The 2014 was another tough year for the closed-end mutual funds as the demand remained sluggish despite being traded at reduced prices.
Data shows it has been a trend for last several years in the country’s stock market.
Analysts attributed the poor demand mainly to the lack of understanding about the mutual funds and distrust over fund managers.
Mutual fund industry is still at a nascent stage in Bangladesh, as it makes up very small market cap, which is only over 1% of total market cap of the Dhaka Stock Exchange.
According to analysis of the LankaBangla Securities, among 40 closed-end mutual funds, only one fund—First Prime Finance Mutual Fund One— was traded at a premium or above cost value while all other funds were traded at a discounted or below-cost value in the just concluded year.
Most close-end funds were traded at 42% discounts to net asset value, which clearly indicates that there is a lack of demand for such funds.
The performance of funds was somewhat better in 2013 when only six out of 39 mutual funds were traded at a premium.
Mutual funds, usually operated by professional fund managers, is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
NAV represents a fund’s per share market value.
The industry’s price ratio to NAV stood at 0.58%, meaning that the closed end mutual fund industry of Bangladesh were traded at 42% discount to its net asset value in 2014, which is lucrative for investment, said the analysis.
In 2013, the industry’s price ratio to NAV was 0.76% and mutual funds were traded at 24% discount to its NAV.
“So, the industry exhibits undervaluation relative to NAV,” said LankaBangla. The industry registered a portfolio return of 13.8%, under performing the benchmark return of 14% in 2014, it said.
“The 2014 was another tough time for the industry due to continuous unsatisfactory performance of funds,” said Yawer Sayeed, a top fund manager. He manages closed-end funds.
Among the fund managers, the state-owned financial institution ICB was the best performer in terms of portfolio return as NAV of ICB fund has increased by 38.3%.
The second best performer was AIMS, achieving portfolio return of 20.2%, followed by VIPB 19.2%, ICB AMCL 13.9%, Race 12.9% and LR Global 3.9%.
About the funds deteriorated performance, VIPB Asset Management Company CEO Shahidul Islam said it was because either investors failed to understand the funds or didn’t trust fund managers.
“I think that investors’ distrust in the fund manager is perhaps the main reason behind the current predicament of the industry,” he added.