Naira Devaluation Drives Nearly Threefold Surge in Dollar Fund Assets
Detailed Summary:
The value of dollar-based investment funds in Nigeria has significantly surged, reaching N1.67 trillion by September 2024, nearly tripling from N550.5 billion recorded in the same period in 2023. This 187% growth is attributed to the naira’s devaluation, reflecting the dominance of dollar-denominated funds in Nigeria’s mutual fund market, according to an analysis of Securities and Exchange Commission (SEC) data by BusinessDay. The naira’s depreciation, from N768 per dollar in September 2023 to N1,668.97 by late September 2024, has led to a substantial rise in naira-denominated value of dollar funds.
Investment researcher Abdulrauf Bello explained that the increased dollar fund values are likely due to the sharp rise in foreign exchange rates, with the naira beginning the year at N900 per dollar and moving to between N1,600 and N1,700. Investors are increasingly turning to dollar funds as these investments tend to outperform naira assets during inflationary pressures, offering better value retention than alternatives like treasury bills and bonds.
Money Market Funds:
The Money Market Fund category also grew, with a 63.2% increase in net asset value, totaling N1.39 trillion from N852.62 billion last year. Portfolio manager Opeyemi Babalola noted that investors favored money market funds for their higher yields and relatively lower capital depreciation risk. These funds attracted significant investments, aided by an 850-basis-point hike in Nigeria’s Monetary Policy Rate (MPR) from the Central Bank of Nigeria (CBN), which boosted short-term returns.
Bond and Fixed Income Funds:
Bond and fixed income funds, however, faced declines in net asset value, dropping to N215.02 billion in 2024 from N300.15 billion in 2023. According to Babalola, bond prices fluctuate daily, exposing investors to depreciation risks, which led some to shy away from this category.
Equity and Ethical Funds:
Equity-based funds saw an increase in net asset value, from N22.35 billion to N28.73 billion, reflecting the 31.7% rise in the Nigerian All-Share Index. Ethical funds, investing in assets guided by social and governance criteria, returned an average yield of 23.08%, with a net asset value of N5.37 billion, despite having only three registered listings with the SEC.
Detailed Summary:
The value of dollar-based investment funds in Nigeria has significantly surged, reaching N1.67 trillion by September 2024, nearly tripling from N550.5 billion recorded in the same period in 2023. This 187% growth is attributed to the naira’s devaluation, reflecting the dominance of dollar-denominated funds in Nigeria’s mutual fund market, according to an analysis of Securities and Exchange Commission (SEC) data by BusinessDay. The naira’s depreciation, from N768 per dollar in September 2023 to N1,668.97 by late September 2024, has led to a substantial rise in naira-denominated value of dollar funds.
Investment researcher Abdulrauf Bello explained that the increased dollar fund values are likely due to the sharp rise in foreign exchange rates, with the naira beginning the year at N900 per dollar and moving to between N1,600 and N1,700. Investors are increasingly turning to dollar funds as these investments tend to outperform naira assets during inflationary pressures, offering better value retention than alternatives like treasury bills and bonds.
Money Market Funds:
The Money Market Fund category also grew, with a 63.2% increase in net asset value, totaling N1.39 trillion from N852.62 billion last year. Portfolio manager Opeyemi Babalola noted that investors favored money market funds for their higher yields and relatively lower capital depreciation risk. These funds attracted significant investments, aided by an 850-basis-point hike in Nigeria’s Monetary Policy Rate (MPR) from the Central Bank of Nigeria (CBN), which boosted short-term returns.
Bond and Fixed Income Funds:
Bond and fixed income funds, however, faced declines in net asset value, dropping to N215.02 billion in 2024 from N300.15 billion in 2023. According to Babalola, bond prices fluctuate daily, exposing investors to depreciation risks, which led some to shy away from this category.
Equity and Ethical Funds:
Equity-based funds saw an increase in net asset value, from N22.35 billion to N28.73 billion, reflecting the 31.7% rise in the Nigerian All-Share Index. Ethical funds, investing in assets guided by social and governance criteria, returned an average yield of 23.08%, with a net asset value of N5.37 billion, despite having only three registered listings with the SEC.