These funds never lost money in the past 5 years

Mutual funds

Warren Buffet has been known to be one of the greatest investors ever. His prowess in stock picking and value investing earned him the nickname, “the Oracle of Omaha”. When he speaks, the market listens. Buffet has and follows some investment rules.

His rule number one is, “Never Lose Money” and his rule number two is “do not forget rule number one”. The fact that rule number two is a reminder of rule number one underscores the importance of rule number one.

Ordinarily, no one plans or wants to lose money in an investment venture, but like the Americans would say, “Shit happens”. Selecting investments that are always winners is not an easy task unless you are Warren Buffet.

However, research analysts at Quantitative Financial Analytics have combed through the Nigerian mutual fund industry in search of funds that have not lost money. There does not appear to be any, but they have identified 7 funds that have not lost money, on a calendar year basis, since 2012, a period of 5 years and they include:

FBN Heritage Fund

This N3.8 billion fund seeks to maximize investors return and is being managed by Laura Fisoyo-Kolawale, CFA and Kike Mesubi, CFA.  The fund has delivered consistently positive return to investors since 2012 and has beaten the NSE All share index (ASI) in 3 of those five years. The fund seems to be a good protection against downside risk as the years that it beat the stock market were years when the market did poorly.

However, it does seem to have its upside limit because it fails to beat the market in periods when the market did pretty good. For example, in 2012,2013 and 2017 when the ASI returned 34.81%, 54.96%, and 42.3% respectively, FBN Heritage Fund returned 20.69%,16.74%, and 35.63%, thereby underperforming the market.

In 2014 through 2016 when the ASI generated negative returns of -16.14% for 2014, -17.36% for 2015 and -6.17% for 2016, the fund handed its unitholders positive returns of 1.22%, 2.98%, and 5.72% respectively. This could be because of its almost 50/50 asset allocation to equities and fixed income securities and its low and negative correlation with the broad market index. With a correlation of -.24, the fund moves the opposite direction with the market.

FBN Heritage Fund charges a management fee of 1.5% and has an expense ratio of 1.69%. For those who want to hedge against downside risk, this may be the fund to investigate. The fund has a risk level of 3.39 and reward of 4.17, putting it into the category of low-risk low return fund.

Nigeria International Debt Fund

The Nigeria International Debt Fund originally created as a closed-ended fund in 1997 but restructured in 2010 to an open-ended fund invests in Federal and State government bonds. The fund has the objective to reduce risk and offer safety while proving steady returns to investors.

The Nigeria International Debt fund has been consistent in handling unit holders positive returns, thanks to its dividend distribution which helps to shore up its total return. The fund generated a cumulative total return of 64.88% over the last five years beating the stock market three of those years but not on aggregate terms.

The fund is a low risk (1.63) and moderate reward (6.33) fund but it is positively correlated to the market with a very low correlation coefficient of .01.

Zenith Income Fund

Zenith Income Fund invests predominantly in fixed income financial instruments like government bonds and treasury bills. Zenith Capital is one of the least transparent fund managers in Nigeria.

This analysis is based purely on calculations by Quantitative Financial Analytics and emails to the fund manager for confirmation were not responded to. Zenith Income Fund has generated positive returns over the past 5 years totalling about 50.62% beating the market in three out the five years.

This is also a low-risk moderate return fund as Quantitative Financial Analytics’ analysis indicates that the fund has a risk of 1.03 and return of 7.39. With a correlation coefficient of .09, this fund is minimally affected by the events at the stock market.

Stanbic Absolute Fund

This fund is a member of the Stanbic IBTC Umbrella funds which includes the Stanbic IBTC Conservative and Stanbic IBTC Aggressive funds. The investment objective of the Stanbic IBTC Absolute fund is to ensure the preservation of capital with minimal risk. The Fund has been one of, if not, the most consistent mutual fund in Nigeria in terms of performance consistency.

Over the last five years, the fund generated a cumulative return of 65% within which period it never made a loss in any calendar year. Among the funds listed as having no loss for five years, this fund has the best risk-return profile of 0.43 risk and 13.74 return. It could, therefore, be classified as a low-risk high return fund.

The fund is also negatively correlated to the market as indicated by its correlation coefficient of -.2, meaning that the fund moves in the opposite direction with the market.

Stanbic IBTC Conservative Fund

Stanbic IBTC Conservative Fund invests to ensure the safety of funds as well as minimal exposure of investors to the equities market to benefit from the returns applicable to equities. The fund, whose asset allocation strategy is biased towards fixed income securities has consistently generated positive returns over the past 5 years culminating into a total of 76.75% return.

The fund is a low-risk high return fund, as a risk-return analysis conducted by Quantitative Financial Analytics indicates that the fund has a risk level of 1.71 and a return of 11.42.

Stanbic IBTC Bond Fund

Stanbic IBTC Bond Fund is a fund with the primary objective of achieving competitive returns by investing predominantly in high-quality bonds, other fixed income securities and money market instruments.

Within the last 5 years, Stanbic IBTC Bond Fund made a cumulative return of 63.62% and with a risk level of 1.37 but a reward of 9.3, it could be classified as a low-risk medium return fund. 

Stanbic IBTC Guaranteed Fund

Stanbic IBTC Guaranteed Fund with the objective of achieving both capital appreciation and capital preservation invests in a collection of high grade fixed income instruments with minimal exposure to equities.

Over the past five years, the fund garnered a cumulative return of 73.5%. With a risk level of .81 and return of 10.63, this fund is one of the low risk, medium return funds in Nigeria.

One common feature of these funds is that they are almost all negatively correlated with the broad market index, the ASI, they offer a cushion to investors when the market does badly and provide the benefits of diversification for those looking to build a portfolio of mutual funds.

(Nairametrics)

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