a new investor deciding on buying stocks from the exchange, you can think of starting with at least, one of these companies. Furthermore, investors who are already trading in stocks may also consider rebalancing their existing portfolio and perhaps buy more of these particular stocks.

Finally, if you’re yet to own shares of these stocks, my personal advice is to begin moderately with the ones that have already attained high appreciation in their share prices. For instance, the year-to-date returns of GOIL and SCB are currently 108.18% and 115.52% respectively, as of 8th August 2017. Even though they still have the potential to continue with their gains, the potential to fall is also inevitable due to the high prices already achieved.