Mutual Funds performance review – May 2017

The month of May was action-packed especially for the equity market. At the start of the month, the market saw the continuation of the post-panama verdict rally. In the second week, focus shifted towards the announcement updated MSCI list of large, mid and small cap scrips, which were going to be the added the emerging index. While during the last week, two major events unfolded. Firstly, the federal budget that disappointed the market participants with additional taxes on dividend and capital gain. Secondly, the re-balancing of MSCI emerging market and frontier market index funds.

Amidst all this activity, the benchmark KSE-100 closed the month with an increase of 2.6 percent. The index was up about 6.3 percent during the first two weeks of the month but negative reaction after the budget announcement and excessive foreign selling during the re-balancing day shaved off 4 percent from the index.

According to the data provided by MUFAP (Mutual Funds Association of Pakistan), conventional equity funds gave an average return of 3.4 percent compared to 2.6 percent return of KSE-100 index. The top performing fund in this category was HBL Energy Fund with a return of 6.40 percent followed by JS Large Cap Fund with a return of 4.70 percent.

In the shariah compliant equity funds category, the average return was 3.35 percent, while Islamic benchmark index KMI-30 went up 3.5 percent. NAFA Islamic Energy Fund was the top performing fund in this category with a return of 5.85 percent. The second best performing fund in this category was Alfalah GHP Islamic Stock Fund with a return of 5.57 percent.

Out performance of the funds in both categories was due to positions in stocks such as Sui Northern Gas Pipeline (PSX: SNGP), Engro Corporation (PSX: ENGRO), International Steels (PSX: ISL), Thal Limited (PSX: THALL), Pak Elektron (PSX: PAEL) and Pak Suzuki (PSX: PAEL).

The overall volatility in the market has increased significantly around the 50,000 points level. Most of the short term positive triggers have also played out and result season is two months away. Looking forward the market should consolidate at these levels especially during Ramadan where activity tends to get slow. The end of the fiscal year is also near so profit realization by banks and mutual funds in the wake of healthy returns over the last eleven months cannot be ruled out.