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%.

 



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.


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.



To what extent do you trust your investment brokers?

investment brokers _trust

There are various services generally provided by investment brokers in Ghana. Out of these offered services, the common ones are trading of stocks on clients’ behalf, management of investment funds, and investment advisory services. Investment brokers’ role in the financial sector can therefore not be understated. Nevertheless, as humans as they are, they equally make mistakes. These mistakes range from petty ones such as carelessness to critical ones that can result in devastative effects on clients’ investments. Hence, as investors, it is essential to be alert and be aware of the extent to which our investment brokers can be trusted. It is always important to ensure that our investment brokers (and advisors) really have our interests at heart. This can be attained by paying attention to typical attributes such as honesty and transparency, competency, reputation and track record.

Investment brokers are expected to be honest and transparent without withholding vital information from their clients. Information such as clear fee structure, performance updates, financial statements and reports should be readily available to clients to make informed decisions. Getting regular feedback from your brokers should not be too complicated. Certainly, investment brokers must keep their clients in the loop and present them with the available lucrative [investment] options for decision making. However, it is unfortunate that the nature of their job, these days, appears like that of salespersons- They tend to be primarily concerned about revenue generation for their financial institutions (employers). Investment brokers seem to rather focus on the promotion and marketing of their investment products. Of course, the more they sell their investment products, the more revenue they make through management fees and other commissions. After all, what commission or management fee would NTHC brokerage make if it endorses FirstBanc Heritage fund instead of NTHC Horizon fund? Similarly, you don’t expect Databank financial services to recommend SAS Fortune fund to its clients while they have their own [Epack] investment fund. In much the same way, it would be unheard of if SAS Investment Management recommend Epack mutual fund for their prospective clients even if Epack overwhelmingly performs better than other funds. Clearly, investment brokers and their financial institutions favour their own products which may put their credibility to test.




The reputation and track record of brokers must also be carefully examined when trust is concerned. A little background check and public perception can serve as useful starting point. How long has the institution or individual operated as a broker and how has their past performance looked like? Although historical performance may not guarantee future prospects, they still serve as useful measures when dealing with brokers. Undoubtedly, there exist a few good brokers who have not operated in the industry for so long. Nothing therefore prevents investors to give them a try. However, it is important to do so in a cautious approach. For instance, one may start dealing with new investment brokers by testing their services on a small scale. That is, by initially investing smaller amounts with them and increasing their investment in a gradual manner as they keep building trust. It’s like taking a bath with hot water of unknown temperature. You don’t pour the hot water on yourself right away. You cautiously test it, probably by dipping your finger slightly in it. A key factor of equal consideration, while looking at investment brokers’ reputation, is whether they are licensed or not. You have worked hard for your money and surely deserve to keep it safe from fraudsters. It is worth to note that the potential for fraud lessens when dealing with licensed brokers. The Ghana Stock Exchange provide details of all licensed brokers where you can do some background check on their date of incorporation, key personalities etc. The Security and Exchange Commission (SEC) similarly publish names of licensed mutual funds.

Furthermore, it is essential for existing clients to pay attention to details such as data accuracies in their transactions. A couple of weeks ago, I happened to bump into the Facebook page of an investment management firm. While going through people’s comments and reviews, I came across one that specifically advised colleagues to regularly check on their accounts to ensure accurate details. The person was commenting on grounds that some deposits he made some time ago did not reflect in his account until he followed up with the investment firm. In fact, I couldn’t stop grinning after going through his review. This is because I have particularly witnessed, on some occasions, similar errors made by my investment broker. On two separate occasions, they misplaced my purchasing order form for stocks. Realising unusual delay in the purchasing of stocks I had requested for, I had to follow up. Surprisingly, they couldn’t locate my completed forms so I had to pick another form and start over. This definitely led to further delay in the stocks purchase. On another occasion, they mistakenly purchased a different company’s stock instead of the one I had ordered for. There was this day too when a deposit I made into my equity fund account rather ended up in my money market fund account (managed by the same broker). Imagine if this had found its way in a third party’s account. I also recall one painful experience whereby an investment firm issued me a closed account number for telex (electronic) transfer.

As you can see, such carelessness and poor data records may translate into grave consequences in the management of clients’ investment. If they could lose my purchase order forms, mistakenly purchase a different company’s stock instead of the one I requested for, issue me a deactivated account number for telex transfer, what is the guarantee that they cannot commit similar critical mistakes in the management of our funds. Mind you, this was even one of the oldest and respectable brokerage firms in the country. How much more the ‘baby-toothed’ ones?

The bottom line is that, investment brokers and advisors can be professionals as far as investment services are concerned. However, instead of sitting back and leaving everything in their hands, you can play an active role to ensure that your investment stay on track. In other words, never leave your investment on autopilot, trusting the experts to always do things right. In addition, avoid falling prey to brokers’ personal interests. Personally take interest to access and compare investment options of different firms and then choose the ones that align with your interests. Finally, you should periodically monitor your investment transactions and balances. If you don’t have access to online services, you may request or physically go to their offices for your account statements on a regular basis.



Get to know your mutual funds: SAS Fortune fund

SAS fortune fund

Our first post on the ‘Get to know your mutual funds’ series started with Epack investment fund, where we highlighted aspects such as the nature, investment strategy and performance of the fund. To continue the series, let’s have a look at SAS Fortune fund. Continue reading “Get to know your mutual funds: SAS Fortune fund”