Mutual funds March safari

Mutual funds victoriously turned the corners in March 2014. After having a lackluster spell in February, the equity and income funds emerged as the stars of the month. The commodity funds, however, were the main losers owing to dwindling gold prices.
Led by soaring equity market performance, equity mutual funds regained posted a gain of 5.46 percent during March compared to a loss of 3.09 percent in February. When weighed against the benchmark (KSE-100), equity funds outstripped the benchmark return by 12 bps during the month.
However, the index tracker funds (which track KSE-100 performance) failed to successfully track the benchmark. The average return of these funds trailed behind the benchmark by 125bps during the month. Asset allocation funds remained another beneficiary of rising equity market, as the average return for this category perked up from a loss 0.64 percent in February to a gain 1.29 percent in March.
Gains in equity market also fared well for balanced funds. These funds were able to reverse their fortunes from a loss of over 2 percent in February to a gain of 3.46 percent in March 2014. The fund of funds scheme generated a return of 2.81 percent from a loss of 1.97 percent in the preceding month, as it was backed by sharpened performance in the equity and fixed-income markets.
Commodity funds (gold funds), which bank on gold price movement, faced tough time during the month as these funds landed in red on the back of sliding gold prices post-February. Average return for this category posted a loss 0.95 percent in March compared to a remarkable gain of 6.19 percent in the preceding month.
With the gradual twist in macros, the fate of fixed-income instruments shifted gears where the market participants tilted their interests towards longer term bonds, i.e. PIBs. Consequently, PIB allocation throughout the market increased rapidly. As a result of this shift, market participants were able to expand their net interest margins by roughly 2 percent. Consequently, income funds witnessed a notable increase of over 400bps to 12.82 percent during the period.
For the reasons that aggressive income funds can increase their duration by a higher proportion than income funds and have the flexibility to invest in longer tenors, the average return of aggressive income funds surged by nearly two folds to 14.10 percent.
Despite gradual decline in the prices of short-term T-bills, which slightly battered the returns of money market funds, the average return of money market funds managed to increase by a meagre 48bps.
Going forward, fixed-income experts anticipate the fixed-income funds, including income and aggressive funds, to continue to soar as the government seems determined to increase its exposure in PIBs on the heels of pressure from IMF to reduce its borrowing from SBP.
By the same token, positive developments on the privatisation front, and issuance of Eurobonds and 3G auction, are expected to further trigger the performance of local bourse. That, in turn, is anticipated to augur well for equity funds.