By Chinwendu Obienyi
Aided by investors’ strong preference for low risk, short term investment vehicles, money market funds in Nigeria rose by 14 per cent in the first five months of 2024, a coronation research weekly update revealed.
According to the report, the last 12 months and particularly the past five months have seen a transformation in naira-fixed income yields.
It stated that not only are Treasury bills realized at the Central Bank’s auctions high but they consistently rose during the reporting period.
It added that this translated to a 7 per cent rise in naira denominated mutual fund and a 14 per cent rise in money market funds.
Head of Research at Coronation Merchant Bank, Guy Czartoryski, said this has impacted money market funds and that much of the money invested in the funds has been used to purchase T-bills which has strongly influenced the yields of other securities and deposits which money market funds invest in.
He explained, “The average yield of 91-day T-bills at auction so far this year has been 15.0 per cent annualised, as opposed to an average of 5.2 per cent in 2023; the average yield for 1-year T-bill has been 23.3 per cent against an average of 13.3 per cent in 2023.
Historically, high market interest rates have been good for Money Market Funds as savers are attracted by yields. This matters to Nigeria’s fund management industry because Money Market fund make up the biggest slice of its Naira-denominated assets under management (AUM), accounting for 63 per cent of the total”.
Also speaking, Research analyst at Coronation Securities, Gbemisola Adeloikiki, said that the yields of money market funds do not move up immediately to match those of T-bills.
She explained that money market funds hold T-bills from previous auctions that have lower yields than those on offer and these need to mature before it reflects the yields in offer in the market.
“As T-bill rates hold up in the months ahead, Money Market fund yields are set to improve and attract more money, likely making 2024 a vintage year for the industry.
As time goes on (and as long as T-bill rates remain high) the advertised yields of Money Market funds will continue to improve this year”, she said.
The growth in money market funds often reflects a response to economic conditions that favor safer investments, such as periods of market volatility or uncertainty.
The rise could be attributed to higher interest rates, attractive yields, and a growing awareness of the benefits of money market funds as a stable investment option.